10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2013

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to _____________

Commission File Number:0-53570

ActiveCare, Inc.

(Exact name of registrant as specified in its charter)

Delaware	87-0578125
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1365 West Business Park Drive Orem, UT (Address of principal executive offices)	84058 (Zip Code)

(877) 219-6050

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes x    No o 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o  (Do not check if a smaller reporting company)	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)  Yes o    No  x

As of August 27, 2013, the registrant had 11,919,343 shares of common stock outstanding.

ActiveCare, Inc.

Quarterly Report on Form 10-Q

Table of Contents

	Page
PART I – FINANCIAL INFORMATION	3
Item 1.  Financial Statements	3
Condensed Consolidated Balance Sheets (unaudited)	3
Condensed Consolidated Statements of Operations (unaudited)	5
Condensed Consolidated Statements of Cash Flows (unaudited)	6
Notes to Condensed Consolidated Financial Statements (unaudited)	8
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of  Operations	26
Item 3.  Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.  Controls and Procedures	32
PART II – OTHER INFORMATION	33
Item 1.  Legal Proceedings	33
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.  Defaults Upon Senior Securities	34
Item 5.  Other Information	34
Item 6.  Exhibits	35
SIGNATURES	36

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PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements

ActiveCare, Inc.
Condensed Consolidated Balance Sheets (unaudited)
	June 30, 2013		September 30, 2012
Assets
Current assets:
Cash	$	122,330	$	529,839
Accounts receivable, net of allowance for doubtful accounts of $30,524 and $20,195, respectively		8,205,185		644,974
Inventories, net of valuation allowances of $0 and $4,984, respectively		1,048,649		290,768
Prepaid expenses and other		20,976		7,277
Total current assets		9,397,140		1,472,858
Customer contracts, net of accumulated amortization of $727,103 and $102,330, respectively		1,642,779		2,267,552
Goodwill		825,894		825,894
Patents, net of accumulated amortization of $323,741 and $228,587, respectively		598,637		693,790
Equipment leased to customers, net of accumulated depreciation of$274,307 and $144,905, respectively		403,034		312,993
Property and equipment, net of accumulated depreciation of $198,675 and $625,401, respectively		234,968		266,078
Deposits and other		105,841		24,634
Domain name, net of accumulated amortization of $2,681 and $2,145, respectively		11,619		12,155
Total assets	$	13,219,912	$	5,875,954

See accompanying notes to condensed consolidated financial statements.

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ActiveCare, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(Continued)
	June 30, 2013			September 30, 2012
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	6,859,401		$	1,132,611
Accounts payable, related-party		220,438			150,395
Accrued expenses		1,715,784			2,104,623
Derivatives liability		-			4,015,855
Current portion of notes payable		3,536,216			2,569,221
Current portion of notes payable, related-party		3,676,810			1,563,923
Deferred revenue		50,104			61,608
Dividends payable		80,338			18,322
Total current liabilities		16,139,091			11,616,558
Notes payable, net of current portion		2,523,239			1,804,929
Notes payable, related-party, net of current portion		1,677,211			169,857
Total long-term liabilities		4,200,450			1,974,786
Total liabilities		20,339,541			13,591,344
Stockholders’ deficit:
Preferred stock, $.00001 par value: 10,000,000 shares authorized; 480,000 and 480,000 shares of Series C; and 818,201 and 386,103 shares of Series D, outstanding, respectively		13			9
Common stock, $.00001 par value: 50,000,000 shares authorized; 6,026,996 and 4,636,977 shares outstanding,  respectively		60			46
Additional paid-in capital		39,606,073			29,643,769
Accumulated deficit		(46,725,775	)		(37,359,214	)
Total stockholders’ deficit		(7,119,629	)		(7,715,390	)
Total liabilities and stockholders’ deficit	$	13,219,912		$	5,875,954

See accompanying notes to condensed consolidated financial statements.

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ActiveCare, Inc.
Condensed Consolidated Statements of Operations (unaudited)
	Three Months Ended						Nine Months Ended
	June 30						June 30
	2013			2012			2013			2012
Revenues:
Chronic illness monitoring	$	3,912,300		$	230,625		$	10,121,916		$	233,743
CareServices		415,377			66,035			1,292,178			190,662
Total revenues		4,327,677			296,660			11,414,094			424,405
Cost of revenues:
Chronic illness monitoring		2,853,557			169,264			7,438,980			170,544
CareServices		560,205			165,038			2,027,829			495,743
Total cost of revenues		3,413,762			334,302			9,466,809			666,287
Gross margin (deficit)		913,915			(37,642	)		1,947,285			(241,882	)
Operating expenses:
Selling, general and administrative (including $678,596, $61,563, $2,181,098 and $4,185,673, respectively, of stock-based compensation)		2,733,452			793,232			7,606,290			6,145,136
Research and development		121,011			63,906			589,723			112,807
Total operating expenses		2,854,463			857,138			8,196,013			6,257,943
Loss from operations		(1,940,548	)		(894,780	)		(6,248,728	)		(6,499,825	)
Other income (expense):
Gain (loss) on derivatives liability		-			(1,320,918	)		45,697			(1,346,174	)
Interest expense, net		(1,065,414	)		(223,379	)		(2,856,397	)		(459,195	)
Loss on disposal of property and equipment		(101,421	)		-			(101,421	)		-
Other income (expense)		(2,636	)		-			12,795			-
Total other expense, net		(1,169,471	)		(1,544,297	)		(2,899,326	)		(1,805,369	)
Net loss from continuing operations		(3,110,019	)		(2,439,077	)		(9,148,054	)		(8,305,194	)
Loss from discontinued operations		(12,301	)		(3,629	)		(5,312	)		(104,968	)
Net loss		(3,122,320	)		(2,442,706	)		(9,153,366	)		(8,410,162	)
Dividends on preferred stock		(79,219	)		(14,057	)		(213,192	)		(40,842	)
Net loss attributable to common stockholders	$	(3,201,539	)	$	(2,456,763	)	$	(9,366,558	)	$	(8,451,004	)
Net loss per common share - basic and diluted
Continuing operations	$	(0.59	)	$	(0.55	)	$	(1.91	)	$	(2.00	)
Discontinued operations		(0.00	)		(0.00	)		0.00			(0.03	)
Net loss per common share	$	(0.59	)	$	(0.55	)	$	(1.91	)	$	(2.03	)
Weighted average common shares outstanding – basic and diluted		5,424,000			4,434,600			4,909,000			4,153,500

SeSee accompanying notes to condensed consolidated financial statements.

5

ActiveCare, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
	Nine Months Ended
	June 30,
	2013			2012
Cash flows from operating activities:
Net loss	$	(9,153,366	)	$	(8,410,162	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		926,671			231,353
Derivative valuation (gain) loss		(45,697	)		1,346,174
Stock-based compensation expense		2,181,098			4,185,673
Stock issued for interest expense		751,220			-
Amortization of debt discounts		789,450			306,130
Loss on disposal of property and equipment		101,421			-
Gain on sale of discontinued operations		(55,096	)		-
Changes in operating assets and liabilities:
Accounts receivable		(7,643,169	)		(162,370	)
Inventories		(811,381	)		(26,120	)
Prepaid expenses and other assets		(13,699	)		(162	)
Accounts payable		5,988,622			217,198
Accrued expenses		560,642			377,796
Deferred revenue		(11,504	)		6,004
Deposit		(81,207	)		-
Net cash used in operating activities		(6,515,995	)		(1,928,486	)
Cash flows from investing activities:
Purchases of property and equipment		(162,712	)		(1,224	)
Purchases of equipment leased to customers		(225,981	)		(6,505	)
Proceeds from sale of discontinued operations		184,318			-
Proceeds from sale of equipment		4,900			-
Acquisition of 4G Biometrics, LLC		-			(200,000	)
Net cash used in investing activities		(199,475	)		(207,729	)
Cash flows from financing activities:
Principal payments on related-party notes payable		(191,831	)		(85,000	)
Net proceeds from related-party notes payable		1,990,799			920,000
Net proceeds from  notes payable		5,386,746			1,200,000
Principal payments on notes payable		(877,753	)		-
Net cash provided by financing activities		6,307,961			2,035,000
Net decrease in cash		(407,509	)		(101,215	)
Cash, beginning of the period		529,839			178,131
Cash, end of the period	$	122,330		$	76,916

See accompanying notes to condensed consolidated financial statements.  

6

ActiveCare, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
Continued
	Nine Months Ended
	June 30,
	2013		2012
Supplemental Cash Flow Information:
Cash paid for interest	$	575,317	$	5,448
Non-Cash Investing and Financing Activities:
Issuance of stock for purchase of patents	$	-	$	622,378
Issuance of stock for accrued dividends		151,176		-
Issuance of stock for settlement of liabilities		865,552		612,000
Conversion of note payable into common stock		100,000		92,400
Conversion of note payable into Series D Preferred Stock		-		110,000
Issuance of derivatives liability		514,643		-
Reclassification of derivatives liability to equity		4,484,801		-
Dividends on preferred stock		213,195		-
Conversion of notes payable to debentures		1,920,797		-

See accompanying notes to condensed consolidated financial statements.

7

ActiveCare, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Basis of Presentation

The unaudited interim condensed consolidated financial statements of ActiveCare, Inc. (the “Company” or “ActiveCare”) has been prepared in accordance with Article 8 of Regulation S-X promulgated by the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying interim condensed consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company’s financial position as of June 30, 2013, and the results of its operations and its cash flows for the three and nine months ended June 30, 2013 and 2012. These financial statements should be read in conjunction with the annual consolidated financial statements and notes thereto that are included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2012. The results of operations for the three and nine months ended June 30, 2013 may not be indicative of the results for the full fiscal year ending September 30, 2013.

During the quarter ended June 30, 2013, the Company announced a 10-for-1 reverse common stock split. The condensed consolidated financial statements and notes for all periods presented have been retroactively adjusted to reflect the reverse common stock split.

Going Concern

Although the Company had a positive gross margin for the three and nine months ended June 30, 2013, it incurred negative gross margins, working capital and cash flows from operating activities for the fiscal years ended September 30, 2012 and 2011, and had negative working capital and cash flows from operating activities for the nine months ended June 30, 2013. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

In order for the Company to remove substantial doubt about its ability to continue as a going concern, it must continue to improve gross margins, generate positive cash flows from operating activities and obtain the necessary debt or equity funding to meet its projected capital investment requirements. Management’s plans with respect to this uncertainty include raising additional capital by issuing equity securities and increasing the sales of the Company’s services and products. There can be no assurance that the Company will be able to raise sufficient capital or that revenues will increase rapidly enough to offset operating losses and repay debts as they come due. If the Company is unable to increase revenues or obtain additional financing, it will be unable to continue the development of its products and may have to cease operations.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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 these estimates.

Fair Value of Financial Instruments

The carrying amounts reported in the condensed consolidated balance sheets for accounts receivable, accounts payable, and accrued liabilities approximate fair value because of the immediate or short-term maturity of these financial instruments. The carrying amounts reported for notes payable approximate fair value because the underlying instruments are at interest rates which approximate current market rates.

US GAAP defines fair values as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date. Additionally, the inputs used to measure fair value are prioritized based on a three-level hierarchy. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

8

· Level 1 — Quoted prices in active markets for identical assets or liabilities.

· Level 2 — Observable inputs other than quoted prices included in Level 1. Assets and liabilities included in this level are valued using dealer and broker quotations, bid prices, quoted prices for similar assets and liabilities in active markets, or other inputs that are observable or can be corroborated by observable market data.

· Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

In valuing certain contracts, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. For disclosure purposes, assets and liabilities are classified in their entirety in the fair value hierarchy level based on the lowest level of input that is significant to the overall fair value measurement. The assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement within the fair value hierarchy levels.

2. Discontinued Operations

In June 2013, the Company sold its assets and liabilities related to the Reagents segment (Reagents).  This segment was engaged in the business of manufacturing and marketing medical diagnostic stains, solutions and related equipment to hospitals and medical testing labs.  The purchaser was a former employee.  The sale was solely the Company's Reagents business and not any business related to any of the Company's other segments.

As of June 30, 2013, the Company no longer holds any ownership interest in the Reagents segment and has ceased incurring costs related to its operations and development. The sale included all applicable segment assets and liabilities including, accounts receivable, inventory, accounts payable, property, equipment and leased equipment.  The purchaser also assumed the lease for general office and warehouse space.

As a result of the sale of the Reagents business, the Company has reflected this segment as discontinued operations in the condensed consolidated financial statements for the three and nine months ended June 30, 2013 and 2012.

The following table summarized certain operating data for discontinued operations for the three and nine months ended June 30, 2013 and 2012:

	Three months ended						Nine months ended
	June 30,						June 30,
	2013			2012			2013			2012
Revenues	$	97,147		$	135,636		$	351,645		$	357,374
Cost of revenues		(130,797	)		(94,330	)		(300,396	)		(291,137	)
Gross margin (deficit)		(33,650	)		41,306			51,249			66,237
Selling, general and administrative		(33,747	)		(44,935	)		(111,657	)		(171,205	)
Loss from discontinued operations		(67,397	)		(3,629	)		(60,408	)		(104,968	)
Gain on sale of assets		55,096			-			55,096			-
Net loss from discontinued operations		(12,301	)		(3,629	)		(5,312	)		(104,968	)

3. Net Loss per Common Share

Net loss per common share is computed by dividing net loss attributable to common stockholders by the sum of the weighted average number of common shares outstanding and the weighted-average dilutive common share equivalents outstanding.  The computation of net loss per common share does not assume exercise or conversion of securities that would have an anti-dilutive effect.

Common share equivalents consist of shares of common stock issuable upon the exercise of stock options, stock purchase warrants and the conversion of convertible preferred stock or debt instruments.  As of June 30, 2013 and 2012, there were 14,813,664 and 5,713,756 outstanding common share equivalents, respectively, that were not included in the computation of diluted net loss per common share as their effect would be anti-dilutive. The anti-dilutive common stock equivalents outstanding as of June 30, 2013 and 2012 consisted of the following:

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	June 30,  2013		June 30,  2012
Common stock options and warrants		3,911,887		1,386,587
Series D convertible preferred stock		4,241,005		275,000
Series C convertible preferred stock		480,000		480,000
Convertible debt		6,164,072		3,508,469
Restricted shares of common stock		16,700		63,700
Total common stock equivalents		14,813,664		5,713,756

4. Recent Accounting Pronouncements

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements will have a material impact on the Company’s financial position, results of operations, or liquidity.

5. Acquisitions

4G Biometrics, LLC

On March 8, 2012, the Company acquired 4G Biometrics, LLC, a Texas limited liability company (“4G”).  Pursuant to the acquisition agreement, the Company acquired 100 percent of the member interests of 4G and 4G is operated as a wholly owned subsidiary of the Company.  As amended, the purchase consideration for the member interests of 4G was comprised as follows:

· $350,000 in cash;

· The assumption of $50,000 of accounts payable and accrued liabilities;

· 160,000 shares of Series D convertible preferred stock;

· Options for the purchase of up to 433,333 shares of common stock of the Company at $1.00 per share to each of the three sellers with vesting as follows:

o Options for 43,333 shares vest when 4G has 9,300 members

o Options for another 43,333 shares vest when an additional 5,000 4G members are added, or a total of 14,300 members;

o Options for another 43,333 shares vest when an additional 5,000 4G members are added, or a total of 19,300 members;

o Options for another 43,333 shares vest when an additional 5,000 4G members are added, or a total of 24,300 members; and

o so forth until fully vested.

As of June 30, 2013, options to purchase 520,000 shares of common stock have vested.

Three of the 4G key operational managers are under two-year written employment agreements with the Company.

Under the purchase method of accounting, the purchase price was allocated to 4G’s assets and assumed liabilities based on their estimated fair values as of the closing date of the acquisition.  The excess of the purchase price over the fair values of the net assets acquired was recorded as goodwill.

The purchase price for 4G reflects total consideration paid of $1,040,000, of which $825,894 was allocated to goodwill and $214,106 was allocated to customer contracts.

10

GWire

During fiscal year 2012, the Company established GWire Corporation (“GWire”) as a subsidiary.  Effective September 1, 2012, GWire acquired the assets and assumed certain liabilities of Green Wire, LLC, Green Wire Outsourcing, Inc., Orbit Medical Response, LLC, and Rapid Medical Response, LLC (collectively, “Green Wire”).  The Company entered into employment agreements with two of Green Wire’s operating managers on November 1, 2012. These two individuals were granted 27% ownership in GWire and ActiveCare retained the remaining 73%.  The purchase consideration for Green Wire consisted of the following:

· $2,236,737 in the form of a note payable with a 36-month term (including imputed interest at 12%); and

· 20,000 shares of ActiveCare’s Series D convertible preferred stock, valued at $40,000.

Under the purchase method of accounting, the purchase price for Green Wire was allocated to the assets purchased and liabilities assumed based on their estimated fair values as of the closing date of the acquisition.

The purchase price for Green Wire reflects total consideration paid of $2,276,737, which has been allocated to $12,215 of cash, $13,976 of accounts receivable, $92,022 of property and equipment, $16,964 of deposits and other assets, $229,249 of leased equipment, $2,155,776 of customer contracts, $154,206 of accounts payable, $55,117 of accrued expenses and $34,142 of deferred revenue.

During the nine months ended June 30, 2013, the two operating managers converted their 27% ownership in GWire and 425,000 of related options into 425,000 shares of the Company’s common stock as discussed further in Note 15.  As a result, the Company owns 100% of GWire as of June 30, 2013.

6. Inventories

Inventories are recorded at the lower of cost or market value, cost being determined using the first-in, first-out (“FIFO”) method. Inventories consisted of raw materials, work-in-process, and finished goods as of June 30, 2013 and September 30, 2012 as follows:

	June 30,  2013		September 30, 2012
Chronic Illness Monitoring
Finished goods	$	991,957	$	185,884
CareServices
ActiveHome™		56,692		56,767
Reagents
Raw materials		-		41,195
Work in process		-		5,745
Finished goods		-		6,161
Reserves for obsolescence and valuation		-		(4,984	)
Total inventories	$	1,048,649	$	290,768

When required, provisions are made to reduce excess and obsolete inventories to their estimated net realizable values.  Due to competitive pressures and technological innovation, it is possible that estimates of the net realizable values could change in the near term.  During the nine months ended June 30, 2013, the Company disposed of $53,500 of inventory as part of the sale of its Reagents segment.

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7. Customer Contracts

During the fiscal year ended 2012, the Company recorded customer contracts of $2,369,882 acquired in its purchase of  4G and Green Wire.  The Company is amortizing the customer contracts over their estimated useful lives.  The Company recognized $624,773 and $13,837 of amortization expense for the nine months ended June 30, 2013 and 2012, respectively.  The net balance of customer contracts was $1,642,779 and $2,267,552 as of June 30, 2013 and September 30, 2012, respectively.  The Company’s future customer contract amortization as of June 30, 2013, is as follows:

Years Ending September 30,
2013	$	208,257
2014		833,030
2015		601,492
	$	1,642,779

8. Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation and amortization.  Depreciation and amortization are determined using the straight-line method over the estimated useful lives of the assets, typically three to seven years.  Leasehold improvements are amortized over the shorter of the estimated useful lives of the asset or the term of the lease.  Expenditures for maintenance and repairs are expensed while renewals and improvements over $500 are capitalized.  Upon the sale or disposal of property and equipment, any gains or losses are included in the results of operations.

Property and equipment consisted of the following as of June 30, 2013 and September 30, 2012:

	June 30,  2013			September 30, 2012
Leasehold improvements	$	93,913		$	402,016
Equipment		250,347			374,229
Software		65,836			65,111
Furniture		23,547			50,123
Total gross property and equipment		433,643			891,479
Accumulated depreciation and amortization		(198,675	)		(625,401	)
Property and equipment, net	$	234,968		$	266,078

Assets to be disposed of are reported at the lower of the carrying amounts or fair values, less the estimated costs to sell or dispose.  During the nine months ended June 30, 2013 and 2012, the Company recorded a loss on the disposal of assets of $101,421 and $0, respectively, and disposed of $25,832 of assets related to the sale of the Reagents segment during the nine months ended June 30, 2013. Depreciation expense for the nine months ended June 30, 2013 and 2012 was $71,772 and $46,800, respectively.

9. Equipment Leased to Customers

Equipment leased to customers as of June 30, 2013 and September 30, 2012 was as follows:

	June 30,  2013			September 30, 2012
Leased equipment	$	677,341		$	457,898
Accumulated depreciation		(274,307	)		(144,905	)
Leased equipment, net	$	403,034		$	312,993

The Company leases monitoring equipment to customers for the CareServices segment.  The leased equipment is depreciated using the straight-line method over its estimated useful life of  three years regardless of whether the equipment is leased to a customer or remaining in stock.  Customers have the right to cancel the service agreements at any time.

Assets to be disposed of are reported at the lower of the carrying amounts or fair values, less the estimated costs to sell.  During the nine months ended June 30, 2013 and 2012, the Company recorded as cost of revenues the disposal of equipment leased to customers of $1,500 and $9,166, respectively. Depreciation expense for equipment leased to customers is recorded as cost of revenues for CareServices and depreciation for the nine months ended June 30, 2013 and 2012 totaled $134,442 and $42,974, respectively.

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10. Patent License Agreement

During fiscal year 2009, the Company licensed the use of certain patents from a third party.  Under the license agreement, the Company was required to pay $300,000 plus a 5% royalty on the net revenues of all licensed products. As of September 30, 2009, the Company had capitalized the initial license fee as a long-term asset and had recorded a corresponding current liability as the fee was not yet paid.

During fiscal year 2012, the Company agreed to purchase the related patents and settle amounts owed under the license agreement by issuing 60,000 shares of common stock and 480,000 shares of Series C preferred stock to the licensor.  The patents were valued at $922,378, based on a valuation performed by an independent valuation expert.  The value of the common stock issued was $240,000, based on the market price of the common stock on the date of issuance. The implied value of the Series C preferred stock was $682,378, which was based on the difference between the value of the patents and the common stock issued in settlement of the existing liability.

The Company is amortizing the patents over their remaining useful lives (through 2018).  The Company recognized $95,153 and $196,870 of amortization expense for the nine months ended June 30, 2013 and 2012, respectively.  The net balance of the patents was $589,637 and $693,790 as of June 30, 2013 and September 30, 2012, respectively.

The Company’s future patent amortization as of June 30, 2013, is as follows:

Years Ending September 30,
2013	$	31,717
2014		126,870
2015		126,870
2016		126,870
2017		126,870
Thereafter		59,440
	$	598,637

11. Notes Payable

As of June 30, 2013 and September 30, 2012, the Company had the following notes payable outstanding:  

	June 30,  2013		September 30, 2012
Note payable to the former owners of Green Wire, secured by customer contracts, imputed interest rate equal to 12%, with monthly installments over a 36-month term.  During the quarter ended March 2013, the Company agreed to issue 15,000 shares of common stock to the lenders to extend two past due payments without late penalty.  The common stock has a value of $24,000 at the date of grant, which will be amortized over the remaining life of the loan.	$	1,935,578	$	2,236,737
Series A debenture loans payable, secured by customer contracts and payable in 36 monthly installments, maturing between September and December 2015. The loans bear interest at 12% and are convertible into common stock after 180 days.  After payment of principal and interest, the holders of the Series A and Series B debentures (see Note 12), as a class, are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company’s gross profits payable for the two-year period commencing at the maturity date; provided that no royalties are payable following conversion of any Series A or Series B debenture to the holder thereof.  The Company has the right to buy out each lender's royalty by paying the respective lender $20,000 for every $25,000 loaned.  The note includes a beneficial conversion feature valued at $901,000 at inception, which the Company is amortizing over the life of the loan.  The feature had an unamortized value of $794,667 as of June 30, 2013.		2,790,152		300,000
Unsecured note with interest at 15% (18% after due date), due November 2012, currently in default. In connection with the loan, the Company issued 60,000 shares of Series D preferred stock as a loan origination fee with a total fair value of $150,000.  The note is guaranteed by the Company’s Chief Executive Officer.		1,500,000		1,500,000
Unsecured note with interest at 15%, due March 2013, currently in default. Note included a $25,000 loan origination fee.  In connection with the loan, the Company issued 100,000 shares of common stock as a loan origination fee with a total fair value of $70,000 at date of grant.		175,000		275,000

13

	June 30,  2013			September 30, 2012
Unsecured notes with annual interest rate at 15% (18% after due date), due March and April 2013, respectively, currently in default.  The Company issued 20,000 shares of Series D preferred stock as loan origination fees with total fair value on the date of grant of  $195,000.	$	225,000		$	-
Unsecured note with interest at 12%, due March 2013, currently in default.		250,000			250,000
Total before discount and current portion		6,875,730			4,561,737
Less discount		(816,275	)		(187,587	)
Total notes payable		6,059,455			4,374,150
Less current portion		(3,536,216	)		(2,569,221	)
Total notes payable, net of current portion	$	2,523,239		$	1,804,929

12. Related-Party Notes Payable

As of June 30, 2013 and September 30, 2012, the Company had the following related-party notes payable outstanding:

	June 30,  2013		September 30, 2012
Unsecured note payable to an entity controlled by an officer of the Company.  The note payable incurred no interest and was converted into shares of common stock subsequent to June 30, 2013 (see Note 20).	$	1,235,000	$	-
Series B unsecured debenture loans payable to an entity controlled by an officer of the Company, including 10% loan origination fees totaling $78,587, payable in 36 monthly installments, maturing December 2015.  $421,499 of the debentures were issued to settle a $400,000 Series A secured debenture issued during the three months ended December 31, 2012.  Before the settlement, the prior Series A debenture had a total outstanding balance of $383,181 and $1,845 of accrued interest.  $442,598 of the Series B debenture was issued to settle two related-party notes payable totaling $165,000 and $6,889 of accrued interest, and a $230,800 related-party note payable issued during the three months ended December 31, 2012 to settle previously accrued expenses.  The Series B debenture loan bears interest at 12% and is convertible into common stock after 180 days. After payment of principal and interest, the holders of the Series B and Series A debentures, as a class, are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company’s gross profits payable for the two-year period commencing at the maturity date; provided that no royalties are payable following conversion of any Series A or Series B debenture to the holder thereof. The Company has the right to buy out the royalty by paying the lender $22,000 for every $25,000 loaned.  During the nine months ended June 30, 2013, the Company paid $40,336 of the loan principal but is late on certain monthly payments and the debenture is currently in default.		824,121		-
Unsecured notes payable to an entity controlled by an officer of the Company with interest at 15%, due September 30, 2013.  The notes include $60,000 of loan origination fees.		600,000		-

14

	June 30,  2013		September 30, 2012
Series B unsecured debenture loan payable to an entity controlled by an officer of the Company, including $64,227 in loan origination fees, payable in 36 monthly installments, maturing December 2015.  The debenture was issued to settle an outstanding note payable of $620,686 and $21,585 of related accrued interest.  The loan bears interest at 12% and is convertible into common stock after 180 days. After payment of principal and interest, the holders of the Series B and Series A debentures, as a class, are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company’s gross profits payable for the two-year period commencing at the maturity date; provided that no royalties are payable following conversion of any Series A or Series B debenture to the holder thereof.  The Company has the right to buy out the royalty by paying the lender $22,000 for every $25,000 loaned.  During the nine months ended June 30, 2013, the Company paid $16,401 of the loan principal. The debenture loan was converted to shares of common stock subsequent to June 30, 2013 (see Note 20).	$	690,098	$	-
Series B unsecured debenture loans owed to an officer of the Company, including $49,777 in loan origination fees, payable in 36 monthly installments, maturing December 2015 and January 2016.  $371,547 of the debentures were issued to settle two Series A debentures and $135,000 of accrued liabilities.  The original Series A debentures had a total outstanding balance of $202,098 and $672 of related accrued interest.  The loan bears interest at 12% and is convertible into common stock after 180 days. After payment of principal and interest, the holders of the Series B and Series A debentures, as a class, are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company’s gross profits payable for the two-year period commencing at the maturity date; provided that no royalties are payable following conversion of any Series A or Series B debenture to the holder thereof.  The Company has the right to buy out the royalty by paying the lender $22,000 for every $25,000 loaned.  During the nine months ended June 30, 2013, the Company paid $24,517 of the loan principal. One of the debentures includes a beneficial conversion feature valued at $8,800 at inception, which the Company is amortizing over the life of the loan.  The feature had an unamortized value of $7,360 as of June 30, 2013.  The debenture loan was converted to shares of common stock subsequent to June 30, 2013 (see Note 20).		523,029		-
Unsecured notes payable to an entity controlled by an officer of the Company, including $7,500 of loan origination fees added to the principal, interest at 12%, due August 2012. In the event of default, the note is convertible into common stock at $0.40 per share. During the three months ended March 31, 2013, the lender agreed to extend the maturity date to June 30, 2013 with an interest rate of 18% and 5,600 shares of Series D with fair market value of $56,252 at date of grant paid as a loan origination fee.  The note payable is currently in default.		82,500		543,278

15

	June 30,  2013		September 30, 2012
Series A debenture loans from a former CEO and Chairman of the Company, secured by customer contracts, payable in 36 monthly installments, maturing September and December 2015.  The loans bear interest at 12% and are convertible into common stock after 180 days. After payment of principal and interest, the holders of the Series B and Series A debentures, as a class, are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company’s gross profits payable for the two-year period commencing at the maturity date; provided that no royalties are payable following conversion of any Series A or Series B debenture to the holder thereof.  The Company has the right to buy out each royalty by paying the lender $20,000 for every $25,000 loaned.  During the nine months ended June 30, 2013, the Company paid $41,682 of the loan principal.  The debenture loan was converted to shares of common stock subsequent to June 30, 2013 (see Note 20).	$	327,514	$	244,196
Series A debenture loan from an officer of the Company, secured by customer contracts, payable interest only in the first 6 months and interest plus principal in the next 30 monthly installments, maturing January 2016.   The loan bears interest at 12% and is convertible into common stock after 180 days. After payment of principal and interest, the holders of the Series B and Series A debentures, as a class, are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company’s gross profits payable for the two-year period commencing at the maturity date; provided that no royalties are payable following conversion of any Series A or Series B debenture to the holder thereof. The Company has the right to buy out the royalty by paying the lender $20,000 for every $25,000 loaned.  The note includes a beneficial conversion feature valued at $250,000 at inception, which the Company is amortizing over the life of the loan.  The feature had an unamortized value of $210,695 as of June 30, 2013.  The debenture loan was converted to shares of common stock subsequent to June 30, 2013 (see Note 20).		250,000		-
Series A debenture loan from an entity controlled by an officer of the Company, secured by customer contracts, payable in 36 monthly installments, maturing December 2015.  The debenture was issued to settle a related-party note payable with an outstanding balance of $300,000 and $14,992 of related accrued interest.  The loan bears interest at 12% and is convertible into common stock after 180 days. After payment of principal and interest, the holders of the Series B and Series A debentures, as a class, are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company’s gross profits payable for the two-year period commencing at the maturity date; provided that no royalties are payable following conversion of any Series A or Series B debenture to the holder thereof.  The Company has the right to buy out the royalty by paying the lender $20,000 for every $25,000 loaned.  During the nine months ended June 30, 2013, the Company paid $14,698 of the loan principal but is late on certain monthly payments and the debenture is currently in default.		300,294		-
Unsecured notes payable to an entity controlled by an officer of the Company,  annual interest at 3% (18% after due date), due July 2013.  In the event of default, the note is convertible into common stock at $0.40 per share.		300,000		-
Unsecured notes payable to an entity controlled by an officer of the Company,  annual interest at 12% (18% after due date), due April 2013, currently in default.  In the event of default, the note is convertible into common stock at $0.40 per share.		200,000		-

16

	June 30,  2013		September 30, 2012
Series B unsecured debenture loans from entities controlled by an officer of the Company, including $68,914 in loan origination fees added to the principal of the loans, payable in 36 monthly installments, maturing December 2015 and January 2016.  $554,556 of the debenture was issued to settle a related-party note payable with a total outstanding balance of $460,778 and $43,364 of related accrued interest.  $35,000 of the loan was issued to settle an accrued service fee.  The loans bear interest at 12% and are convertible into common stock after 180 days. After payment of principal and interest, the holders of the Series B and Series A debentures, as a class, are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company’s gross profits payable for the two-year period commencing at the maturity date; provided that no royalties are payable following conversion of any Series A or Series B debenture to the holder thereof.  The Company has the right to buy out the royalty by paying the lender $22,000 for every $25,000 loaned.  During the quarter ended March 31, 2013, the Company issued 34,400 shares of Series D with fair market value of $343,748 at date of grant as additional loan origination fees, and the Company also paid $30,102 of the loan principal.  The Company is late on certain monthly payments and the debenture is currently in default.  The notes include beneficial conversion features valued at $167,000 at inception, which the Company is amortizing over the life of the loan.  The feature had an unamortized value of $140,975 as of June 30, 2013.	$	727,954	$	-
Series B debenture loan from an officer of the Company, secured by customer contracts, payable in 36 monthly installments, maturing June 2016.  The Company is late on certain monthly payments and the debenture is currently in default.  The loan bears interest at 12% and is convertible into common stock after 180 days. After payment of principal and interest, the holders of the Series B and Series A debentures, as a class, are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company’s gross profits payable for the two-year period commencing at the maturity date; provided that no royalties are payable following conversion of any Series A or Series B debenture to the holder thereof.  The Company has the right to buy out the royalty by paying the lender $20,000 for every $25,000 loaned.  The note includes a beneficial conversion feature valued at $72,600 at inception, which the Company is amortizing over the life of the loan.  The feature had an unamortized value of $70,679 as of June 30, 2013.		145,200		-
Unsecured note payable to an officer of the Company with interest at 12%, due September 30, 2013.  The loan is convertible into the Company's common stock at a rate of $0.75 per share, exercisable at any time.  The note includes a beneficial conversion feature valued at $22,820 at inception, which the Company is amortizing over the life of the loan.  The feature had an unamortized value of $15,104 as of June 30, 2013.		26,721		-
Unsecured notes payable with zero interest to an individual related to an officer of the Company.  The loan was repaid in full subsequent to June 30, 2013		60,000		-
Note payable to an officer of the Company with interest at 15%, due June 2012 and currently in default.  The note includes $3,000 of loan origination fees and is convertible into common stock at $0.50 per share.		33,000		33,000

17

	June 30,  2013		September 30, 2012
Series A debenture loan from an entity controlled by an officer of the Company, secured by customer contracts, payable in 36 monthly installments, maturing December 2015.  The debenture was issued to settle a related-party note payable with a total outstanding balance of $51,000 and $3,186 of related accrued interest.  The loan bears interest at 12% and is convertible into common stock after 180 days. After payment of principal and interest, the holders of the Series B and Series A debentures, as a class, are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company’s gross profits payable for the two-year period commencing at the maturity date; provided that no royalties are payable following conversion of any Series A or Series B debenture to the holder thereof.  The Company has the right to buy out the royalty by paying the lender $20,000 for every $25,000 loaned.  During the nine months ended June 30, 2013, the Company paid $2,528 of the loan principal.	$	51,657	$	-
Unsecured notes payable to a lender under the control of the Company’s CEO with a line of credit borrowing capacity of $2,000,000, interest at 12%, due July 2013. The notes were convertible into common stock at any time at $5.00 per share.  In connection with the notes payable, the Company issued 80,000 shares of Series D preferred stock (valued at $240,000).  The Company granted warrants to purchase 341,000 shares of common stock as a loan origination fee. These warrants vested immediately and are exercisable at $4.40 per share through November 3, 2016. The fair value of the warrants was $107,130, and was measured using a binomial valuation model with the following assumptions: exercise price $4.40; risk-free interest rate of .39%; expected life of 2.5 years; expected dividend of zero; a volatility factor of 134.57%; and market price on date of grant of $4.40.  During the fiscal year ended September 30, 2012, the Company re-priced the exercise price of the warrants from $4.40 to $1.00 per share.  During the three months ended December 31, 2012, the Company issued a Series A debenture payable to the lender in satisfaction of the outstanding balance of $620,687 plus $21,585 of accrued interest.  Upon the conversion of the note, the Company immediately recognized the unamortized debt discount of $209,143.		-		620,687
Note payable to an entity controlled by an officer of the Company, interest at 12%, due December 2012.  This note was secured by real estate.  During the three months ended December 31, 2012, the Company issued a Series A debenture payable to the entity in satisfaction of the outstanding balance of $300,000 plus $14,992 of accrued interest.		-		300,000
Unsecured note payable to an entity controlled by an officer of the Company, including a $7,500 loan origination fee, interest at 12%, due August 2012.  The note was convertible into common stock at 50% of fair market value or $0.40 per share, whichever is less.  During the three months ended December 31, 2012, the Company issued a Series A debenture payable to the entity in satisfaction of the outstanding balance of $82,500 plus $3,716 of accrued interest.		-		82,500
Unsecured note payable to an entity controlled by an officer of the Company, including a $7,500 loan origination fee, interest at 12%, due September 2012. The note was convertible into common stock at $0.40 per share or 50% of market value, whichever was less.  During the three months ended December 31, 2012, the Company issued a Series A debenture payable to the entity in satisfaction of the outstanding balance of $82,500 plus $3,173 of accrued interest.		-		82,500

\

18

	June 30,  2013			September 30, 2012
Notes payable to an entity controlled by an officer of the Company, including a $26,000 loan origination fee which was convertible into Series D preferred stock at any time at $2.00 per share, interest at 15%, due December 2012.  This note was secured by real estate.  During the three months ended December 31, 2012, the Company issued a Series A debenture payable to the entity in satisfaction of the outstanding balance of $51,000 plus $3,186 of accrued interest.  Upon the conversion of the note, the Company immediately recognized the unamortized debt discount of $14,238.	$	-		$	51,000
Total before discount and current portion		6,377,088			1,957,161
Less discount		(1,023,067	)		(223,381	)
Total notes payable, related-party		5,354,021			1,733,780
Less current portion		(3,676,810	)		(1,563,923	)
Total  notes payable, related-party, net of current portion	$	1,677,211		$	169,857

13. Derivative Liability

The derivative liability was $0 and $4,015,855 as of June 30, 2013 and September 30, 2012, respectively.  The elimination of the derivative liability was due to the 10-for-1 reverse common stock split, which decreased the number of outstanding shares and convertible shares of “freestanding instruments.”  It also allows the Company to reserve sufficient shares to settle “freestanding instruments.”

The Company recognized a $45,697 derivative gain during the nine months ended June 30, 2013.  The Company had previously estimated the fair value of the embedded derivatives using a binomial option-pricing model prior to the common stock reverse split with the following assumptions: conversion price of $0.11 to $0.16 per share according to the agreements; risk free interest rate of 0.14% to 0.16%; expected life of 0.69 to 1.00 years; expected dividend of zero; a volatility factor of 233% to 282%; and a stock price of $0.16 (as of March 25, 2013).  The expected lives of the instruments are equal to the average term of the conversion option.  The expected volatility is based on the historical price volatility of the Company’s common stock.  The risk-free interest rate represents the U.S. Treasury constant maturities rate for the expected life of the related conversion option. The dividend yield represents anticipated cash dividends to be paid over the expected life of the conversion option.

14. Preferred Stock

The Company is authorized to issue 10,000,000 shares of preferred stock, with a par value of $0.00001 per share.  Pursuant to the Company’s Certificate of Incorporation, the Board of Directors has the authority to amend the Company’s Certificate of Incorporation, without further stockholder approval, to designate and determine the preferences, limitations and relative rights of the preferred stock before any issuance of the preferred stock and to create one or more series of preferred stock, fix the number of shares of each such series, and determine the preferences, limitations and relative rights of each series of preferred stock, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, and liquidation preferences.

Series C Convertible Preferred Stock

On October 4, 2011, the Company issued 480,000 shares of Series C convertible preferred stock (“Series C preferred stock”) in connection with the patent license agreement settlement (see Note 10).  The par value of the Series C is $0.00001 per share.  The Series C preferred stock is non-voting stock.  Each share of Series C preferred stock may be converted into one share of common stock, provided, however, that a holder may not convert shares of Series C preferred stock which, upon conversion, would result in the holder becoming the beneficial owner of more than 4.99% of the issued and outstanding common stock of the Company.

19

During fiscal year 2012, the Company amended the rights and preferences of the Series C preferred stock as follows:

· Required payment of dividends at a rate of 8% per annum in either cash or common stock at the Company’s discretion.  If paid in common stock, the price of the common stock is the average closing price of the last 10 trading days of each quarter; and

· Permitted conversion of the Series C preferred stock into common stock at any time after June 30, 2012.

During the nine months ended June 30, 2013, the Company accrued $40,382 of dividends associated with outstanding shares of Series C preferred stock and settled the balance by issuing 7,169 shares of Series D preferred stock.

Series D Convertible Preferred Stock

On October 4, 2011, the Board of Directors designated 1,000,000 shares of preferred stock as Series D convertible preferred stock (“Series D preferred stock”).  As originally designated, the Series D preferred stock was to be vested immediately upon issuance, and each share of Series D preferred stock was convertible into  one share of common stock.  The original designation also provided that the Series D preferred stock would be non-voting and would not pay a dividend.  In addition, conversion of the Series D preferred stock was limited to not more than 4.99% of the issued and outstanding common stock.

During fiscal year 2012, the Board of Directors approved the following amendments to the designation of the rights and preferences of the Series D preferred stock prior to the issuance of any of the shares:

· Changed the conversion ratio from  one share of common stock for one share of Series D preferred stock to  five shares of common stock for one share of Series D preferred stock;

· Added an annual dividend rate of 8%, payable quarterly beginning April 1, 2012;

· Changed the shares from non-voting to voting, on an as-converted basis;

· Eliminated the 4.99% conversion limitation;

· Permitted conversion of the Series D preferred stock, commencing April 1, 2012;

· Permitted the Company, at its option, to redeem the Series D preferred shares at a redemption price equal to 120% of the original purchase with 15 days notice.

During the nine months ended June 30, 2013, the Company issued the following shares of Series D preferred stock:

· 78,174 shares for $691,363 in loan origination fees;

· 71,800 shares for future advisory services through December 2014, the value on the date of grant was $230,800;

· 20,000 shares for future consulting services through December 2013, the value on the date of grant was $60,000;

· 52,913 shares for $150,000 in previously accrued Board of Directors’ fees and $61,652 of additional compensation for past services;

· 24,300 shares for a bonus to an officer for past services, the value on the date of grant was $97,200;

· 7,169 shares for dividends on Series C preferred stock, the value on the date of grant was $40,382;

· 2,342 shares for dividends on Series D preferred stock, the value on the date of grant was $13,263;

· 95,400 shares for past consulting services by an entity controlled by an officer of the Company, which were previously accrued in the amount of $333,902;

· 30,000 shares for a bonus to an entity controlled by an officer of the Company for consulting services, the value on the date of grant was $105,000;

· 80,000 shares for a bonus to the CEO of the Company for signing an employment agreement with the Company, the value at the date of grant was $320,000, which cannot convert to common stock until the Company has 20,000 members.

20

During the nine months ended June 30, 2013, an employee of the Company converted 30,000 shares of Series D preferred stock into 150,000 shares of common stock.  The Company also accrued $172,511 of dividends on shares of Series D preferred stock and settled $110,794 of the balance by issuing 2,342 shares of Series D preferred stock and 10,218 shares of common stock during the nine months ended June 30, 2013.  As of June 30, 2013, the Company had a remaining balance of $80,338 of accrued dividends.

Liquidation Preference

Upon any liquidation, dissolution or winding up of the Company, before any distribution or payment may be made to the holders of the common stock, the holders of the Series C preferred stock and Series D preferred stock are entitled to be paid out of the assets an amount equal to $1.00 per share plus all accrued but unpaid dividends.  If the assets of the Company are insufficient to make payment in full to all holders of preferred stock, then the assets shall be distributed among the holders of preferred stock ratably in proportion to the full amounts to which they would otherwise be respectively entitled.

15. Common Stock

During the nine months ended June 30, 2013, the Company issued 1,390,019 shares of common stock as follows:

· 425,000 shares for the exercise of options held by two key managers of GWire (see Note 16);

· 207,361 shares valued at $310,002 as compensation for services to six independent consultants;

· 10,218 shares valued at $97,532 as dividends accrued for Series C and Series D preferred stock holders;

· 25,000 shares valued at $37,500 for service provided by an entity controlled by an officer of the Company;

· 150,000 shares for the conversion of 30,000 shares of Series D preferred stock;

· 100,000 shares valued at $150,000 as compensation for a new key employee as an incentive to work for the Company, which vests 25% during the first year of employment and the remaining 75% evenly over the following nine quarters;

· 4,758 shares valued at $7,137 for the extension of related-party payables;

· 217,833 shares as loan origination fees at a value of $329,789;

· 100,000 shares for the conversion of outstanding debt in the amount of $100,000;

· 90,000 shares valued at $136,500 for the extension of third party notes payable;

· 2,600 shares valued at $3,900 as part of the issuance of $26,000 of new debt to a related party;

· 27,650 shares for employee bonuses valued at the date of grant at $39,825;

· 29,600 shares to employees in accordance with the following restricted stock agreement:

The Company agreed to issue 97,500 restricted shares of common stock to certain employees in connection with Company milestones in fiscal year 2010.  During the nine months ended June 30, 2013, the Company issued 29,600 restricted shares of common stock valued at $399,600 on the date of the grant, and reduced the shares of non-vested common stock by 17,400 shares due to the change of employment status of several individuals.  During the fiscal year ended September 30, 2012 no restricted shares of common stock were issued to employees.  During the nine months ended June 30, 2013 and 2012, the Company recognized compensation expense of $0 and $117,187, respectively.  As of June 30, 2013 and September 30, 2012, the unrecognized stock-based compensation was $51,515 and $245,952, respectively, and will be recognized over the remaining vesting term.

16. Stock Options and Warrants

The fair value of each stock option or warrant grant is estimated on the date of grant using a binomial option-pricing model.  The expected life of stock options or warrants represents the period of time that the stock options or warrants are expected to be outstanding, based on the simplified method.  Expected volatilities are based on historical volatility of the Company’s common stock, among other factors.  The Company uses the simplified method within the valuation model due to the Company’s short trading history.  The risk-free rate related to the expected term of the stock options or warrants is based on the U.S. Treasury yield curve in effect at the time of grant.  The dividend yield is zero.

21

During fiscal years 2013 and 2012, the Company measured the fair value of the stock options and warrants using a binomial valuation model with the following assumptions:

	Nine Months Ended
	June 30,
	2013	2012
Exercise price	$1.00 - $1.65	$1.00 - $5.00
Expected term (years)	1.5 - 5	2.5
Volatility	219% - 298%	104% - 135%
Risk-free rate	0.23% - 0.88%	0.39% - 0.68%
Dividend rate	0%	0%

During the nine months ended June 30, 2013, the Company recorded stock-based compensation expense relating to the following stock options and warrants:

· Options to purchase 433,333 shares were granted to each of three employees of 4G, 1,300,000 total shares, as part of their employment agreements dated June 21, 2012, with an exercise price of $1.00 per share.  These options vest as described in Note 5.  The options expire in June 2017.  The value of the options at the date of grant was $1,147,163.  The Company has been amortizing the expense based on expected completion dates of the milestones.  During the nine months ended June 30, 2013, the Company recognized $721,210 of the total compensation expense. As of June 30, 2013, options for 520,000 shares have vested.

· Options to purchase 1,000,000 shares were granted to the Company’s CEO for services as part of his employment agreement dated July 2012, with an exercise price of $1.00 per share.  One tenth (100,000 shares) of the options vest for each milestone of 5,000 additional members added to the Company since the beginning of his employment in July 2012 until fully vested.  The options expire in July 2017.  The Company has been amortizing the expense based on expected completion dates of the milestones.  During the nine months ended June 30, 2013, the Company recognized $616,802 of the total compensation expense.  As of June 30, 2013, options for 600,000 shares have vested due to the Company reaching certain milestones according to the contract.

· Options to purchase 212,500 shares were granted to each of the two key managers of GWire, 425,000 in aggregate, with an exercise price of $1.00 per share.  Under the option agreements, the only method of exercise requires the employee to submit up to 212,500 shares of GWire stock, awarded as part of the employment agreements dated November 1, 2012, to the Company in exchange for equivalent shares of the Company’s common stock, up to $425,000 in total.  The options were fully vested upon issuance and expire in October 2022.  During the three months ended June 30, 2013, the two key managers converted all of these options together with 4,250,000 shares of GWire stock into 425,000 shares of the Company’s common stock.  As a result, the Company owns 100% of GWire as of June 30, 2013.

· Options to purchase 25,300 shares were granted to GWire employees, with an exercise price of $1.00 per share.  The options vested immediately and the Company recognized the $32,572 value as a compensation expense during the nine months ended June 30, 2013.

· Options to purchase 100,000 shares were granted as part of an employment agreement signed with a new employee dated May 2013, with an exercise price of $1.65 per share.  One quarter (25,000 shares) of the options vest after one year and the remaining balance vests equally over the following nine quarters (8,333 per quarter).  The options expire in May 2018.  During the nine months ended June 30, 2013, the Company recognized $4,128 of compensation expense associated with the options.

· Options to purchase 100,000 shares were granted as part of a loan extension agreement with an unrelated party, with an exercise price of $1.00 per share.  The options vested immediately and the Company recognized the $103,495 value during the nine months ended June 30, 2013.

· Options to purchase 100,000 shares were granted for consulting services rendered by a third party, with an exercise price of $1.00 per share.  The options vested immediately and the Company recognized the $134,785 value as a consulting expense during the nine months ended June 30, 2013.

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The following table summarizes information about stock options and warrants outstanding as of June 30, 2013:

Options and Warrants	Number of  Options and Warrants			Weighted-Average  Exercise Price
Outstanding as of October 1, 2012		2,386,587		$	1.47
Granted		2,050,300			1.04
Exercised		(525,000	)		1.00
Forfeited		-			-
Outstanding as of June 30, 2013		3,911,887			1.31
Exercisable as of June 30, 2013		2,631,887			1.43

As of June 30, 2013, the outstanding options and warrants have an aggregate intrinsic value of $762,371, and the weighted average remaining term of the warrants is 3.42 years.

For the nine months ended June 30, 2013 and 2012, the Company recognized non-cash expense of $1,782,992 and $2,076,709, respectively, related to the vesting and re-pricing of all stock options and warrants granted in current and prior years.

17. Segment Information

The Company operates with two business segments based primarily on the nature of the Company’s products. The CareServices segment is engaged in the business of developing, distributing and marketing mobile health monitoring and concierge services to distributors and consumers.  The Chronic Illness Monitoring segment is engaged in the business of developing, distributing and marketing mobile monitoring of patient vital signs and physical activity to self-insured companies.  The Company previously operated a Reagents business which was sold in June 2013.  The Company no longer holds any ownership interest in the Reagents business.

Additionally, at the corporate level, the Company raises capital and provides for the administrative operations of the Company as a whole.

The following table reflects certain financial information relating to each reportable segment for the three and nine months ended June 30, 2013 and 2012:

	Corporate			Chronic Illness Monitoring			CareServices			Reagents			Total
Three months ended June 30, 2013
Sales to external customers	$	-		$	3,912,300		$	415,377		$	97,147		$	4,424,824
Segment income (loss)		(2,779,565	)		480,562			(811,016	)		(12,301	)		(3,122,320	)
Interest income		26			-			-			-			26
Interest expense		1,065,440			-			-			-			1,065,440
Segment assets		15,161			10,125,070			3,079,681			-			13,219,912
Fixed assets and leased equipment purchases		-			-			121,282			888			122,170
Depreciation and amortization		223,438			28,609			282,773			2,893			537,713
Three months ended June 30, 2012
Sales to external customers	$	-		$	230,625		$	66,035		$	135,636		$	432,296
Segment loss		(2,124,134	)		(215,940	)		(99,003	)		(3,629	)		(2,442,706	)
Interest income		21			-			-			-			21
Interest expense		223,400			-			-			-			223,400
Segment assets		42,204			778,919			1,058,335			203,664			2,083,122
Fixed assets and leased equipment purchases		-			-			-			-			-
Depreciation and amortization		179			13,837			38,555			11,271			63,842

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	Corporate			Chronic  Illness Monitoring			CareServices			Reagents			Total
Nine months ended June 30, 2013
Sales to external customers	$	-		$	10,121,916		$	1,292,178		$	351,645		$	11,765,739
Segment income (loss)		(7,083,015	)		704,720			(2,769,759	)		(5,312	)		(9,153,366	)
Interest income		50			-			-			-			50
Interest expense		2,856,447			-			-			-			2,856,447
Segment assets		15,161			10,125,070			3,079,681			-			13,219,912
Fixed assets and leased equipment purchases		-			-			382,809			888			383,697
Depreciation and amortization		536			830,966			172,466			658,499			1,662,467
Nine months ended June 30, 2012
Sales to external customers	$	-		$	233,743		$	190,662		$	357,374		$	781,779
Segment loss		(7,705,947	)		(294,166	)		(305,081	)		(104,968	)		(8,410,162	)
Interest income		102			-			-			-			102
Interest expense		459,297			-			-			-			459,297
Segment assets		42,204			778,919			1,058,335			203,664			2,083,122
Fixed assets and leased equipment purchases		-			-			1,224			-			1,224
Depreciation and amortization		536			-			114,281			29,123			143,940

18. Lease Commitments

The Company leases office space under non-cancelable operating leases.  Future minimum rental payments under non-cancelable operating leases as of June 30, 2013 were as follows:

Years Ending September 30,
2013	$	53,119
2014		277,603
2015		308,330
2016		317,580
2017		327,107
Thereafter		280,077
Total	$	1,563,816

The rent expense for the Company’s facilities held under non-cancelable operating leases was $236,792 and $109,212 for the nine months ended June 30, 2013 and 2012, respectively.

19. Fair Value Measurements

US GAAP establishes a fair value hierarchy that prioritizes the inputs used to measure fair values. The Company measured the fair values using the hierarchy levels as follows:

Level 1	The Company does not have any fair value balances classified as Level 1.
Level 2	The Company’s embedded derivatives are measured on a recurring basis using Level 2 inputs.
Level 3	The Company’s goodwill is measured using Level 3 inputs (see note 5).

The Company’s embedded derivatives liability is re-measured to fair value at each reporting date until the contingency is resolved.  See Note 13 above for more information about this liability and the inputs used for calculating fair value.

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20. Subsequent Events

Subsequent to June 30, 2013, the Company entered into the following agreements and transactions:

(1)	In July 2013, the Company entered into three loan conversion agreements with the Company’s Chief Executive Officer and an entity controlled by the Company’s Chief Executive Officer.  The Company issued 1,704,715 shares of common stock for the conversion, at $0.75 per share, of three Series B debenture loans representing principal and interest in the amount of $1,278,536.
(2)	In July 2013, the Company issued 3,180,000 shares of common stock, at $0.75 per share, for cash investments from the Company’s Chief Executive Officer totaling $2,385,000 during the period April 2013 through July 2013.
(3)	In July 2013, the Company entered into an additional short-term loan of $175,000 from the Company’s Chief Executive Officer with interest at 12%, due on demand.  The note included $17,500 of loan origination fees.
(4)	In July 2013, a Series D shareholder requested to convert 20,000 shares of Series D preferred stock into 100,000 shares of common stock.
(5)	In July 2013, the Company entered into a securities purchase agreement with accredited investors in a private placement to purchase previously unissued shares of common stock at $0.75 per share.  The Company issued 333,333 shares of common stock for $250,000.
(6)	In July 2013, the Company entered into two loan conversion agreements with a related party.  The Company issued 457,216 shares of common stock for the conversion of two Series A debenture agreements representing principal and interest in the amount of $342,912.
(7)	In August 2013, the Company entered into loan conversion agreements with an officer of the Company.  The Company issued 333,334 shares of common stock for the conversion of a Series A debenture agreement representing principal and interest in the amount of $250,000.
(8)	In August 2013, the Company entered into loan conversion agreements with two investors.  The Company issued 85,719 shares of common stock for the conversion of a Series A debenture agreement representing principal and interest in the amount of $64,289.
(9)	In August 2013, the Company entered into a securities purchase agreement with accredited investors in a private placement to purchase previously unissued shares of common stock at $0.75 per share.  The Company issued 380,000 shares of common stock for $285,000.
(10)	In August 2013, the Company also entered into two secured loan agreements with two investors in the amount of $550,000, guaranteed by a former Chief Executive Officer of the Company.  The loans bear annual interest of 12% with interest payments due quarterly.  The loans mature in August 2014.  The Company also issued warrants with the option to purchase 36,667 shares of the Company’s common stock at $0.75 per share related to the loan agreements.

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Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader better understand our operations and our present business environment.  This MD&A is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements for the fiscal years ended September 30, 2012 and 2011, and the accompanying notes thereto, contained in our Annual Report on Form 10-K and our unaudited condensed consolidated financial statements for the three and nine months ended June 30, 2013, and the accompanying notes thereto, contained in the Form 10-Q. Unless otherwise indicated, the terms “ActiveCare,” the “Company,” “we,” and “our” refer to ActiveCare, Inc., a Delaware corporation.

Overview

Historically, our core business has been the manufacture, distribution and sale of medical diagnostic stains and solutions.  In February 2009, we were spun off from our former parent, SecureAlert, Inc. (SCRA.BB).  In connection with the spin-off, we acquired from SecureAlert the exclusive license rights to certain technology, including patent rights utilizing GPS and cellular communication and monitoring technologies for use in the healthcare and personal security markets.  Our business plan is to develop and market a new product line for monitoring and providing assistance to mobile and homebound seniors and the chronically ill, including those who may require a personal assistant to check on them during the day to ensure their safety, well-being and location. 

Our emphasis in fiscal year 2012 was focused on addressing the chronic conditions and disease states markets.  During fiscal year 2012, we received valuable feedback through sales and focus groups reaching thousands of patients.  We launched an additional product line focused on technology for assisting the chronically ill.  We also successfully acquired 4G Biometrics, LLC (“4G”) and Green Wire, LLC, Green Wire Outsourcing, Inc., Orbit Medical Response, LLC, and Rapid Medical Response, LLC (collectively, “Green Wire”).  These acquisitions greatly increased our customer base and capacity as well as our abilities to include telehealth and other monitoring services in our product offerings.  The focus in fiscal year 2013 is to further develop and execute on our existing business plan serving the chronic conditions and disease states markets.

Recent Developments

We have financed operations primarily through securities purchase agreements, long-term debt and short-term debt.  If our revenues continue to be insufficient to meet our needs, we will attempt to secure additional financing through financial institutions or through the sale of our equity or debt securities.  However, because of our early stages of business and our current financial condition, our attempts may be unsuccessful in obtaining the necessary financing to continue to implement our plan of operations.  There can be no assurance that we will be able to obtain financing on satisfactory terms or at all.  In addition, if we only have nominal funds with which to conduct our business activities, it will negatively impact the results of our operations and our financial condition.

During the year ended September 30, 2012, we established GWire Corporation (“GWire”) as a subsidiary.  Effective September 1, 2012, GWire acquired the net assets and interests of Green Wire.  We entered into employment agreements with two of Green Wire’s operating managers on November 1, 2012. These two individuals were granted 27% ownership in GWire; ActiveCare retained the remaining 73%.

The purchase price for Green Wire reflects was $2,276,737, which has been allocated to $12,215 of cash, $13,976 of accounts receivable, $92,022 of property and equipment, $16,964 of deposits and other assets, $229,249 of leased equipment, $2,155,776 of customer contracts, $154,206 of accounts payable, $55,117 of accrued expenses, and $34,142 of deferred revenue.

During the nine months ended June 30, 2013, the GWire operating managers surrendered the 27% ownership in GWire to the Company by exercising the GWire options to acquire shares of the Company’s common stock.  ActiveCare now owns 100% of GWire.

During the nine months ended June 30, 2013, we sold the net assets and operations of our Reagents business segment.  The sale price for the Reagents segment reflects net consideration received of $184,318 in cash in exchange for the sale of net assets of $129,222, which were comprised of $33,069 of accounts payable, $82,959 of net receivables, $53,500 of net inventory, and $25,832 of net property and equipment.  The Company may receive additional annual payments at five percent net of  income from Reagents, through the fifth anniversary, if Reagents Revenue is at least $465,000 for the previous twelve-month period ending on the closing date anniversary.  The sale of the Reagent business allows the Company to focus on the Chronic Illness Monitoring and CareService segments.

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Research and Development Program

ActiveOne+

ActiveOne+ is the second-generation PAL (“Personal Assistance Link”) handset, which includes one button connection to the CareCenter, GPS locating and fall detection technology; all in one unit.  The ActiveOne+ features enhanced fall detection technology to better detect when a fall occurs as well as enhanced locating technology that combines both GPS and cellular triangulation and allows our CareCenter to locate a member within several meters, 24 hours per day, 7 days a week, to better respond to any emergency condition.  In addition, the ActiveOne+ has built-in receptors utilizing Bluetooth technologies to accommodate body-worn devices that can communicate vital sign data to the CareCenter.  We have obtained FCC certification for ActiveOne+.

During the nine months ended June 30, 2013, we spent $215,981, compared to $81,557 for the same period in 2012, on research and development (“R&D”) related to the ActiveOne+, a one-button actuated GPS/Cellular communications device (“Companion Device”) that links to our CareCenter.  This device includes fall detection, Geo Fencing, automatic calls to the CareCenter, text messaging, hands free speakerphone and other features.  The ActiveOne+ is a water resistant wrist device that includes fall detection, speakerphone, vibration alerts, audible alerts, and LED’s for status monitoring.  It communicates through Bluetooth with the Companion Device. Our goal is to develop this wristwatch-size monitoring device primarily for senior citizens.  The watch is universal for women and men with an adjustable strap.  The expanded CareCenter and the related products will be developed by our team.  We have identified and are working with several vendors for services that will further our objectives.  

Chronic Illness Monitoring

Chronic illness monitoring involves the use of biometric monitoring devices in combination with proprietary data and algorithms to assess and predict the wellbeing of an individual under care.  Individual care profiles are created through the aggregation of personal health and medical claims information from multiple data sources.  Real-time biometric readings for blood glucose levels, blood pressure, heart rate, weight, tidal volume and other vital readings are captured over time and added to the existing personal information.  This unique data set may now be used for proactive care protocols, care provider alerts to elevated readings, and behavioral intervention prior to crisis events.

Technology to facilitate data driven chronic illness monitoring consists of three components: (1) biometric monitoring devices, (2) medical and claims data aggregation, and (3) algorithms for the analysis of the data.  Biometric monitoring devices are provided by numerous medical hardware providers, and deliver a wide range of features and functionality.  ActiveCare is agnostic to any specific device requirement, and has as a core competency the ability to integrate to and capture data from any 510(k) or HL7 compliant monitoring device (see “Regulatory Matters”).  Strategic relationships have been created with technology and market leaders, and evaluation of new and emerging technology partners is ongoing.  Medical and claims data is aggregated from multiple source providers using a proprietary application programmatic interface and data storage architecture.  This data is analyzed to identify individual care needs of those entering the program.  Monitoring alerts, predictive informatics and individual care plans are created and managed using the ActiveCare technology platform.  Care for chronic conditions may now be performed in real-time, and outcomes may be measured on both a medical and claims cost basis.

During the nine months ended June 30, 2013, we spent $373,742, compared to $31,250 for the same period in 2012, on R&D for chronic illness monitoring related to the development of prototype methods and systems for the capture and analysis of data, as well as the development of scalable architectures to migrate to production applications and deployments.  We will continue to identify claims and medical data sets as well as analytical and informatics technologies that advance our ability to provide unique services.  Core competency will continue to evolve in the methods and technologies for data analytics and predictive informatics. 

Critical Accounting Policies

The following summary includes accounting policies that we deem to be most critical to our business.  Management considers an accounting estimate to be critical if:

· It requires assumptions to be made that were uncertain at the time the estimate was made, and

· Changes in the estimate or different estimates that could have been selected could have a material impact on our consolidated results of operations or financial position.

Use of Estimates in the Preparation of Financial Statements

We have prepared and included with this report condensed consolidated unaudited financial statements in conformity with US GAAP.

The preparation of financial statements requires management to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses during the reporting period.  By their nature, these estimates and judgments are subject to an inherent degree of uncertainty.  On an on-going basis, we evaluate our estimates, including those related to bad debts, inventories, intangible assets, warranty obligations, product liability, revenue recognition, and income taxes.  We base our estimates on historical experience and other facts and circumstances that are believed to be reasonable and the results provide a basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions, and these differences may be material.

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Material accounting policies that we believe are critical to an understanding of our financial results and conditions are described below.

Concentration of Credit Risk

We have cash in bank accounts that, at times, may exceed federally insured limits.  We have not experienced any losses in such accounts.

In the normal course of business, we provide credit terms to our customers.  Accordingly, we perform ongoing credit evaluations of customers’ financial condition and require no collateral from customers.  We maintain an allowance for uncollectable accounts receivable based upon their expected collectability.

Accounts Receivable

Accounts receivable are carried at the original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis.  Specific reserves are estimated by management based on certain assumptions and variables, including the customer’s financial condition, age of the customer’s receivables and changes in payment histories.  Trade receivables are written off when deemed uncollectible.  Recoveries of trade receivables previously written off are recorded when received.  A trade receivable is considered to be past due if any portion of the receivable balance has not been received by the contractual pay date.  Interest is not charged on trade receivables that are past due.

Inventories

Inventories are recorded at the lower of cost or market, cost being determined using the first-in, first-out (“FIFO”) method. Chronic Illness Monitoring inventory consists of diabetic supplies.  Provisions, when required, are made to reduce excess and obsolete inventories to their estimated net realizable values.  Due to competitive pressures and technological innovation, it is possible that estimates of the net realizable value could change in the near term. 

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation and amortization.  Depreciation and amortization are determined using the straight-line method over the estimated useful lives of the assets, typically three to seven years.  Leasehold improvements are amortized over the shorter of the estimated useful lives of the assets or the term of the leases.  Expenditures for maintenance and repairs are expensed while renewals and improvements over $500 are capitalized.  When property and equipment are sold or otherwise disposed of, any gains or losses are included in the results of operations.

Equipment Leased to Customers

Our leased equipment is stated at cost less accumulated depreciation and amortization.  We amortize the cost of leased equipment using the straight-line method over 36 months, which is the estimated useful life of the equipment.  Amortization of leased equipment is recorded as cost of revenues.

Revenue Recognition

Our revenue has historically been from three sources: (i) sales from Chronic Illness Monitoring services and supplies; (ii) sales from CareServices; and (iii) sales of medical diagnostic stains from our Reagents segment, which was sold during the 3 months ended June 30, 2013 and reported as discontinued operations.

Chronic Illness Monitoring

We began sales through 4G upon our acquisition of the company in the quarter ended March 31, 2012.  We recognize Chronic Illness Monitoring revenue when persuasive evidence of an arrangement with the customer exists, title passes to the customer, prices are fixed or determinable and collection is reasonably assured.

Shipping and handling fees are included as part of net revenues.  The related freight costs and supplies directly associated with shipping products to customers are included as a component of cost of revenues.  Sales of Chronic Illness Monitoring products and services do not contain multiple deliverables.

We enter into agreements with self-insured companies to lower medical expenses by distributing diabetic testing supplies to their employees (members) and monitoring their test results.  The self-insured companies are obligated to pay for the supplies that we distribute to the members on a quarterly basis.  The term of these contracts is one year and, unless terminated by either party, will automatically renew for another year.  All of our Chronic Illness Monitoring sales are made with net 30-day payment terms.

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With respect to Chronic Illness Monitoring revenues, to qualify for the recognition of revenue under US GAAP at the time of sale, the following must be present:

· The price to the contracted self-insured company is fixed or determinable at the date of sale.

· The self-insured company has paid, or is obligated to pay us within terms.

· The self-insured company’s obligation to the Company would not be changed in the event of theft or physical destruction or damage of the product.

· Once the product is shipped, the end user does not have the right of return.

CareServices

“CareServices” include contracts in which we provide monitoring services to end users and sell devices to distributors.  We typically enter into contracts on a month-to-month basis with customers (members) that use our CareServices.  However, these contracts may be cancelled by either party at any time with 30-days notice.  Under our standard contract, the device becomes billable on the date the customer (member) orders the product, and remains billable until the device is returned to us.  We recognize revenue on devices at the end of each month that CareServices have been provided.  In those circumstances in which we receive payment in advance, the Company records these payments as deferred revenue.

We recognize CareServices revenue when persuasive evidence of an arrangement with the customer exists, title passes to the customer, prices are fixed or determinable and collection is reasonably assured.  Shipping and handling fees are included as part of net revenues.  The related freight costs and supplies directly associated with shipping products to customers are included as a component of cost of revenues.  Customers order our products by phone or website.  All CareServices sales are made with net 30-day payment terms.

In connection with US GAAP, to qualify for the recognition of revenue at the time of sale, the following must be present:

· The Company’s price to the buyer is fixed or determinable at the date of sale.

· The buyer has paid the Company, or the buyer is obligated to pay the Company within terms, and the obligation is not contingent on resale of the product.

· The buyer’s obligation to the Company would not be changed in the event of theft or physical destruction or damage of the product.

· The buyer acquiring the product for resale has economic substance apart from that provided by the Company.

· The Company does not have significant obligations for future performance to directly bring about resale of the product by the buyer.

· The amount of future returns can be reasonably estimated and they are not significant.

The vast majority of sales for CareServices are service revenues.  Because equipment sales are not material, we disclose services and equipment sales together in the accompanying financial statements.

Our revenue recognition policy for sales to distributors of CareServices is the same as the policy for sales to end-users.

A customer qualifies as a distributor by completing a distributor application and proving its sales tax status.  Our distributors are not required to maintain specified amounts of product on hand, and distributors are not required to make minimum purchases to maintain distributor status.  Distributors have no stock rotation rights or additional rights of return.  Revenues from products sold with long-term service contracts are recognized ratably over the expected life of the contract.  Sales to distributors are recorded net of discounts.

Sales returns have been negligible, and any and all discounts are known at the time of sale.  Sales are recorded net of sales returns and sales discounts.  There are no significant judgments or estimates associated with the recording of revenues.

The majority of our CareServices revenue transactions do not have multiple elements.  On occasion, we have revenue transactions that have multiple elements (such as device sales to distributors).  In these situations, we provide the distributor with the ActiveOne™ device and a monthly monitoring service, which are both included in the contracted pricing.  In these multiple element revenue arrangements, we will consider whether: (i) the deliverables have value on a standalone basis to the distributors, and (ii) the distributors have a general right of return.  We determined that these elements do have standalone value to distributors and that the delivery of undelivered items is probable and substantially within our control.  Therefore these revenue elements should be considered as separate units of accounting.  Consideration is to be allocated at the inception of the arrangement to all deliverables on the basis of their relative selling prices.  When applying the relative selling price method, the selling price for each deliverable is determined using vendor-specific objective evidence of selling price, if it exists; otherwise, third-party evidence of the selling price is used to determine the selling price.  If neither vendor-specific objective evidence nor third-party evidence of the selling price exists for a deliverable, then the best estimate of the selling price is used for that deliverable.

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We do not currently sell, nor do we intend to sell the ActiveOne™ device separately from the monthly monitoring service, therefore we are not able to determine vendor-specific objective evidence of selling price.  We are also unable to determine third-party evidence of selling price, because there is not a similar product in the market.  The ActiveOne™ device is the only device in the market with fall detection technology.  We are therefore required to determine the best estimate of its selling price in order to determine the relative selling price of the separate deliverables in the revenue arrangements.  In order to determine the best estimate of selling price of the ActiveOne™ device, we included the following cost components in our estimate: production costs, development costs, PTCRB certification costs, and estimated gross margin.  In order to determine the best estimate of the monthly monitoring service, we included the following components in our estimate: monthly communication costs, monitoring labor costs, Public Safety Access/Answering Point (“PSAP”) database and monthly maintenance costs, and estimated gross margin.  The relative selling price allocated to the sale of the ActiveOne™ device is recognized when the device is delivered to the distributor.  The relative selling price of the monitoring service is recognized monthly when the services have been provided.

Results of Operations

Three Months Ended June 30, 2013 and 2012

Net Revenues

For the three months ended June 30, 2013, we generated net revenues of $4,327,677, compared to $296,660 for the three months ended June 30, 2012.  Chronic Illness Monitoring revenues accounted for $3,912,300 and $230,625 for the three months ended June 30, 2013 and 2012, respectively.  CareServices revenues, including revenue for the ActiveOne™ service, accounted for $415,377 and $66,035 of the total revenues for the three months ended June 30, 2013 and 2012, respectively.  The primary reason for the total revenue increase is the new sales generated by Chronic Illness Monitoring and CareServices.

Cost of revenues

Cost of revenues totaled $3,413,762 for the three months ended June 30, 2013, compared to $334,302 for the three months ended June 30, 2012.  During the three months ended June 30, 2013, Chronic Illness Monitoring accounted for $2,853,557 and CareServices accounted for $560,205 of the total cost of revenues.  In comparison, for the three months ended June 30, 2012, Chronic Illness Monitoring accounted for $169,264 and CareServices accounted for $165,038.  The increase is primarily due to the increase of sales generated by Chronic Illness Monitoring and CareServices.

Research and Development Expenses

For the three months ended June 30, 2013, we incurred research and development expenses of $121,011, compared to $63,906 in research and development expenses for the three months ended June 30, 2012.  The increase is primarily due to the development of the Chronic Illness Monitoring operation system.

Selling, General and Administrative Expenses

For the three months ended June 30, 2013, selling, general and administrative expenses totaled $2,733,452, compared to $793,232 for the three months ended June 30, 2012.  The increase is primarily due to non-cash stock-based compensation and the expenses incurred to support the growth of Chronic Illness Monitoring and CareServices.

Other Income and Expense

There was no gain on derivatives for the three months ended June 30, 2013, compared to a loss on derivatives of $1,320,918 for the three months ended June 30, 2012.  Due to the 10-for-1 reverse common stock split, no derivative liability exists as of June 30, 2013.  Net interest expense was $1,065,414 and $223,379 for the three months ended June 30, 2013 and 2012, respectively.  The increase is primarily due to the increase of notes payable during the current fiscal year.  For the three months ended June 30, 2013 we incurred a loss on disposal of property and equipment of $101,421 primarily due to moving our corporate offices.

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Net Loss from Continuing Operations

We incurred a net loss from continuing operations for the three months ended June 30, 2013 totaling $3,110,019, compared to a net loss of $2,439,077 for the three months ended June 30, 2012.  This increase in net loss was primarily due to the increase of selling and administrative expenses from Chronic Illness Monitoring and CareService and increases in interest expense.  The net loss per share from continuing operations was $0.59 and $0.55 for the three months ended June 30, 2013 and 2012, respectively.

Discontinued Operations

During the three months ended June 30, 2013, we sold the net assets and operations of the Reagents business segment of the Company to a third party for $184,317 in cash.  During the three months ended June 30, 2013, we recognized a loss from discontinued operations of $12,301 compared to a loss of $3,629 during the three months ended June 30, 2012.

Dividends on Preferred Stock

We accrued $79,219 of dividends on Series C and Series D preferred stock for the three months ended June 30, 2013, compared to $14,057 for the three months ended June 30, 2012.  The increase in dividends was due to the increased number of shares of Series D preferred issued and outstanding during the current period.

Nine Months Ended June 30, 2013 and 2012

Net Revenues

For the nine months ended June 30, 2013, we had net revenues of $11,414,094, compared to $424,405 for the nine months ended June 30, 2012.  CareServices revenues, including revenue for the ActiveOne™ service, totaled $1,292,178 and $190,662 of the total revenues for the nine months ended June 30, 2013 and 2012, respectively.  Chronic Illness Monitoring revenues totaled $10,121,916 and $233,743 for the nine months ended June, 2013 and 2012, respectively.  The primary reason for the total revenue increase is the new sales generated by Chronic Illness Monitoring and CareServices.

Cost of revenues

For the nine months ended June 30, 2013, cost of revenues totaled $9,466,809, compared to $666,287 for the nine months ended June 30, 2012.  CareServices cost of revenues totaled $2,027,829 and $495,743 for the nine months ended June 30, 2013 and 2012, respectively.  Chronic Illness Monitoring cost of revenues totaled $7,438,980 and $170,544 for the nine months ended June, 2013 and 2012, respectively.  The increase is primarily due to the increase of sales generated by Chronic Illness Monitoring and CareServices.

Research and Development Expenses

For the nine months ended June 30, 2013, we incurred research and development expenses of $589,723, compared to $112,807 in research and development expenses for the nine months ended June 30, 2012.  The increase is primarily due to the development of the Chronic Illness Monitoring operation system.

Selling, General and Administrative Expenses

For the nine months ended June 30, 2013, selling, general and administrative expenses totaled $7,606,290, compared to $6,145,136 for the nine months ended June 30, 2012.  The increase is primarily due to the expenses incurred to support the growth of Chronic Illness Monitoring and CareServices

Other Income and Expense

For the nine months ended June 30, 2013, gain on derivatives was $45,697, compared to a loss on derivatives of $1,346,174 for the nine months ended June 30, 2012.  Due to the 10-for-1 reverse common stock split, no derivative liability exists as of June 30, 2013. Interest expense was $2,856,397 and $459,195 for the nine months ended June 30, 2013 and 2012, respectively.  The increase is primarily due to the increase of notes payable during the current fiscal year.  For the nine months ended June 30, 2013, we incurred a loss of disposal on property and equipment of $101,421 primarily due to moving our corporate offices.

Discontinued Operations

During the nine months ended June 30, 2013, we sold the net assets and operations of the Reagents business segment.  During the nine months ended June 30, 2013, we recognized a loss from discontinued operations of $5,312 compared to a loss of $104,968 during the nine months ended June 30, 2012.

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Dividends on Preferred Stock

We accrued $213,192 of dividends on Series C and Series D preferred stock for the nine months ended June 30, 2013, compared to $40,842 for the nine months ended June 30, 2012.  The increase in dividends was due to the increased number of shares of Series D preferred issued and outstanding during the current period.

Liquidity and Capital Resources

Our primary sources of liquidity are proceeds from the issuance of equity and debt securities.  We have not been in a position to finance operations from cash flows from operating activities.  We anticipate that we will continue to seek equity and debt funding to supplement revenues from the sale of our products and services until we begin to have positive cash flows from operating activities.

As of June 30, 2013, we had cash of $122,330, compared to $529,839 as of September 30, 2012.  The decrease in cash was due to increased cash used in operating activities off set by cash provided by financing activities during the nine months ended June 30, 2013, compared to the fiscal year ended September 30, 2012. As of June 30, 2013 we had a working capital deficit of $6,741,951 compared to $10,143,700 as of September 30, 2012.  The decrease in working capital deficit is primarily due to the increase of accounts receivable and the elimination of the derivatives liability.

For the nine months ended June 30, 2013 and 2012, operating activities used cash of $6,515,995 and $1,928,486, respectively.  The increased cash used in operating activities was primarily due to increased accounts receivable and increased cash losses for the nine months ended June 30, 2013, compared to the same period in 2012.  Investing activities for the nine months ended June 30, 2013 and 2012 used cash of $199,475 and $207,729, respectively.  The cash used in investing activities was primarily due to increased purchasing of equipment leased to customers offset by the proceeds from the sale of discontinued operations for the nine months ended June 30, 2013.  Financing activities for the nine months ended June 30, 2013 and 2012 provided cash of $6,307,961 and $2,035,000, respectively.  The increase was due to increased cash proceeds from notes payable issued for the nine months ended June 30, 2013.

For the nine months ended June 30, 2013, we had a net loss of $9,153,366, compared to a net loss of $8,410,162 for the nine months ended June 30, 2012.  The increase in net loss was due primarily to the increase in operational expenses and interest expenses for the nine months ended June 30, 2013.

As of June 30, 2013, we had an accumulated deficit of $46,725,775 compared to $37,359,214 as of September 30, 2012.  Stockholders’ deficit as of June 30, 2013 was $7,119,629 compared to stockholders’ deficit of $7,715,390 as of September 30, 2012.  The decrease in stockholders’ deficit is primarily due to the increase of additional paid-in capital from the decrease of derivative liabilities.

Recent Accounting Pronouncements

We have reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe the future adoptions of any such pronouncements will cause a material impact on our financial position or the results of our operations.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Information about the Company’s exposure to market risk was disclosed in our Annual Report on Form 10-K for the year ended September 30, 2012, which was filed with the Securities and Exchange Commission on January 15, 2013. There have been no material quantitative or qualitative changes in market risk exposure since the date of that filing.

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information that is required to be disclosed in our reports under the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized, and reported within the time periods that are specified in the rules and forms of the Securities and Exchange Commission (“SEC”) and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding any required disclosure.  In designing and evaluating these disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Exchange Act). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, as of the end of the period, our disclosure controls and procedures were not effective, for the reasons discussed below.  

During the audit process for the year ended September 30, 2012, we identified material weaknesses in internal control over financial reporting as follows:

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Control Environment

We did not maintain an effective control environment for internal control over financial reporting.  Specifically, we concluded that we did not have appropriate controls in the following areas:

· Period end financial disclosure and reporting processes.

· Communication of material transactions between management and accounting personnel.

Financial Reporting Process

We did not maintain an effective financial reporting process to prepare financial statements in accordance with US GAAP.  Specifically, we initially failed to appropriately account for and disclose the valuation and recording of certain equity arrangements and financing transactions, as well as the accounting and disclosure of the acquisition of 4G.

Management has not made any correcting changes to our internal control over financial reporting and the above material weaknesses remained as of June 30, 2013.  Similar material weaknesses to those identified in the 4G acquisition were also identified in the Green Wire acquisition.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement to our annual or interim financial statements will not be prevented or detected.

We are in the process of improving our internal control over financial reporting in an effort to eliminate these material weaknesses through improved supervision and training of our staff, but additional effort and staffing are needed to fully remedy these deficiencies. Our management, audit committee, and directors will continue to work with our auditors and outside advisors to ensure that our controls and procedures are adequate and effective.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.   Legal Proceedings

On December 18, 2012, iLife Technologies, Inc. filed a lawsuit against nine companies, including ActiveCare, for patent infringement in the District Court for the Northern District of Texas.  The lawsuit alleged infringement of seven patents owned by iLife purportedly related to the use of accelerometers in devices used to monitor the status of a user.  In May 2013, ActiveCare entered into a settlement agreement and patent license agreement with iLife Technologies, Inc. and an agreed motion was filed to dismiss all claims of the lawsuit.

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Securities

During the nine months ended June 30, 2013, we issued the following shares of common stock without registration under the Securities Act of 1933 (the “Securities Act”):

· 425,000 shares for the exercise of options held by two key managers of GWire;

· 207,361 shares valued at $310,002 as service compensation to six independent consultants;

· 10,218 shares valued at $97,532 as dividends accrued for Series C and Series D preferred stock holders;

· 25,000 shares valued at $27,500 for services provided by an entity that is controlled by an officer of the Company;

· 150,000 shares for the conversion of 30,000 shares of Series D preferred stock;

· 100,000 shares valued at $150,000 as compensation of a new key employee as an incentive to work for the Company, which vests 25% during the first year of employment and the remaining 75% evenly over the following nine quarters;

· 4,758 shares valued at $7,137 for the extension of related-party payables;

· 217,833 shares as loan origination fees at a value of $329,789;

· 100,000 shares for the conversion of outstanding debt in the amount of $100,000;

· 90,000 shares valued at $136,500 for the extension of third-party notes payable;

· 2,600 shares valued at $3,900 as part of the issuance of $26,000 of new debt to a related party;

· 27,650 shares for employee bonuses valued at the date of grant at $39,825;

· 29,600 shares to employees in accordance with the following restricted stock agreement:

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We agreed to issue 97,500 restricted shares of common stock to certain employees in connection with our milestones in fiscal year 2010.  During the nine months ended June 30, 2013, we issued 29,600 restricted shares of common stock valued at $399,600 on the date of the grant, and reduced the shares of non-vested common stock by 17,400 shares due to the change of employment status of several individuals.  During the fiscal year ended September 30, 2012, no restricted shares of common stock were issued to employees.  During the nine months ended June 30, 2013 and 2012, we recognized compensation expense of $0 and $117,187, respectively.  As of June 30, 2013 and September 30, 2012, the unrecognized stock-based compensation was $51,515 and $245,952, respectively, and will be recognized over the remaining vesting term.

We issued shares of preferred stock without registration under the Securities Act during the nine months ended June 30, 2013, as follows:

· 78,174 shares for $691,363 in loan origination fees;

· 71,800 shares for future advisory services through December 2014, the value on the date of grant was $230,800;

· 20,000 shares for future consulting services through December 2013, the value on the date of grant was $60,000;

· 52,913 shares for $150,000 in previously accrued Board of Directors’ fees and $61,652 of additional compensation for past services;

· 24,300 shares for a bonus to an officer for past services, the value on the date of grant was $97,200;

· 7,169 shares for dividends on Series C preferred stock, the value on the date of grant was $40,382;

· 2,342 shares for dividends on Series D preferred stock, the value on the date of grant was $13,263;

· 95,400 shares for past consulting services by an entity controlled by an officer of the Company, which were previously accrued in the amount of $333,902;

· 30,000 shares for a bonus to an entity controlled by an officer of the Company for consulting services, the value on the date of grant was $105,000;

· 80,000 shares for a bonus to the CEO of the Company for signing an employment agreement with the Company, the value at the date of grant was $320,000, which cannot convert to common stock until the Company has 20,000 members.

The securities issued in the above transactions were not registered under the Securities Act in reliance upon exemptions from registration under Section 4(2) of the Securities Act and rules and regulations promulgated thereunder.

Item 3.   Defaults Upon Senior Securities

As of the date of this report, notes payable to five unrelated parties with total principal amounts due of $2,150,000 are in default and unpaid (see Note 11).  These notes payable were due in November 2012, March 2013, and April 2013.  The Company continues to make payments on these notes payable.  In addition, notes payable due to related parties with total principal amounts of $2,364,726 are in default and unpaid.  These notes payable were due in June 2012, April 2013 and June 2013, or the Company is late on certain payments (see Note 12).

Item 5.     Other Information

None.

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Item 6. Exhibits

Exhibit Number	Description
10(x)	Employment Agreement with David Derrick, Chief Executive Officer (filed previously as exhibit to report on Form 10-Q, filed May 15, 2013)*
10(xi)	Common Stock Purchase Warrant Agreement with David Derrick, Chief Executive Officer (filed previously as exhibit to report on Form 10-Q, filed May 15, 2013)*
10(xii)	Office Lease Agreement between the Company and Countryview  Properties, LLC (filed previously as exhibit to report on Form 10-Q, filed May 15, 2013)*
10(xiii)	Subscription Agreement
10(xiv)	Form of Secured Convertible Promissory Note
10(xv)	Security Agreement
31.1	Certification of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101 INS	XBRL Instance Document*
101 SCH	XBRL Schema Document*
101 CAL	XBRL Calculation Linkbase Document*
101 DEF	XBRL Definition Linkbase Document*
101 LAB	XBRL Labels Linkbase Document*
101 PRE	XBRL Presentation Linkbase Document*

*           The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ActiveCare, Inc.
	/s/  David G. Derrick
	David G. Derrick Chief Executive Officer (Principal Executive Officer) and Chairman of the Board of Directors

Date: August 27, 2013

/s/  Michael G. Acton

Michael G. Acton

Chief Financial Officer (Principal Financial and Accounting Officer)

Date: August 27, 2013

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EX-10.13

Exhibit 10.13

SUBSCRIPTION AGREEMENT

THIS SUBSCRIPTION AGREEMENT (this “Agreement”), is dated as of August 2, 2013, by and between ActiveCare Inc., a Delaware corporation (the “Company”), and the subscribers identified on Schedule 1 hereto, which may be amended from time to time prior to Closing (the “Subscribers”).

WHEREAS, the Company and the Subscribers are executing and delivering this Agreement in reliance upon an exemption from securities registration afforded by the provisions of Section 4(2), Section 4(6) and/or Regulation D (“Regulation D”) as promulgated by the United States Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “1933 Act”); and

WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue and sell to the Subscribers, as provided herein, and the Subscribers shall purchase, in the aggregate, convertible secured promissory notes of the Company (“Note” or “Notes”) having an aggregate principal amount of up to $550,000 (“Principal Amount”), a form of which is annexed hereto as Exhibit A, convertible into shares of the Company’s common stock, $0.00001 par value (the “Common Stock”) at a per share conversion price set forth in the Notes (“Conversion Price”) (the “Offering”).  The Notes, and the shares of Common Stock issuable upon conversion of the Notes (the “Conversion Shares”) are collectively referred to herein as the “Securities”; and

  WHEREAS, the aggregate proceeds of the sale of the Notes contemplated hereby (“Purchase Price”) shall be held in escrow by Grushko & Mittman, P.C., 515 Rockaway Avenue, Valley Stream, New York 11581 (the “Escrow Agent”) pursuant to the terms of an Escrow Agreement to be executed by the parties substantially in the form attached hereto as Exhibit B (the “Escrow Agreement”).

NOW, THEREFORE, in consideration of the mutual covenants and other agreements contained in this Agreement the Company and the Subscribers hereby agree as follows:

1.           Closing.  Subject to the satisfaction or waiver of the terms and conditions of this Agreement, on the “Closing Date” Subscribers shall purchase and the Company shall sell to such Subscribers the Notes as described in Section 2 below.  The date the Escrow Agent releases the funds received from one or more Subscribers to the Company and releases the Escrow Documents (as defined in the Escrow Agreement) to the parties in accordance with the provisions of the Escrow Agreement shall be the Closing Date with respect to such released funds and Escrow Documents, and such release is referred to herein as the “Closing.”  There shall be only one Closing.

2.           Notes.

(a)           Notes.   Subject to the satisfaction or waiver of the terms and conditions of this Agreement, on the Closing Date, each Subscriber shall purchase from the Company, and the Company shall sell to each such Subscriber, a Note in the Principal Amount designated on Schedule 1 hereto for each such Subscriber’s Purchase Price indicated thereon.

(b)           Allocation of Purchase Price.   The Purchase Price will be allocated by each Subscriber, at each Subscriber’s election, among the components of the Securities so that each component of the Securities will be fully paid and non-assessable, and acquired for value.

3.           Security Interest.   On the Closing Date, the Subscribers will appoint a collateral agent (the “Collateral Agent”) to act on behalf of the Subscribers as set forth in a “Security Agreement,” a form of which is annexed hereto as Exhibit C.  The Collateral Agent will be granted a security interest in the assets of the Company and 4G Biometrics LLC, a wholly-owned Subsidiary of the Company (“Subsidiary”) on behalf of the Subscribers, which security interest will be memorialized in the Security Agreement.  The Company will acknowledge the appointment of the Collateral Agent to act on behalf of the Subscribers as set forth in the Security Agreement.   The Company will execute such other agreements, documents and financing statements reasonably requested by the Subscribers and the Collateral Agent to memorialize and further protect the security interest described herein, which will be filed at the Company’s expense with the jurisdictions, states and counties designated by the Subscribers.  Subsequent to the Closing, the Company will also execute all such documents reasonably necessary in the opinion of the Collateral Agent to memorialize and further protect the security interest described herein which will be prepared and filed at the Company’s expense with the jurisdictions, states and filing offices designated by the Collateral Agent.

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4.           Subscriber Representations and Warranties.  Each of the Subscribers hereby represents and warrants to and agrees with the Company with respect only to such Subscriber that:

(a)           Organization and Standing of the Subscriber.  Subscriber, to the extent applicable, is an entity duly formed, validly existing and in good standing under the laws of the jurisdiction of its formation.

(b)           Authorization and Power.  Such Subscriber has the requisite power and authority to enter into and perform this Agreement and the other Transaction Documents (as defined herein) and to purchase the Note being sold to it hereunder.  The execution, delivery and performance of this Agreement and the other Transaction Documents by such Subscriber and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate or similar action, and no further consent or authorization of Subscriber or its board of directors, members or stockholders, if applicable, is required.  This Agreement and the other Transaction Documents have been duly authorized, executed and delivered by such Subscriber and constitutes, or shall constitute, when executed and delivered, a valid and binding obligation of such Subscriber, enforceable against Subscriber in accordance with the terms thereof.

(c)           No Conflicts.  The execution, delivery and performance of this Agreement and the other Transaction Documents and the consummation by such Subscriber of the transactions contemplated hereby and thereby or relating hereto do not and will not (i) result in a violation of such Subscriber’s charter documents, bylaws or other organizational documents, if applicable; (ii) conflict with nor constitute a default (or an event which with notice or lapse of time or both would become a default) under any agreement to which such Subscriber is a party; or (iii) result in a violation of any law, rule, or regulation, or any order, judgment or decree of any court or governmental agency applicable to such Subscriber or its properties (except for such conflicts, defaults and violations as would not, individually or in the aggregate, have a material adverse effect on Subscriber).  Such Subscriber is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under this Agreement and the other Transaction Documents  nor to purchase the Securities in accordance with the terms hereof, provided that for purposes of the representation made in this sentence, such Subscriber is assuming and relying upon the accuracy of the relevant representations and agreements of the Company herein.

(d)           Information on Company.   Such Subscriber has been furnished with or has had access to the EDGAR Website of the Commission to the Company’s filings made with the Commission during the period from the date that is two years preceding the date hereof through the tenth Business Day (as defined in Section 13(h) herein) preceding the Closing Date (hereinafter referred to collectively as the “Reports”).  Subscribers are not deemed to have any knowledge of any information not included in the Reports unless such information is delivered in the manner described in the next sentence.  In addition, such Subscriber may have received in writing from the Company such other information concerning its operations, financial condition and other matters as such Subscriber has requested in writing, identified thereon as OTHER WRITTEN INFORMATION (such other information is collectively, the “Other Written Information”), and considered all factors such Subscriber deems material in deciding on the advisability of investing in the Securities.  Such Subscriber was afforded (i) the opportunity to ask such questions as such Subscriber deemed necessary of, and to receive answers from, representatives of the Company concerning the merits and risks of acquiring the Securities; (ii) the right of access to information about the Company and its financial condition, results of operations, business, properties, management and prospects sufficient to enable such Subscriber to evaluate the Securities; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to acquiring the Securities.

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(e)           Information on Subscriber.   Such Subscriber is, and will be at the time of the conversion of the Notes, an “accredited investor,” as such term is defined in Regulation D promulgated by the Commission under the 1933 Act, is experienced in investments and business matters, has made investments of a speculative nature and has purchased securities of United States publicly-owned companies in private placements in the past and, with its representatives, has such knowledge and experience in financial, tax and other business matters as to enable such Subscriber to utilize the information made available by the Company to evaluate the merits and risks of and to make an informed investment decision with respect to the proposed purchase, which represents a speculative investment.  Such Subscriber has the authority and is duly and legally qualified to purchase and own the Securities.  Such Subscriber is able to bear the risk of such investment for an indefinite period and to afford a complete loss thereof.  The information set forth on Schedule 1hereto regarding such Subscriber is accurate.

(f)           Purchase of Notes.  On the Closing Date, such Subscriber will purchase the Note as principal for its own account for investment only and not with a view toward, or for resale in connection with, the public sale or any distribution thereof.

(g)           Restricted Securities.   Such Subscriber understands that the Securities have not been registered under the 1933 Act nor under any state securities laws or regulations and such Subscriber shall not sell, offer to sell, assign, pledge, hypothecate or otherwise transfer any of the Securities unless pursuant to an effective registration statement under the 1933 Act, or unless an exemption from registration is available.  Notwithstanding anything to the contrary contained in this Agreement, such Subscriber may transfer (without restriction and without the need for an opinion of counsel) the Securities to its Affiliates (as defined below), provided that each such Affiliate is an “accredited investor,” as such term is defined under Regulation D, and such Affiliate agrees in writing to be bound by the terms and conditions of this Agreement.  For the purposes of this Agreement, an “Affiliate” of any person or entity means any other person or entity directly or indirectly controlling, controlled by or under direct or indirect common control with such person or entity.   For purposes of this definition, “control” means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise.   In any event, and subject to compliance with applicable securities laws, Subscriber may enter into lawful hedging transactions in the course of hedging the position they assume and the Subscriber may also enter into lawful Short Sales or other derivative transactions relating to the Securities, or interests in the Securities, and deliver the Securities, or interests in the Securities, to close out their short or other positions or otherwise settle other transactions, or loan or pledge the Securities, or interests in the Securities, to third parties who in turn may dispose of these Securities.  Subscriber agrees not to engage in short Sales prior to 180 days after the Closing Date.

(h)           Conversion Shares Legend.  The Conversion Shares shall bear the following or similar legend:

“THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”

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(i)           Notes Legend.  The Notes shall bear the following legend:

“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE -OR-  EXERCISABLE] HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”

(j)           Communication of Offer.  The offer to sell the Securities was directly communicated to such Subscriber by the Company.  At no time was such Subscriber presented with or solicited by any leaflet, newspaper or magazine article, radio or television advertisement, or any other form of general advertising or solicited or invited to attend a promotional meeting otherwise than in connection and concurrently with such communicated offer.

(k)           No Governmental Review.  Such Subscriber understands that no United States federal or state agency or any other governmental or state agency has passed on or made recommendations or endorsement of the Securities or the suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities.

(l)           Correctness of Representations.  Subscriber represents that the foregoing representations and warranties are true and correct as of the date hereof and, unless Subscriber otherwise notifies the Company prior to the Closing Date, shall be true and correct as of the Closing Date.

(m)           Independent Decision.  The decision of such Subscriber to purchase Securities has been made by such Subscriber independently of any other Subscriber and independently of any information, materials, statements or opinions as to the business, affairs, operations, assets, properties, liabilities, results of operations, condition (financial or otherwise) or prospects of the Company which may have been made or given by any other Subscriber or by any agent or employee of any other Subscriber, and no Subscriber or any of its agents or employees shall have any liability to any other Subscriber (or any other person) relating to or arising from any such information, materials, statements or opinions.

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(n)           No General Solicitation.  Such Subscriber is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

(o)           Survival.  The foregoing representations and warranties shall survive the Closing Date.

5.           Company Representations and Warranties.  Except as set forth in the Schedules or in the Reports, the Company represents and warrants to and agrees with each Subscriber that:

(a)           Due Incorporation.   The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has the requisite corporate power to own its properties and to carry on its business as presently conducted.  The Company is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction where the nature of the business conducted or property owned by it makes such qualification necessary, other than those jurisdictions in which the failure to so qualify would not have a Material Adverse Effect (as defined herein).  For purposes of this Agreement, a “Material Adverse Effect” shall mean a material adverse effect on the financial condition, results of operations, properties or business of the Company and its Subsidiaries taken as a whole.  For purposes of this Agreement, “Subsidiary” means, with respect to any entity at any date, any direct or indirect corporation, limited or general partnership, limited liability company, trust, estate, association, joint venture or other business entity of which (A) more than 30% of (i) the outstanding capital stock having (in the absence of contingencies) ordinary voting power to elect a majority of the board of directors or other managing body of such entity, (ii) in the case of a partnership or limited liability company, the interest in the capital or profits of such partnership or limited liability company or (iii) in the case of a trust, estate, association, joint venture or other entity, the beneficial interest in such trust, estate, association or other entity business is, at the time of determination, owned or controlled directly or indirectly through one or more intermediaries, by such entity, or (B) is under the actual control of the Company.  The Company represents that as of the date of this Agreement and the Closing Date, the Company owns the Subsidiaries identified on Schedule 5(a) and the amount of equity of each such Subsidiary as set forth on Schedule 5(a).  The Company further represents that it has not been known by any other names for the five (5) years preceding the date of this Agreement.

(b)           Outstanding Stock.  All issued and outstanding shares of capital stock and equity interests in the Company have been duly authorized and validly issued and are fully paid and non-assessable.

(c)           Authority; Enforceability.  This Agreement, the Notes, Security Agreement, Subsidiary Guaranty, Personal Guaranty (as defined in Section 13 hereof), the Escrow Agreement, and any other agreements delivered or required to be delivered together with or pursuant to this Agreement or in connection herewith (collectively “Transaction Documents”) have been duly authorized, executed and delivered by the Company and are valid and binding agreements of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights generally and to general principles of equity.   The Company has full corporate power and authority necessary to enter into and deliver the Transaction Documents and to perform its obligations thereunder.

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(d)           Capitalization and Additional Issuances.   The authorized and outstanding capital stock of the Company on a fully diluted basis and all outstanding rights to acquire or receive, directly or indirectly, any equity of the Company or any Subsidiary as of the date of this Agreement and the Closing Date (not including the Securities) are set forth on Schedule 5(d).  Except as set forth on Schedule 5(d), there are no options, warrants, or rights to subscribe to, securities, rights, understandings or obligations convertible into or exchangeable for or granting any right to subscribe for any shares of capital stock or other equity interest of the Company.  The only officer, director, employee and consultant stock option or stock incentive plan or similar plan currently in effect or contemplated by the Company (as the same may be amended only to extend the expiration of the term of the plan) is described on Schedule 5(d).  Except as set forth on Schedule 5(d), there are no preemptive rights, rights of first refusal, rights of participation or any similar right to participate in the transactions contemplated by the Transaction Documents.

(e)           Consents.  No consent, approval, authorization or order of any court, governmental agency or body or arbitrator having jurisdiction over the Company, Subsidiaries or any of their Affiliates, any Principal Market [as defined in Section 9(b)], or the Company’s stockholders is required for the execution by the Company of the Transaction Documents and compliance and performance by the Company of its obligations under the Transaction Documents, including, without limitation, the issuance and sale of the Securities.  The Transaction Documents and the Company’s performance of its obligations thereunder have been approved by the Company’s board of directors in accordance with the Company’s certificate of incorporation and applicable law.  Any such qualifications and filings will, in the case of qualifications, be effective upon Closing and will, in the case of filings, be made within the time prescribed by law.

(f)           No Violation or Conflict.  Assuming the representations and warranties of the Subscriber in Section 4 are true and correct, neither the issuance nor the sale of the Securities nor the performance of the Company’s obligations under the Transaction Documents by the Company, will:

(i)           violate, conflict with, result in a breach of, or constitute a default (or an event which with the giving of notice or the lapse of time or both would be reasonably likely to constitute a default) under (A) the articles or certificate of incorporation, charter or bylaws of the Company, (B) to the Company’s knowledge, any decree, judgment, order, law, treaty, rule, regulation or determination applicable to the Company of any court, governmental agency or body, or arbitrator having jurisdiction over the Company or over the properties or assets of the Company or any of its Affiliates, (C) the terms of any bond, debenture, note or any other evidence of indebtedness, or any agreement, stock option or other similar plan, indenture, lease, mortgage, deed of trust or other instrument to which the Company or any of its Affiliates is a party, by which the Company or any of its Affiliates is bound, or to which any of the properties of the Company or any of its Affiliates is subject, or (D) the terms of any “lock-up” or similar provision of any underwriting or similar agreement to which the Company, or any of its Affiliates is a party, except in each case the violation, conflict, breach, or default of which would not have a Material Adverse Effect; or

(ii)           result in the creation or imposition of any lien, charge or encumbrance upon the Securities or any of the assets of the Company or any of its Affiliates except in favor of each Subscriber as described herein; or

(iii)           result in the activation of any rights of first refusal, participation rights, pre-emptive rights, anti-dilution rights or a reset or repricing of any debt, equity or security instrument of any creditor or equity holder of the Company, or the holder of the right to receive any debt, equity or security instrument of the Company nor result in the acceleration of the due date of any obligation of the Company; or

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(iv)           result in the triggering of any piggy-back or other registration rights of any person or entity holding securities of the Company or having the right to receive securities of the Company.

(g)           The Securities.  The Securities upon issuance:

(i)           are, or will be, free and clear of any security interests, liens, claims or other encumbrances, subject only to restrictions upon transfer under the 1933 Act and any applicable state securities laws;

(ii)           have been, or will be, duly and validly authorized and on the dates of issuance of the Notes, and the Conversion Shares upon conversion of the Notes, such Notes, and Conversion Shares will be duly and validly issued, fully paid and non-assessable and if registered pursuant to the 1933 Act and resold pursuant to an effective registration statement or an exemption from registration, will be free trading, unrestricted and unlegended;

(iii)           will not have been issued or sold in violation of any preemptive or other similar rights of the holders of any securities of the Company or rights to acquire securities or debt of the Company;

(iv)           will not subject the holders thereof to personal liability by reason of being such holders;

(v)           assuming the representations and warranties of the Subscribers as set forth in Section 4 hereof are materially true and correct, will not result in a violation of Section 5 under the 1933 Act.

(h)           Litigation.  Other than as disclosed in the Reports, there is no pending or, to the best knowledge of the Company, threatened action, suit, proceeding or investigation before any court, governmental agency or body, or arbitrator having jurisdiction over the Company or any of its Affiliates that would affect the execution by the Company or the complete and timely performance by the Company of its obligations under the Transaction Documents.  Except as disclosed in the Reports, there is no pending or, to the best knowledge of the Company, basis for or threatened action, suit, proceeding or investigation before any court, governmental agency or body, or arbitrator having jurisdiction over the Company, or any of its Affiliates which litigation if adversely determined would have a Material Adverse Effect.

(i)           No Market Manipulation.  The Company and its Affiliates have not taken, and will not take, directly or indirectly, any action designed to, or that might reasonably be expected to, cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Securities or affect the price at which the Securities may be issued or resold in violation of Regulation M promulgated under the 1934 Act.

(j)           Information Concerning Company.  As of the date of this Agreement and the Closing Date, the Reports contain all material information relating to the Company and its operations and financial condition as of their respective dates required to be disclosed therein. Since September 30, 2012, and except as disclosed in the Reports or modified in the Reports and Other Written Information or in the Schedules hereto, there has been no Material Adverse Effect relating to the Company’s business, financial condition or affairs. The Reports and Other Written Information including the financial statements included therein do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, taken as a whole, not misleading in light of the circumstances and when made.  The financial statements of the Company included in the Reports comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission or other applicable rules and regulations with respect thereto.  Such financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) applied on a consistent basis during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements), and fairly present in all material respects the financial position of the Company and Subsidiaries as of the dates thereof and the results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).

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(k)           Solvency.  Based on the consolidated financial condition of the Company as of the Closing Date, after giving effect to the receipt by the Company of the proceeds from the Offering, (i) the Company’s fair saleable value of its assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature; (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business for the current fiscal year as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof; and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its debt when such amounts are required to be paid.  The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt).

(l)           Defaults.  The Company is not in violation of its certificate of incorporation or bylaws.   The Company is (i) not in default under or in violation of any other material agreement or instrument to which it is a party or by which it or any of its properties are bound or affected, which default or violation would have a Material Adverse Effect, (ii) not in default with respect to any order of any court, arbitrator or governmental body or subject to or party to any order of any court or governmental authority arising out of any action, suit or proceeding under any statute or other law respecting antitrust, monopoly, restraint of trade, unfair competition or similar matters which default would have a Material Adverse Effect, or (iii) not in violation of any statute, rule or regulation of any governmental authority which violation would have a Material Adverse Effect.

(m)           No Integrated Offering.   Except as set forth on Schedule 5(m), neither the Company, nor any of its Affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security of the Company nor solicited any offers to buy any security of the Company under circumstances that would cause the offer of the Securities pursuant to this Agreement to be integrated with prior offerings by the Company for purposes of the 1933 Act or any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of the OTCQB [as defined in Section 5(v)].  No prior offering will impair the exemptions relied upon in this Offering or the Company’s ability to timely comply with its obligations hereunder.  Neither the Company nor any of its Affiliates will take any action or suffer any inaction or conduct any offering other than the transactions contemplated hereby that may be integrated with the offer or issuance of the Securities or that would impair the exemptions relied upon in this Offering or the Company’s ability to timely comply with its obligations hereunder.

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(n)           No General Solicitation.  Neither the Company, nor any of its Affiliates, nor to its knowledge, any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the 1933 Act) in connection with the offer or sale of the Securities.

(o)           No Undisclosed Liabilities.  The Company has no liabilities or obligations which are material, individually or in the aggregate, other than those set forth on its financial statements contained in the Reports or those incurred in the ordinary course of the Company’s business since September 30, 2012, and which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.

(p)           No Undisclosed Events or Circumstances.  Since September 30, 2012, except as disclosed in the Reports, no event or circumstance has occurred or exists with respect to the Company or its businesses, properties, operations or financial condition, that, under applicable law, rule or regulation, requires public disclosure or announcement prior to the date hereof by the Company but which has not been so publicly announced or disclosed in the Reports.

(q)           Dilution.   The Company’s executive officers and directors understand the nature of the Securities being sold hereby and recognize that the issuance of the Securities will have a potential dilutive effect on the equity holdings of other holders of the Company’s equity or rights to receive equity of the Company.  The board of directors of the Company has concluded, in its good faith business judgment, that the issuance of the Securities is in the best interests of the Company.  The Company specifically acknowledges that its obligation to issue the Conversion Shares upon conversion of the Notes is binding upon the Company and enforceable regardless of the dilution such issuance may have on the ownership interests of other stockholders of the Company or parties entitled to receive equity of the Company.

(r)           No Disagreements with Accountants and Lawyers.  There are no material disagreements of any kind presently existing, or reasonably anticipated by the Company to arise between the Company and the accountants and lawyers previously and presently employed by the Company, including but not limited to disputes or conflicts over payment owed to such accountants and lawyers, nor have there been any such disagreements during the two years prior to the Closing Date.  The Company’s accounting firm is set forth on Schedule 5(r).  To the knowledge and belief of the Company, such accounting firm: (i) is a registered public accounting firm as required by the Exchange Act and (ii) shall express its opinion with respect to the financial statements to be included in the Company’s Annual Report for the fiscal year ending September 30, 2013.

(s)           Investment Company.  Neither the Company nor any Affiliate of the Company is an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

(t)           Foreign Corrupt Practices.   Neither the Company, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company, has (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any person acting on its behalf of which the Company is aware) which is  in violation of law, or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.

(u)           Reporting Company/Shell Company.  The Company is a publicly-held company subject to reporting obligations pursuant to Section 13 of the Securities Exchange Act of 1934, as amended (the “1934 Act”), and has a class of securities registered pursuant to Section 12(g) of the 1934 Act.  Pursuant to the provisions of the 1934 Act, the Company has timely filed all reports and other materials required to be filed thereunder with the Commission during the preceding twelve months.  As of the Closing Date, the Company is not a “shell company” nor a “former shell company” as those terms are employed in Rule 144 under the 1933 Act.

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(v)           Listing.  The Company’s Common Stock is quoted on the OTC Bulletin Board of the OTC Market Groups, Inc. (“OTCBB”) under the symbol ACAR.  The Company has not received any pending oral or written notice that its Common Stock is not eligible nor will become ineligible for quotation on the OTCBB nor that its Common Stock does not meet all requirements for the continuation of such quotation.

(w)           DTC Status.  The Company’s transfer agent is a participant in and the Common Stock is eligible for transfer pursuant to the Depository Trust Company Automated Securities Transfer Program.   The name, address, telephone number, fax number, contact person and email address of the Company transfer agent is set forth on Schedule 5(w) hereto.

(x)           Title to Assets.  The Company owns no real property.  Except as may be sold in the ordinary course of business, the Company has good title to all of its personal property reflected in the Reports, free and clear of any mortgages, pledges, charges, liens, security interests or other encumbrances, except for those that, individually or in the aggregate, do not cause and are not reasonably likely to cause a Material Adverse Effect.  All leases of the Company are valid and subsisting and in full force and effect.

(y)           Compliance with Law. The business of the Company has been and is presently being conducted in accordance with all applicable federal, state, local and foreign governmental laws, rules, regulations and ordinances, except for such noncompliance that, individually or in the aggregate, would not cause a Material Adverse Effect. The Company has all franchises, permits, licenses, consents and other governmental or regulatory authorizations and approvals necessary for the conduct of its business as now being conducted by it unless the failure to possess such franchises, permits, licenses, consents and other governmental or regulatory authorizations and approvals, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.

(z)           Taxes. The Company has accurately prepared and filed all federal, state, foreign and other tax returns required by law to be filed by it, has paid or made provisions for the payment of all taxes shown to be due and all additional assessments, and adequate provisions have been and are reflected in the financial statements of the Company for all current taxes and other charges to which the Company is subject and that are not currently due and payable. None of the federal income tax returns of the have been audited by the Internal Revenue Service (the “IRS”). The Company has no knowledge of any additional assessments, adjustments or contingent tax liability (whether federal or state) of any nature whatsoever, whether pending or threatened against the Company for any completed tax period, nor of any basis for any such assessment, adjustment or contingency.

(aa)           Intellectual Property.

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(i)           The term “Intellectual Property Rights” includes:

1.    the name of the Company and each Subsidiary, all fictional business names, trading names, registered and unregistered trademarks, service marks, and applications of the Company and each Subsidiary (collectively, “Marks'');

2.   all patents, patent applications, and inventions and discoveries that may be patentable of the Company and each Subsidiary  (collectively, “Patents'');

3.   all copyrights in both published works and published works of the Company and each Subsidiary (collectively, “Copyrights”);

4.   all rights in mask works of the Company and each Subsidiary (collectively, “Rights in Mask Works''); and

5.   all know-how, trade secrets, confidential information, customer lists, software, technical information, data, process technology, plans, drawings, and blue prints (collectively, “Trade Secrets''); owned, used, or licensed by the Company and each Subsidiary as licensee or licensor.

(ii)           Agreements. There are no outstanding and, to Company’s knowledge, no threatened disputes or disagreements with respect to any agreements relating to any Intellectual Property Rights to which the Company is a party or by which the Company is bound.

(iii)           Know-How Necessary for the Business.  The Intellectual Property Rights are all those necessary for the operation of the Company’s businesses as it is currently conducted or as represented, in writing, to the Purchaser to be conducted. The Company is the owner of all right, title, and interest in and to each of the Intellectual Property Rights, free and clear of all liens, security interests, charges, encumbrances, equities, and other adverse claims, and has the right to use all of the Intellectual Property Rights.  To the Company’s knowledge, no employee of the Company has entered into any contract that restricts or limits in any way the scope or type of work in which the employee may be engaged or requires the employee to transfer, assign, or disclose information concerning his work to anyone other than of the Company.

(iv)           Patents. The Company is the owner of all right, title and interest in and to each of the Patents, free and clear of all Liens and other adverse claims.  All of the issued Patents are currently in compliance with formal legal requirements (including payment of filing, examination, and maintenance fees and proofs of working or use), are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within ninety days after the Closing Date.  No Patent has been or is now involved in any interference, reissue, reexamination, or opposition proceeding.  To the Company’s knowledge except as set forth in Schedule 3.1(o): (1) there is no potentially interfering patent or patent application of any third party, and (2) no Patent is infringed or has been challenged or threatened in any way. To the Company’s knowledge, none of the products manufactured and sold, nor any process or know-how used, by the Company infringes or is alleged to infringe any patent or other proprietary right of any other Person.

(v)           Trademarks. The Company is the owner of all right, title, and interest in and to each of the Marks, free and clear of all Liens and other adverse claims.  All Marks that have been registered with the United States Patent and Trademark Office are currently in compliance with all formal legal requirements (including the timely post-registration filing of affidavits of use and incontestability and renewal applications), are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within ninety days after the Closing Date.  Except as set forth in Schedule 3.1(o), no Mark has been or is now involved in any opposition, invalidation, or cancellation and, to the Company’s knowledge, no such action is threatened with respect to any of the Marks.  To the Company’s knowledge: (1) there is no potentially interfering trademark or trademark application of any third party, and (2) no Mark is infringed or has been challenged or threatened in any way. To the Company’s knowledge, none of the Marks used by the Company infringes or is alleged to infringe any trade name, trademark, or service mark of any third party.

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(vi)           Copyrights. The Company is the owner of all right, title, and interest in and to each of the Copyrights, free and clear of all Liens and other adverse claims.  All the Copyrights have been registered and are currently in compliance with formal requirements, are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within ninety days after the date of Closing.  No Copyright is infringed or, to the Company’s knowledge, has been challenged or threatened in any way. To the Company’s knowledge, none of the subject matter of any of the Copyrights infringes or is alleged to infringe any copyright of any third party or is a derivative work based on the work of a third party. All works encompassed by the Copyrights have been marked with the proper copyright notice.

(vii)          Trade Secrets. The Company has taken all reasonable precautions to protect the secrecy, confidentiality, and value of its Trade Secrets. The Company has good title and an absolute (but not necessarily exclusive) right to use the Trade Secrets. The Trade Secrets are not part of the public knowledge or literature, and, to the Company’s knowledge, have not been used, divulged, or appropriated either for the benefit of any Person (other the Company) or to the detriment of the Company. No Trade Secret is subject to any adverse claim or has been challenged or threatened in any way.

(bb)           Books and Record Internal Accounting Controls. The books and records of the Company accurately reflect in all material respects the information relating to the business of the Company, the location and collection of its assets, and the nature of all transactions giving rise to the obligations or accounts receivable of the Company. The Company maintains a system of internal accounting controls sufficient, in the judgment of the Company, to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate actions are taken with respect to any differences. Except as set forth in the Company’s publicly filed reports (including but not limited to the Company’s reports on Forms 10-K and 10-Q), the Company has established disclosure controls and procedures (as defined in 1934 Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls and procedures to ensure that material information relating to the Company, including its Subsidiaries, is made known to the certifying officers by others within those entities.

(cc)           Material Agreements.  The Company is not a party to any written or oral contract, instrument, agreement, commitment, obligation, plan or arrangement, a copy of which would be required to be filed with the Commission as an exhibit to a registration statement on Form S-1 or applicable form (collectively, “Material Agreements”) if the Company was registering securities under the Securities Act, that has not been so filed.  The Company has in all material respects performed all the obligations required to be performed by them to date under the foregoing agreements, has received no notice of default and are not in default under any Material Agreement now in effect, the result of which could cause a Material Adverse Effect.  Except as set forth in the Company’s certificate of incorporation or in the Transaction Documents, no written or oral contract, instrument, agreement, commitment, obligation, plan or arrangement of the Company limits the payment of dividends on the Common Stock.

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(dd)           Transactions with Affiliates. Except as set forth in the Reports, there are no loans, leases, agreements, contracts, royalty agreements, management contracts or arrangements or other continuing transactions between (i) the Company on the one hand, and (ii) on the other hand, any officer or director of the Company, or any Affiliate.

(ee)           Sarbanes-Oxley Act. The Company is in material compliance with the applicable provisions of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), and the rules and regulations promulgated thereunder that are effective, and applicable to the Company as of the date hereof.

(ff)           Insurance.  The Company is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company is engaged.  To the best of Company’s knowledge, such insurance contracts and policies are valid and in full force and effect.  The Company has no reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business on terms consistent with market for the Company’s business.

(gg)           Application Of Takeover Protections. The Company and its Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s certificate of incorporation or the laws of its state of incorporation that is or could become applicable to the Subscribers as a result of the Subscribers and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation the Company’s issuance of the Securities and the Subscribers’ ownership of the Securities.

(hh)           Off-Balance Sheet Arrangements. There is no transaction, arrangement, or other relationship between the Company and an unconsolidated or other off balance sheet entity that is not disclosed in its financial statements that should be disclosed in accordance with GAAP and that would be reasonably likely to have a Material Adverse Effect.

(ii)           Material Non-Public Information. Except with respect to the transactions contemplated hereby that will be publicly disclosed, the Company has not provided any Subscriber or its agents or counsel with any information that the Company believes constitutes material non-public information.

(jj)           Environmental Compliance. The Company has obtained all approvals, authorization, certificates, consents, licenses, orders and permits or other similar authorizations of all governmental authorities, or from any other person, that are required under any Environmental Laws and used in its business or in the business of any of its Subsidiaries, unless the failure to possess such approvals, authorizations, certificates, consents, licenses, orders or permits, individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. “Environmental Laws” shall mean all applicable laws relating to the protection of the environment, including, without limitation, all requirements pertaining to reporting, licensing, permitting, controlling, investigating or remediating emissions, discharges, releases or threatened releases of hazardous substances, chemical substances, pollutants, contaminants or toxic substances, materials or wastes, whether solid, liquid or gaseous in nature, into the air, surface water, groundwater or land, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of hazardous substances, chemical substances, pollutants, contaminants or toxic substances, material or wastes, whether solid, liquid or gaseous in nature. Except for such instances as would not individually or in the aggregate have a Material Adverse Effect, the Company is also in compliance with all other limitations, restrictions, conditions, standards, requirements, schedules and timetables required or imposed under all Environmental Laws and there are no past or present events, conditions, circumstances, incidents, actions or omissions relating to or in any way affecting the Company that violate or may violate any Environmental Law after the Closing Date or that may give rise to any environmental liability, or otherwise form the basis of any claim, action, demand, suit, proceeding, hearing, study or investigation (i) under any Environmental Law, or (ii) based on or related to the manufacture, processing, distribution, use, treatment, storage (including without limitation underground storage tanks), disposal, transport or handling, or the emission, discharge, release or threatened release of any hazardous substance.

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(kk)           Money Laundering.  The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “Money Laundering Laws”), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge of the Company or any Subsidiary, threatened.

(ll)           Stock Option Plans. Each stock option granted by the Company under the Company’s stock option plan was granted (i) in accordance with the terms of the Company’s stock option plan and (ii) with an exercise price at least equal to the fair market value of the Common Stock on the date such stock option would be considered granted under GAAP and applicable law. No stock option granted under the Company’s stock option plan has been backdated.  The Company has not knowingly granted, and there is no and has been no Company policy or practice to knowingly grant, stock options prior to, or otherwise knowingly coordinate the grant of stock options with, the release or other public announcement of material information regarding the Company or its Subsidiaries or their financial results or prospects.

(mm)           Office of Foreign Assets Control.  Neither the Company nor any Subsidiary nor, to the Company's knowledge, any director, officer, agent, employee or affiliate of the Company is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”).

(nn)           Correctness of Representations.   The Company represents that the foregoing representations and warranties are true and correct as of the date hereof in all material respects, and, unless the Company otherwise notifies the Subscribers prior to the Closing Date, shall be true and correct in all material respects as of the Closing Date; provided, that, if such representation or warranty is made as of a different date, in which case such representation or warranty shall be true as of such date.  The Company makes each of the representations contained in Sections 5(a), (b), (c), (d), (e), (f), (h), (j), (k), (l), (o), (p), (r), (s), (t), (x), (y), (z), (aa), (bb), (cc), (dd), (ff), (gg), (hh), (jj), (kk), (ll), and (mm) of this Agreement, as same relate or could be applicable to each Subsidiary, mutatismutandum.  All representations made by or relating to the Company of a historical or prospective nature and all undertakings described in Section 9 shall relate, apply and refer to the Company and Subsidiaries and their predecessors and successors.

(oo)           Survival.  The foregoing representations and warranties shall survive the Closing Date.

6.           Regulation D Offering/Legal Opinion.  The offer and issuance of the Securities to the Subscribers is being made pursuant to the exemption from the registration provisions of the 1933 Act afforded by Section 4(2) or Section 4(6) of the 1933 Act and/or Rule 506 of Regulation D promulgated thereunder.  On the Closing Date, the Company will provide opinions reasonably acceptable to the Subscribers in substantially the form annexed hereto as Exhibit D from the Company’s legal counsel opining on the availability of an exemption from registration under the 1933 Act as it relates to the offer and issuance of the Securities and other matters reasonably requested by Subscribers.   The Company will provide, at the Company’s expense, to the Subscribers, such other legal opinions as are reasonably necessary in each Subscriber’s opinion for the issuance and resale of the Securities pursuant to an effective registration statement, Rule 144 under the 1933 Act or an exemption from registration at the time of disposition of the Securities, provided the sale of such Securities qualifies for such exemption or is covered by a Registration Statement.

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7.           Maximum Conversion.  A Subscriber shall not be entitled to convert on a Conversion Date that amount of a Note nor may the Company make any payment including principal, interest, or liquidated or other damages by delivery of Conversion Shares in connection with that number of Conversion Shares which would be in excess of the sum of (i) the number of shares of Common Stock beneficially owned by such Subscriber and its Affiliates on a Conversion Date or payment date, and (ii) the number of Conversion Shares issuable upon the conversion of the Note with respect to which the determination of this provision is being made on a calculation date, which would result in beneficial ownership by Subscriber and its Affiliates of more than 4.99% of the outstanding shares of Common Stock of the Company on such Conversion Date.  For the purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Rule 13d-3 thereunder.  Subject to the foregoing, the Subscriber shall not be limited to aggregate conversions of only 4.99% and aggregate conversions by the Subscriber may exceed 4.99%.  The Subscriber shall have the authority to determine whether the restriction contained in this Section 7 will limit any conversion of a Note and the extent such limitation applies and to which convertible or exercisable instrument or part thereof such limitation applies.  The Subscriber may increase the permitted beneficial ownership amount up to 9.99% upon and effective after 61 days prior written notice to the Company.  Subscriber may allocate which of the equity of the Company deemed beneficially owned by Subscriber shall be included in the 4.99% amount described above and which shall be allocated to the excess above 4.99%.

8.           Fees.

(a)           Broker’s Commission.  The Company on the one hand, and each Subscriber (for such Subscriber only) on the other hand, agrees to indemnify the other against and hold the other harmless from any and all liabilities to any persons claiming brokerage commissions or similar fees on account of services purported to have been rendered on behalf of the indemnifying party in connection with this Agreement or the transactions contemplated hereby and arising out of such party’s actions.  The Company represents that to the best of its knowledge, except as set forth on Schedule 8(a), there are no parties entitled to receive fees, commissions, finder’s fees, due diligence fees or similar payments for the Company in connection with the Offering.  The Company agrees to pay, upon Closing the fees described on Schedule 8(a) hereto (“Fees”).  Anything in this Agreement to the contrary notwithstanding, each Subscriber is providing indemnification only for such Subscriber’s own actions and not for any action of any other Subscriber.  The liability of the Company and each Subscriber’s liability hereunder is several and not joint.

(b)           Subscriber’s Legal Fees.   The Company shall pay to Grushko & Mittman, P.C., a cash fee of $12,000 (“Legal Fees”) as reimbursement for services rendered in connection with the transactions described in the Transaction Documents.  The Legal Fees will be payable out of funds held pursuant to the Escrow Agreement.  Grushko & Mittman, P.C. will be reimbursed at Closing by the Company for all lien searches, filing fees, and reasonable printing and shipping costs for the closing statements to be delivered to Subscribers.

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9.           Covenants of the Company.  The Company covenants and agrees with the Subscribers as follows:

(a)           Stop Orders.  Subject to the prior notice requirement described in Section 9(n), the Company will advise the Subscribers within twenty-four hours after it receives notice of issuance by the Commission, any state securities commission or any other regulatory authority of any stop order or of any order preventing or suspending any offering of any securities of the Company, or of the suspension of the qualification of the Common Stock of the Company for offering or sale in any jurisdiction, or the initiation of any proceeding for any such purpose.  The Company will not issue any stop transfer order or other order impeding the sale, resale or delivery of any of the Securities, except as may be required by any applicable federal or state securities laws, provided to the extent not in violation of such federal or state securities law at least five (5) days prior notice of such instruction is given to the Subscribers.

(b)           Listing/Quotation.   The Company shall promptly secure the quotation or listing of and include the Conversion Shares for listing upon each national securities exchange, electronic bulletin board, or automated quotation system upon which the Company’s Common Stock is quoted or listed and shall maintain same so long as any Securities are outstanding or are issuable.  The Company will maintain the quotation or listing of its Common Stock on the New York Stock Exchange, NYSE MKT, NASDAQ Capital Market, NASDAQ Global Market, NASDAQ Global Select Market, OTCBB, the OTCQB, or the OTC QX Marketplace, or New York Stock Exchange (whichever of the foregoing is at the time the principal trading exchange or market for the Common Stock (the “Principal Market”), and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Principal Market, as applicable.  Subject to the limitation set forth in Section 9(n), the Company will provide Subscribers with copies of all notices it receives notifying the Company of the threatened and actual delisting of the Common Stock from any Principal Market.  As of the date of this Agreement and the Closing Date, the OTCBB is the Principal Market.

(c)           Market Regulations.  If required, the Company shall notify the Commission, the Principal Market and applicable state authorities, in accordance with their requirements, of the transactions contemplated by this Agreement, and shall take all other necessary action and proceedings as may be required and permitted by applicable law, rule and regulation, for the legal and valid issuance of the Securities to the Subscribers and promptly provide copies thereof to the Subscribers.

(d)           Filing Requirements.   From the date of this Agreement and until the last to occur of (i) all the Conversion Shares have been resold or transferred by the Subscribers pursuant to a registration statement or pursuant to Rule 144(b)(1)(i), or (ii) none of the Notes are outstanding (the date of such latest occurrence being the “End Date”), the Company will (A) comply in all respects with its reporting and filing obligations under the 1934 Act, (B) voluntarily comply with all reporting requirements that are applicable to an issuer with a class of shares registered pursuant to Section 12(g) of the 1934 Act even if the Company is not subject to such reporting requirements sufficient to permit Subscriber to be able to resell the Conversion Shares pursuant to Rule 144(b)(i), and (C) comply with all requirements related to any registration statement filed pursuant to this Agreement.  The Company will use its commercially reasonable best efforts not to take any action or file any document (whether or not permitted by the 1933 Act or the 1934 Act or the rules thereunder) to terminate or suspend such registration or to terminate or suspend its reporting and filing obligations under said acts until the End Date.  Until the End Date, the Company will satisfy its obligations to continue the listing or quotation of the Common Stock on a Principal Market and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Principal Market.  The Company agrees to timely file a Form D with respect to the Securities if required under Regulation D promulgated under the 1934 Act.

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(e)           Use of Proceeds.   The proceeds of the Offering will be substantially employed by the Company for the purposes set forth on Schedule 9(e) hereto.  Except as described on Schedule 9(e), the proceeds of the Offering may not and will not be used for accrued and unpaid officer and director salaries, nor payment of financing related debt nor redemption of outstanding notes or equity instruments of the Company nor non-trade payables outstanding on the Closing Date.

(f)           Reservation.   Prior to the Closing, the Company undertakes to reserve on behalf of Subscribers from its authorized but unissued Common Stock, a number of shares of Common Stock equal to 150% of the amount of Common Stock necessary to allow Subscribers to be able to convert all of the Notes (including interest that would accrue thereon through the Maturity Date (as defined in the Notes)) (“Required Reservation”).   Failure to have sufficient shares reserved pursuant to this Section 9(f) at any time shall be a material default of the Company’s obligations under this Agreement and an Event of Default under the Notes.  Without waiving the foregoing requirement, if at any time Notes are outstanding the Company has reserved on behalf of the Subscribers less than 125% of the amount necessary for full conversion of the outstanding Note principal and interest at the conversion price in effect on every such date (“Minimum Required Reservation”), the Company will promptly reserve the Minimum Required Reservation, or if there are insufficient authorized and available shares of Common Stock to do so, the Company will take all action necessary to increase its authorized capital to be able to fully satisfy its reservation requirements hereunder, including the filing of a preliminary proxy with the Commission not later than fifteen (15) days after the first day the Company has reserved less than the Minimum Required Reservation.  The Company agrees to provide notice to the Subscribers not later than five days after the date the Company has less than the Minimum Required Reservation reserved on behalf of the Subscribers.

(g)           DTC Program.  At all times that Notes are outstanding, the Company will employ as the transfer agent for the Common Stock and Conversion Shares a participant in the Depository Trust Company Automated Securities Transfer Program and such Common Stock, and Conversion Shares will be maintained as eligible for transfer pursuant to the Depository Trust Automated Securities Transfer Program.

(h)           Taxes.  From the date of this Agreement and until the End Date, the Company will promptly pay and discharge, or cause to be paid and discharged, when due and payable, all lawful taxes, assessments and governmental charges or levies imposed upon the income, profits, property or business of the Company; provided, however, that any such tax, assessment, charge or levy need not be paid if the validity thereof shall currently be contested in good faith by appropriate proceedings and if the Company shall have set aside on its books adequate reserves with respect thereto, and provided, further, that the Company will pay all such taxes, assessments, charges or levies forthwith upon the commencement of proceedings to foreclose any lien which may have attached as security therefore.

(i)           Insurance.  As reasonably necessary as determined by the Company, from the date of this Agreement and until the End Date, the Company will keep its assets which are of an insurable character insured by financially sound and reputable insurers against loss or damage by fire, explosion and other risks customarily insured against by companies in the Company’s line of business and location, in amounts and to the extent and in the manner customary for companies in similar businesses similarly situated and located and to the extent available on commercially reasonable terms.

(j)           Books and Records.  From the date of this Agreement and until the End Date, the Company will keep true records and books of account in which full, true and correct entries will be made of all dealings or transactions in relation to its business and affairs in accordance with GAAP applied on a consistent basis.

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(k)           Governmental Authorities.   From the date of this Agreement and until the End Date, the Company shall duly observe and conform in all material respects to all requirements of governmental authorities relating to the conduct of its business and to its properties or assets.

(l)           Intellectual Property.  From the date of this Agreement and until the End Date, the Company shall use commercially reasonable efforts to maintain in full force and effect its corporate existence, rights and franchises and all licenses and other rights to Intellectual Property Rights.  Schedule 9(l) hereto identifies its Intellectual Property Rights.

(m)           Properties.  From the date of this Agreement and until the End Date, the Company will keep its properties in good repair, working order and condition, reasonable wear and tear excepted, and from time to time make all necessary and proper repairs, renewals, replacements, additions and improvements thereto; and the Company will at all times comply with each provision of all leases and claims to which it is a party or under which it occupies or has rights to property if the breach of such provision could reasonably be expected to have a Material Adverse Effect.  The Company will not abandon any of its assets except for those assets which have negligible or marginal value or for which it is prudent, in the Company’s reasonable judgment, to do so under the circumstances.

(n)           Confidentiality.   From the date of this Agreement and until the End Date, the Company agrees that except in connection with a Form 8-K, Form 10-Q, Form 10-K and any registration statement which registers the Securities or statements regarding the Subscribers’ ownership of the Securities or in correspondence with the Commission regarding same, it will not disclose publicly or privately the identity of the Subscribers unless (i) expressly agreed to in writing by Subscribers, (ii) as needed in any dispute or proceeding with a Subscriber, (iii) in response to an inquiry by a governmental agency or a self-regulatory organization or (iv) to the extent required by law and then only upon not less than four (4) days prior notice to Subscribers. The Company will specifically disclose in each Form 8-K filed until the End Date the amount of Common Stock outstanding immediately prior to such filing. Upon  delivery by the Company to the Subscribers after the Closing Date of any notice or information, in writing, electronically or otherwise, and while a Note, or Conversion Shares are held by such Subscribers, unless the  Company has in good faith determined that the matters relating to such notice or information do not constitute material, nonpublic information relating to the Company or Subsidiaries or unless such information is delivered to such Subscriber pursuant to a nondisclosure agreement between the Company and such Subscriber whereby such Subscriber has agreed to maintain material nonpublic information in confidence, the Company shall within four (4) days after any such delivery publicly disclose such  material,  nonpublic information on a Report on Form 8-K.  In the event that the Company believes that a notice or communication to Subscribers contains material, nonpublic information relating to the Company or Subsidiaries, except as required to be delivered in connection with this Agreement, the Company shall so indicate to Subscribers prior to delivery of such notice or information.  Subscribers will be granted five (5) days to notify the Company that Subscriber elects not to receive such information.  In the case that Subscriber elects not to receive such information, the Company will not deliver such information to Subscribers; provided that such failure to provide such information will not be deemed to be a default by the Company under the Transaction Documents.  In the absence of any such Company indication, Subscribers shall be allowed to presume that all matters relating to such notice and information do not constitute material, nonpublic information relating to the Company or Subsidiaries.  Notwithstanding anything to the contrary herein, the Company shall have no obligation to file a Report on Form 8-K and/or provide prior notification to a Subscriber in advance of delivering any notice or information that contains material nonpublic information to any Subscriber who is serving as a director or officer of the Company at the time of disclosure.  The Company agrees that any information known to Subscriber as of the Closing Date not already made public by the Company on or after the filing of the Form 8-K required to be filed pursuant to Section 9(o) below may be made public and disclosed by the Subscriber unless and to the extent that such information was disclosed to such Subscriber pursuant to a nondisclosure agreement between the Company and such Subscriber whereby such Subscriber has agreed to maintain material nonpublic information in confidence.

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(o)           Non-Public Information.  The Company covenants and agrees that except for the Reports, Other Written Information and schedules and exhibits to this Agreement and the Transaction Documents, which information together with the terms of the Offering, the Company undertakes to publicly disclose on a Form 8-K not later than one (1) Business Day after the Closing Date, neither it nor any other person acting on its behalf have or will at any time provide any Subscriber or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto such Subscriber, its agent or counsel shall have agreed in writing to accept such information as described in Section 9(n) above or unless such Subscriber is serving as a director or officer of the Company at the time of disclosure.  The Company understands and confirms that the Subscribers shall be relying on the foregoing representations in effecting transactions in securities of the Company.

(p)           Negative Covenants.   So long as Notes are outstanding, without the consent of a Majority in Interest (defined in Section 13(j) below), the Company will not and will not permit any of its Subsidiaries to directly or indirectly:

(i)           create, incur, assume or suffer to exist any pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest, security title, mortgage, security deed or deed of trust, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the Uniform Commercial Code or comparable law of any jurisdiction) (each, a “Lien”) upon any of its property, whether now owned or hereafter acquired except for (a) Liens upon the Company’s intellectual property in connection with a license, development, manufacturing or distribution transaction or other partnering arrangement; (b) Liens imposed by law for taxes that are not yet due or are being contested in good faith and for which adequate reserves have been established in accordance with GAAP; (c) carriers’, warehousemen’s, mechanic’s, material men’s, repairmen’s and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or that are being contested in good faith and by appropriate proceedings; (d) pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, unemployment insurance and other social security laws or regulations; (e) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; (f) Liens created with respect to the financing of the purchase of new property in the ordinary course of the Company’s business up to the amount of the purchase price of such property; and (g) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property (each of (a) through (g), a “Permitted Lien”);

                                            (ii)           amend its certificate of incorporation or bylaws so as to materially and adversely affect any rights of the Subscribers with respect to the Securities except to increase the number of shares of Common Stock authorized or to designate a new series of Preferred Stock;

(iii)           repay, repurchase or offer to repay, repurchase or otherwise acquire or make any dividend or distribution in respect of any of its Common Stock, preferred stock, or other equity securities other than to the extent permitted or required under the Transaction Documents;

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(iv)           except as set forth on Schedule 9(p)(iv), engage in any transactions with any officer, director, employee or any Affiliate of the Company, including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $100,000 [in one or more transactions, all of which will be aggregated for purposes of this Section 9(p)(iv)] other than (i) for payment of salary, or fees for services rendered, pursuant to and on the terms of a written contract in effect at least five (5) days prior to the Closing Date, a copy of which has been provided to the Subscriber at least four (4) days prior to the Closing Date or disclosed in the Reports at least four (4) days prior to the Closing Date, which contracts may be extended on terms customary and reasonable within the marketplace, (ii) reimbursement for authorized expenses incurred on behalf of the Company, (iii) for other employee benefits, including stock option agreements under any stock option plan of the Company disclosed in the Reports or on Schedule 5(d), or (iv) other transactions disclosed in the Reports; or

(v)           pay or redeem any financing related debt or securities outstanding as of the Closing Date.

(q)           Offering Restrictions.   Subject to the consent of a Majority in Interest, for so long as the Notes are outstanding, the Company will not enter into nor exercise any Equity Line of Credit or similar agreement, nor issue nor agree to issue any floating or Variable Priced Equity Linked Instruments nor any of the foregoing or equity with price reset rights (collectively, the “Variable Rate Restrictions”).   For purposes hereof, “Equity Line of Credit” shall include any transaction involving a written agreement between the Company and an investor or underwriter whereby the Company has the right to “put” its securities to the investor or underwriter over an agreed period of time and at an agreed price or price formula, and “Variable Priced Equity Linked Instruments” shall include: (A) any debt or equity securities which are convertible into, exercisable or exchangeable for, or carry the right to receive additional shares of Common Stock either (1) at any conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for Common Stock at any time after the initial issuance of such debt or equity security, or (2) with a fixed conversion, exercise or exchange price that is subject to being reset at some future date at any time after the initial issuance of such debt or equity security due to a change in the market price of the Company’s Common Stock since date of initial issuance, and (B) any amortizing convertible security which amortizes prior to its maturity date, where the Company is required or has the option to (or any investor in such transaction has the option to require the Company to) make such amortization payments in shares of Common Stock which are valued at a price that is based upon and/or varies with the trading prices of or quotations for Common Stock at any time after the initial issuance of such debt or equity security (whether or not such payments in stock are subject to certain equity conditions).

(r)           Seniority.   Except for Permitted Liens, until the Notes are fully satisfied or converted, without written consent of a Majority in Interest, the Company and Subsidiaries shall not grant nor allow any security interest to be taken in any assets of the Company or any Subsidiary or any Subsidiary’s assets; nor issue or amend any debt, equity or other instrument which would give the holder thereof directly or indirectly, a right in any assets of the Company or any Subsidiary or any right to payment equal to or superior to any right of the Subscribers as holders of the Notes in or to such assets or payment.

(s)           Notices.   For so long as the Subscribers hold any Notes is outstanding, the Company will maintain a United States address and United States fax number for notice and delivery purposes under the Transaction Documents.

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(t)           Transactions with Insiders.  Except as permitted pursuant to Section 9(p)(iv), so long as the Notes are outstanding, without a consent of a Majority in Interest, the Company shall not, and shall cause each of its Subsidiaries not to, enter into, materially amend, materially modify or materially supplement, or permit any Subsidiary to enter into, materially amend, materially modify or materially supplement, any agreement, transaction, commitment, or arrangement relating to the sale, transfer or assignment of any of the Company’s tangible or intangible assets with any of its Insiders (as defined below)(or any persons who were Insiders at any time during the previous two (2) years), or any Affiliates (as defined below) thereof, or with any individual related by blood, marriage, or adoption to any such individual.  “Affiliate” for purposes of this Section 9(t) means, with respect to any person or entity, another person or entity that, directly or indirectly, (i) has a five percent (5%) or more equity interest in that person or entity, (ii) has five percent (5%) or more common ownership with that person or entity, (iii) controls that person or entity, or (iv) shares common control with that person or entity.  For purposes hereof, “Insiders” shall mean any officer, or director of the Company, including but not limited to the Company’s president, chief executive officer, chief financial officer and chief operations officer, and any of their Affiliates or family members.

(u)           Reserved.

(v)           Notice of Event of Default.  The Company agrees to notify Subscriber of the occurrence of an Event of Default (as defined and employed in the Transaction Documents) not later than five (5) days after any of the Company’s officers or directors becomes aware of such Event of Default.

(w)           Further Registration Statements.    The Company will not, without the consent of a Majority in Interest, file with the Commission or with state regulatory authorities any registration statements, shares reserved for outside securities counsel, or amend any already filed registration statement to increase the amount of Common Stock registered therein, or reduce the price of which such company securities are registered therein, until the expiration of the “Exclusion Period,” which shall be defined as the sooner of (i) the date all of the Registrable Securities (as defined in Section 11.1) have been registered in an effective registration statement that has been effective for not less than six months, or (ii) until all the Conversion Shares may be resold by the Subscribers pursuant to a registration statement or Rule 144b(1)(i), without regard to volume limitations for a period of not less than six months.  The Exclusion Period will be tolled or reinstated, as the case may be, during the pendency of an Event of Default as defined in the Note.

(x)           The Company acknowledges and agrees that a Subscriber may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the 1933 Act and who agrees in writing with the Company to be bound by the provisions of this Agreement and, if required under the terms of such arrangement and subject to compliance with applicable federal and state securities laws, such Subscriber may transfer pledged or secured Securities to the pledgees or secured parties.  Absent special circumstances, such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith.  Further, no notice shall be required of such pledge.  At the appropriate Subscriber’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities.

10.           Covenants of the Company Regarding Indemnification.

(a)           The Company agrees to indemnify, hold harmless, reimburse and defend the Subscribers, the Subscribers’ officers, directors, agents, counsel, Affiliates, members, managers, control persons, and principal shareholders, against any claim, cost, expense, liability, obligation, loss or damage (including reasonable legal fees) of any nature, incurred by or imposed upon the Subscribers or any such person which results, arises out of or is based upon (i) any breach of any representation or warranty, or material misrepresentation, by Company in this Agreement or in any Exhibits or Schedules attached hereto in any Transaction Document, or other agreement delivered pursuant hereto or in connection herewith, now or after the date hereof; or (ii) after any applicable notice and/or cure periods, any breach or default in performance by the Company of any covenant or undertaking to be performed by the Company hereunder, or any other agreement entered into by the Company and Subscribers relating hereto.

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(b)           In no event shall the liability of the Subscribers or permitted successor hereunder or under any Transaction Document or other agreement delivered in connection herewith be greater in amount than the dollar amount of the net proceeds actually received by such Subscriber or successor upon the sale of Registrable Securities (as defined herein).

11.           Additional Post-Closing Obligations.

11.1.           Piggy-Back Registrations.   If  within six months after the Closing Date there is not an effective registration statement covering all of the Conversion Shares (“Registrable Securities”) and the Company determines to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the 1933 Act of any of its equity securities, but excluding Forms S-4 or S-8 and similar forms which do not permit such registration, then the Company shall send to each holder of any of the Securities written notice of such determination and, if within fifteen calendar days after receipt of such notice, any such holder shall so request in writing, the Company shall include in such registration statement all or any part of the Conversion Shares such holder requests to be registered, subject to customary underwriter cutbacks applicable to all holders of registration rights and any cutbacks in  accordance with guidance provided by the Securities and Exchange Commission (including, but not limited to, Rule 415).  The obligations of the Company under this Section may be waived by any holder of any of the Securities entitled to registration rights under this Section 11.1. The holders whose Conversion Shares are included or required to be included in such registration statement are granted the same rights, benefits, liquidated or other damages and indemnification granted to other holders of securities included in such registration statement.  In no event shall the liability of any holder of Securities or permitted successor in connection with any Conversion Shares included in any such registration statement be greater in amount than the dollar amount of the net proceeds actually received by such Subscriber upon the sale of the Conversion Shares sold pursuant to such registration or such lesser amount in proportion to all other holders of Securities included in such registration statement. All expenses incurred by the Company in complying with Section 11, including, without limitation, all registration and filing fees, printing expenses (if required), fees and disbursements of counsel and independent public accountants for the Company, fees and expenses (including reasonable counsel fees) incurred in connection with complying with state securities or “blue sky” laws, fees of the NASD, transfer taxes, and fees of transfer agents and registrars, are called “Registration Expenses.” All underwriting discounts and selling commissions applicable to the sale of registrable securities are called "Selling Expenses."  The Company will pay all Registration Expenses in connection with the registration statement under Section 11.  Selling Expenses in connection with each registration statement under Section 11 shall be borne by the holder and will be apportioned among such holders in proportion to the number of Shares included therein for a holder relative to all the Securities included therein for all selling holders, or as all holders may agree.

11.2.           Unlegended Shares and 144 Sales.

(a)           Delivery of Unlegended Shares.  Within six (6) business days (such third (3rd) day being the “Unlegended Shares Delivery Date”) after the day on which the Company has received (i) a notice that Conversion Shares, or any other Common Stock held by Subscriber has been sold pursuant to a registration statement or Rule 144 under the 1933 Act, (ii) a representation that the prospectus delivery requirements, or the requirements of Rule 144, as applicable and if required, have been satisfied, (iii) the original share certificates representing the shares of Common Stock that have been sold, and (iv) in the case of sales under Rule 144, customary representation letters of the Subscriber and, if required, Subscriber’s broker regarding compliance with the requirements of Rule 144 as well as any other documents reasonably requested by Company counsel, the Company at its expense, (y) shall deliver, and shall cause legal counsel selected by the Company to deliver to its transfer agent (with copies to Subscriber) an appropriate instruction and opinion of such counsel, directing the delivery of shares of Common Stock without any legends including the legend set forth in Section 4(h) above (the “Unlegended Shares”); and (z) cause the transmission of the certificates representing the Unlegended Shares together with a legended certificate representing the balance of the submitted Common Stock certificate, if any, to the Subscriber at the address specified in the notice of sale, via express courier, by electronic transfer or otherwise on or before the Unlegended Shares Delivery Date.

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(c)           Late Delivery of Unlegended Shares.   The Company understands that a delay in the delivery of the Unlegended Shares pursuant to Section 11.2 hereof later than the Unlegended Shares Delivery Date could result in economic loss to a Subscriber.  As compensation to a Subscriber for such loss, the Company agrees to pay late payment fees (as liquidated damages and not as a penalty) to the Subscriber for late delivery of Unlegended Shares in the amount of $100 per business day after the Unlegended Shares Delivery Date for each $10,000 of purchase price of the Unlegended Shares subject to the delivery default.  If during any 360 day period, the Company fails to deliver Unlegended Shares as required by this Section 11.2 for an aggregate of thirty days, then each Subscriber or assignee holding Securities subject to such default may, at its option, require the Company to redeem all or any portion of the Unlegended Shares subject to such default at a price per share equal to the greater of (i) 120% of the Purchase Price paid by the Subscriber for the Unlegended Shares that were not timely delivered, or (ii) a fraction in which the numerator is the highest closing price of the Common Stock during the aforedescribed thirty day period and the denominator of which is the lowest conversion price or exercise price, as the case may be, during such thirty day period, multiplied by the price paid by Subscriber for such Common Stock (“Unlegended Redemption Amount”).  The Company shall pay any payments incurred under this Section in immediately available funds upon demand.

(d)           Injunction.  In the event a Subscriber shall request delivery of Unlegended Shares as described in Section 11.2 and the Company is required to deliver such Unlegended Shares pursuant to Section 11.2, the Company may not refuse to deliver Unlegended Shares based on any claim that such Subscriber or anyone associated or affiliated with such Subscriber has not complied with Subscriber’s obligations under the Transaction Documents, or for any other reason, unless, an injunction or temporary restraining order from a court, on notice, restraining and or enjoining delivery of such Unlegended Shares shall have been sought and obtained by the Company and the Company has posted a surety bond for the benefit of such Subscriber in the amount of the greater of (i) 120% of the amount of the aggregate purchase price of the Common Stock which is subject to the injunction or temporary restraining order, (ii) the closing price of the Common Stock on the trading day before the issue date of the injunction multiplied by the number of Unlegended Shares to be subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such Subscriber to the extent Subscriber obtains judgment in Subscriber’s favor.

(e)           Buy-In.   In addition to any other rights available to Subscriber, if the Company fails to deliver to a Subscriber Unlegended Shares as required pursuant to this Agreement and after the Unlegended Shares Delivery Date the Subscriber, or a broker on the Subscriber’s behalf, purchases (in an open market transaction or otherwise) shares of common stock to deliver in satisfaction of a sale by such Subscriber of the shares of Common Stock which the Subscriber was entitled to receive from the Company (a “Buy-In”), then the Company shall promptly pay in cash to the Subscriber (in addition to any remedies available to or elected by the Subscriber) the amount by which (A) the Subscriber’s total purchase price (including brokerage commissions, if any) for the shares of common stock so purchased exceeds (B) the aggregate purchase price of the shares of Common Stock delivered to the Company for reissuance as Unlegended Shares together with interest thereon at a rate of 15% per annum accruing until such amount and any accrued interest thereon is paid in full (which amount shall be paid as liquidated damages and not as a penalty).  For example, if a Subscriber purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to $10,000 of purchase price of shares of Common Stock delivered to the Company for reissuance as Unlegended Shares, the Company shall be required to pay the Subscriber $1,000, plus interest. The Subscriber shall provide the Company written notice indicating the amounts payable to the Subscriber in respect of the Buy-In.

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  (f)           144 Default.   At any time commencing six months after the Closing Date, in the event the Subscriber is not permitted to sell any of the Conversion Shares without any restrictive legend or if such sales are permitted but subject to volume limitations or further restrictions on resale as a result of the unavailability to Subscriber of Rule 144(b)(1)(i) under the 1933 Act or any successor rule (a “144 Default”), for any reason including but not limited to failure by the Company to file quarterly, annual or any other filings required to be made by the Company by the required filing dates (provided that any filing made within the time for a valid extension shall be deemed to have been timely filed), or the Company’s failure to make information publicly available which would allow Subscriber’s reliance on Rule 144 in connection with sales of Conversion Shares, except due to a change in current applicable securities laws or because the Subscriber is an Affiliate (as defined under Rule 144) of the Company, then the Company shall pay such Subscriber as liquidated damages and not as a penalty for each thirty days (or such lesser pro-rata amount for any period less than thirty days) an amount equal to two percent (2%) of the purchase price of the Conversion Shares subject to such 144 Default.  Liquidated Damages shall not be payable pursuant to this Section 11.2(f) in connection with Shares for such times as such Shares may be sold by the holder thereof without any legend or volume or other restrictions pursuant to Section 144(b)(1)(i) of the 1933 Act or pursuant to an effective registration statement.

12.           (a)           Favored Nations Provision.  Other than in connection with (i) full or partial consideration in connection with a bona fide strategic merger, acquisition, consolidation or purchase of substantially all of the securities or assets of a corporation or other entity so long as such issuances are not for the purpose of raising capital and which holders of such securities or debt are not at any time granted registration rights, (ii) the Company’s issuance of securities in connection with bona fide strategic license agreements and other bona fide partnering arrangements so long as such issuances are not for the purpose of raising capital and which holders of such securities or debt are not at any time granted registration rights, (iii) the Company’s issuance of Common Stock or the issuances or grants of options to purchase Common Stock to employees and directors, pursuant to plans described on Schedule 5(d) as such plans are constituted on the Closing Date or contemplated to be amended or adopted as described on Schedule 5(d), (iv) the exercise or exchange of or conversion of any securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement on the unamended terms disclosed in the Reports and which securities are also described on Schedule 12(a), or (v) as a result of the conversion of Notes which are granted or issued pursuant to this Agreement (collectively, the foregoing (i) through (v) are “Excepted Issuances”), if at any time the Notes are outstanding, the Company shall agree to or issue (the “Lower Price Issuance”) any Common Stock or securities convertible into or exercisable for shares of Common Stock (or modify any of the foregoing which may be outstanding) to any person or entity at a price per share or conversion or exercise price per share which shall be less than the Conversion Price in effect at such time, without the consent of the a Majority in Interest, then the Conversion Price shall automatically be reduced to such other lower price.  The Conversion Price of the Conversion Shares shall be calculated separately for the Conversion Shares.  Common Stock issued or issuable by the Company for no consideration or for consideration that cannot be determined at the time of issue will be deemed issuable or to have been issued for $0.00001 per share of Common Stock.  For purposes of the adjustments described in this paragraph, the issuance of any security of the Company carrying the right to convert such security into shares of Common Stock or any warrant, right or option to purchase Common Stock shall result in the adjustment described above upon the sooner of (A) public announcement of, (B) the agreement to, or (C) actual issuance of such convertible security, warrant, right or options and again at any time upon any subsequent issuances of shares of Common Stock upon exercise of such conversion or purchase rights if such issuance is at a price lower than the Conversion Price in effect upon such issuance.  A convertible instrument (including a right to purchase equity of the Company) issued, subject to an original issue or similar discount or which principal amount is directly or indirectly increased after issuance will be deemed to have been issued for the actual cash amount received by the Company in consideration of such convertible instrument.  The rights of Subscribers set forth in this Section 12(a) are in addition to any other rights the Subscribers have pursuant to this Agreement, the Notes, any other Transaction Document, and any other agreement referred to or entered into in connection herewith or to which Subscribers and Company are parties.

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(b)           Right of Participation.  Until twelve (12) months following the Closing Date, the Subscribers hereunder shall be given not less than fifteen (15) days prior written notice of any proposed sale by the Company of its Common stock or other securities or equity linked debt obligations (“Other Offering”), except in connection with the Excepted Issuances.  If Subscribers elect to exercise their rights pursuant to this Section 12(b), the Subscribers shall have the right during the fifteen (15) days following receipt of the notice, to purchase in the aggregate up to all of such offered common stock, debt or other securities in accordance with the terms and conditions set forth in the notice of sale, relative to each other in proportion to the amount of Note Principal issued to them on Closing Date.  Subscribers who participate in such Other Offering shall be entitled at their option to purchase, in proportion to each other, the amount of such Other Offering that could have been purchased by Subscribers who do not exercise their rights hereunder until up to the entire Other Offering is purchased by Subscribers.  In the event such terms and conditions are modified during the notice period, Subscribers shall be given prompt notice of such modification and shall have the right during the fifteen (15) days following the notice of modification to exercise such right.

(c)           The Subscriber is granted the right to elect to substitute any term or terms of any other offering in connection with which the Subscriber has rights as described in Section 12(a) or Section 12(b), for any term or terms of the Offering in connection with Securities owned by Subscriber as of the date the Subscriber’s rights pursuant to Section 12(a) are triggered or the date notice described in Section 12(b) is required to be given to Subscriber, at Subscriber’s election.

(d)           Maximum Exercise of Rights.  In the event the exercise of the rights described in Section 12(a), Section 12(b) and Section 12(c) would or could result in the issuance of an amount of Common Stock of the Company that would exceed the maximum amount that may be issued to a Subscriber calculated in the manner described in Section 7 of this Agreement, then the issuance of such additional shares of Common Stock of the Company to such Subscriber (but not the payment to the Company of the purchase price for the common stock or other securities or equity linked debt obligations sold in the Other Offering) will be deferred in whole or in part until such time as such Subscriber is able to beneficially own such Common Stock without exceeding the applicable maximum amount set forth calculated in the manner described in Section 7.3 of this Agreement and such Subscriber notifies the Company accordingly.

13.           Guaranty.  At Closing, the Company will deliver the personal guaranty by the Company’s Founder, James J. Dalton, of all sums due under the Notes (“Personal Guaranty”).  The Guaranty will be in the form annexed hereto as Exhibit E.

14.           Miscellaneous.

(a)           Notices.  All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice in accordance with this Section 13(a).  Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a Business Day during normal business hours where such notice is to be received), or the first Business Day following such delivery (if delivered other than on a Business Day during normal business hours where such notice is to be received) or (b) on the second Business Day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur.  The addresses for such communications shall be:  if to the Company, to: ActiveCare Inc., 1365 West Business Park Drive, Orem, UT 84058, Attn: Mike Acton, facsimile: 855-864-2511, with a copy by fax only to (which shall not constitute notice): Durham Jones & Pinegar, 111 East Broadway, Suite 900, Salt Lake City, Utah 84111, Attn: C. Parkinson Lloyd, Esq., facsimile: (801) 415-3500, and (ii) if to the Holder, to the address and facsimile number listed on Schedule 1 hereto, with a copy by fax only to (which shall not constitute notice): Grushko & Mittman, P.C., 515 Rockaway Avenue, Valley Stream, New York 11581, facsimile: (212) 697-3575.

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(b)           Entire Agreement; Assignment.  This Agreement and other documents delivered in connection herewith represent the entire agreement between the parties hereto with respect to the subject matter hereof and may be amended only by a writing executed by both parties.  Neither the Company nor the Subscribers has relied on any representations not contained or referred to in this Agreement and the documents delivered herewith.   No right or obligation of the Company shall be assigned without prior notice to and the written consent of the Subscribers.

(c)           Counterparts/Execution.  This Agreement may be executed in any number of counterparts and by the different signatories hereto on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument.  This Agreement may be executed by facsimile transmission, PDF, electronic signature or other similar electronic means with the same force and effect as if such signature page were an original thereof.

(d)           Law Governing this Agreement.  This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws thereof or any other State.  Any action brought by any party against any other party hereto concerning the transactions contemplated by this Agreement shall be brought only in the state courts of New York or in the federal courts located in the state and county of New York.  The parties to this Agreement hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens.  The parties executing this Agreement and other agreements referred to herein or delivered in connection herewith on behalf of the Company agree to submit to the in personam jurisdiction of such courts and hereby irrevocably waive trial by jury.  The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs.  In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law.  Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement.  Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.

(e)           Specific Enforcement, Consent to Jurisdiction.  The Company and Subscribers acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached.  It is accordingly agreed that the parties shall be entitled to seek an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof, this being in addition to any other remedy to which any of them may be entitled by law or equity.  Subject to Section 14(d) hereof, the Company and each Subscriber hereby irrevocably waives, and agrees not to assert in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction in New York of such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper.  Nothing in this Section shall affect or limit any right to serve process in any other manner permitted by law.

(f)           Damages.   In the event the Subscriber is entitled to receive any liquidated or other damages pursuant to the Transactions Documents, the Subscriber may elect to receive the greater of actual damages or such liquidated damages.  In the event the Subscriber is granted rights under different sections of the Transaction Documents relating to the same subject matter or which may be exercised contemporaneously, or pursuant to which damages or remedies are different, Subscriber is granted the right in Subscriber’s absolute discretion to proceed under such section as Subscriber elects.

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(g)           Maximum Payments.   Nothing contained herein or in any document referred to herein or delivered in connection herewith shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law.  In the event that the rate of interest or dividends required to be paid or other charges hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Company to the Subscribers and thus refunded to the Company.  The Company agrees that it may not and actually waives any right to challenge the effectiveness or applicability of this Section 14(g).

(h)           Calendar Days.   All references to “days” in the Transaction Documents shall mean calendar days unless otherwise stated.  The terms “Business Days” and “Trading Days” shall mean days that the New York Stock Exchange is open for trading for three or more hours.  Time periods shall be determined as if the relevant action, calculation or time period were occurring in New York City.  Any deadline that falls on a non-Business Day in any of the Transaction Documents shall be automatically extended to the next Business Day and interest, if any, shall be calculated and payable through such extended period.

(i)           Captions: Certain Definitions.  The captions of the various sections and paragraphs of this Agreement have been inserted only for the purposes of convenience; such captions are not a part of this Agreement and shall not be deemed in any manner to modify, explain, enlarge or restrict any of the provisions of this Agreement.  As used in this Agreement the term “person” shall mean and include an individual, a partnership, a joint venture, a corporation, a limited liability company, a trust, an unincorporated organization and a government or any department or agency thereof.

(j)           Consent.   As used in this Agreement and the other Transaction Documents and any other agreement delivered in connection herewith, “Consent of the Subscribers” or similar language means the consent of holders of more than fifty percent (50%) of each affected component of the Securities on the date consent is requested (such holders being a “Majority in Interest”).  A Majority in Interest may consent to take or forebear from any action permitted under or in connection with the Securities and Transaction Documents, modify any of the Securities and Transaction Documents or waive any default or requirement applicable to the Company, Subsidiaries or Subscribers under the Securities and Transaction Documents provided the effect of such action is equally applied or applicable to all the Subscribers.

(k)           Severability.  In the event that any term or provision of this Agreement shall be finally determined to be superseded, invalid, illegal or otherwise unenforceable pursuant to applicable law by an authority having jurisdiction and venue, that determination shall not impair or otherwise affect the validity, legality or enforceability: (i) by or before that authority of the remaining terms and provisions of this Agreement, which shall be enforced as if the unenforceable term or provision were deleted, or (ii) by or before any other authority of any of the terms and provisions of this Agreement.

(l)           Successor Laws.  References in the Transaction Documents to laws, rules, regulations and forms shall also include successors to and functionally equivalent replacements of such laws, rules, regulations and forms.  A successor rule to Rule 144(b)(1)(i) shall include any rule that would be available to a non-Affiliate of the Company for the sale of Common Stock not subject to volume restrictions and after a six month holding period.

(m)           Maximum Liability.   In no event shall the liability of the Subscribers or permitted assign hereunder or under any Transaction Document or other agreement delivered in connection herewith be greater in amount than the dollar amount of the net proceeds actually received by such Subscriber or successor upon the sale of Conversion Shares.

(n)           Independent Nature of Subscribers.     The Company acknowledges that the obligations of each Subscriber under the Transaction Documents are several and not joint with the obligations of any other Subscriber, and no Subscriber shall be responsible in any way for the performance of the obligations of any other Subscriber under the Transaction Documents. The Company acknowledges that each Subscriber has represented that the decision of each Subscriber to purchase Securities has been made by such Subscriber independently of any other Subscriber and independently of any information, materials, statements or opinions as to the business, affairs, operations, assets, properties, liabilities, results of operations, condition (financial or otherwise) or prospects of the Company which may have been made or given by any other Subscriber or by any agent or employee of any other Subscriber, and no Subscriber or any of its agents or employees shall have any liability to any other Subscriber (or any other person) relating to or arising from any such information, materials, statements or opinions.  The Company acknowledges that nothing contained in any Transaction Document, and no action taken by any Subscriber pursuant hereto or thereto shall be deemed to constitute the Subscribers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Subscribers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents.  The Company acknowledges that it has elected to provide all Subscribers with the same terms and Transaction Documents for the convenience of the Company and not because Company was required or requested to do so by the Subscribers.  The Company acknowledges that such procedure with respect to the Transaction Documents in no way creates a presumption that the Subscribers are in any way acting in concert or as a group with respect to the Transaction Documents or the transactions contemplated thereby.

(o)           Equal Treatment.   No consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of the Transaction Documents unless the same consideration is also offered and paid to all the Subscribers and their permitted successors and assigns.

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(p)           Adjustments.   The conversion price, and amount of Conversion Shares, trading volume amounts, price/volume amounts and similar figures in the Transaction Documents shall be equitably adjusted and as otherwise described in this Agreement, the Notes.

[-SIGNATURE PAGES FOLLOW-]

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IN WITNESS WHEREOF, the parties hereto have caused this Subscription Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

ACTIVECARE INC.	Address for Notice: 1365 West Business Park Drive Orem, Utah 84058
By:/s/ David G. Derrick Name: David G. Derrick Title:   Chief Executive Officer and             Chairman of the Board of Directors With a copy to (which shall not constitute notice):	Fax: 855-864-2511
Durham Jones & Pinegar 111 East Broadway, Suite 900 Salt Lake City, Utah 84111 Attn: C. Parkinson Lloyd, Esq. Fax: (801) 415-3500

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR SUBSCRIBER FOLLOWS]

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[SUBSCRIBER SIGNATURE PAGES TO

ACTIVECARE INC. SUBSCRIPTION AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Subscription Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Subscriber: ALPHA CAPITAL ANSTALT

Signature of Authorized Signatory of Subscriber: ____________________________________

Name of Authorized Signatory: ____________________________________________________

Title of Authorized Signatory: _____________________________________________________

Email Address of Authorized Signatory: _____________________________________________

Facsimile Number of Authorized Signatory: 01141714773504

Address for Notice to Purchaser:

Pradafant 7

9490 Furstentums

Vaduz, Lichtenstein

Address for Delivery of Securities to Purchaser (if not same as address for notice):

c/o LH Financial Services Corp.

150 Central Park South, 2nd Floor

New York, NY 10019

Purchase Price and Principal Amount of Note: $400,000.00

EIN Number: N/A

[SIGNATURE PAGES CONTINUE]

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[SUBSCRIBER SIGNATURE PAGES TO

ACTIVECARE INC. SUBSCRIPTION AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Subscription Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Subscriber: OSHER CAPITAL PARTNERS LLC

Signature of Authorized Signatory of Subscriber: ____________________________________

Name of Authorized Signatory: ____________________________________________________

Title of Authorized Signatory: _____________________________________________________

Email Address of Authorized Signatory: _____________________________________________

Facsimile Number of Authorized Signatory: (212) 586-8244

Address for Notice to Purchaser:

5 Sansberry Lane

Spring Valley, NY 10977

Address for Delivery of Securities to Purchaser (if not same as address for notice):

Same as above

Purchase Price and Principal Amount of Note: $150,000.00

EIN Number: ___________________

[SIGNATURE PAGES CONTINUE]

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LIST OF EXHIBITS AND SCHEDULES

	Exhibit A		Form of Note
	Exhibit B		Escrow Agreement
	Exhibit C		Form of Security Agreement
	Exhibit D		Form of Legal Opinion
	Exhibit E		Personal Guaranty
Schedule 1		List of Subscribers
Schedule 5(a)		Subsidiaries
	Schedule 5(d)		Capitalization
	Schedule 5(r)		Accountants
	Schedule 5(w)		Transfer Agent
	Schedule 5(ff)		Insurance Policy
Schedule 8(a)		Fees
Schedule 9(e)		Use of Proceeds
	Schedule 9(l)		Intellectual Property
	Schedule 9(p)(iv)		Transactions with Affiliates
	Schedule 12(a)		Excepted Issuances

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SCHEDULE 1

SUBSCRIBERS	PURCHASE PRICE AND NOTE PRINCIPAL
ALPHA CAPITAL ANSTALT Pradafant 7 9490 Furstentums Vaduz, Lichtenstein Fax: 01141714773504	$400,000.00
OSHER CAPITAL PARTNERS LLC 5 Sansberry Lane Spring Valley, NY 10977 Fax: (212) 586-8244	$150,000.00
TOTAL	$550,000.00

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SCHEDULE 8(A) – FEES

A due diligence fee of 7% cash ($38,500) will be paid as follows: Almorli Advisors Inc. will receive 4.5% cash on monies received (e.g., $24,750) and Osher Capital Partners will receive 2.5% cash on monies received (e.g., $13,750).

Additionally, an aggregate 36,667 Warrants (5%) with piggyback registration rights exercisable on a cashless basis with an exercise price of $0.75 will also be issued as follows: 14,667 Warrants to Osher Capital Partners and 22,000 Warrants to Arline Josephberg.

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EX-10.14

Exhibit 10.14

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

Principal Amount:                                                                           Issue Date: August 2, 2013

SECURED CONVERTIBLE PROMISSORY NOTE

FOR VALUE RECEIVED, ACTIVECARE, INC., a Delaware corporation (hereinafter called “Borrower”), hereby promises to pay ____________(the “Holder”), address at______________, Fax:___________, without demand, the sum of _____________ ($__________) (“Principal Amount”), with interest accruing thereon, on August 2, 2014 (the “Maturity Date”), if not sooner paid or modified as permitted herein.

This Note has been entered into pursuant to the terms of a subscription agreement (the “Subscription Agreement”) by and among the Borrower, the Holder and certain other holders (the “Other Holders”) of convertible promissory notes (the “Other Notes”), dated as of August 2, 2013, for an aggregate Principal Amount of up to $550,000.  Unless otherwise separately defined herein, each capitalized term used in this Note shall have the same meaning as set forth in the Subscription Agreement.  The following terms shall apply to this Note:

ARTICLE I

GENERAL PROVISIONS

1.1           Interest Rate.   Cash interest payable on this Note shall compound annually and accrue at the annual rate of twelve percent (12%) from the Issue Date through the Maturity Date.  Interest shall be payable quarterly in arrears on the last day of each three months commencing October 31, 2013 and on the Maturity Date, accelerated or otherwise, when the principal and remaining accrued but unpaid interest shall be due and payable, or sooner as described below.  Interest will be payable in cash or at the election of the Holder, may be converted to Common Stock pursuant to Article II.

1.2           Payment Grace Period.  The Borrower shall not have any grace period to pay any monetary amounts due under this Note.  After the Maturity Date and during the pendency of an Event of Default, (as defined in Article IV) a default interest rate of eighteen percent (18%) per annum shall be in effect.

1.3           Conversion Privileges.  The Conversion Rights set forth in Article II shall remain in full force and effect immediately from the date hereof and until the Note is paid in full regardless of the occurrence of an Event of Default.  This Note shall be payable in full on the Maturity Date, unless previously converted into Common Stock in accordance with Article II hereof.

1.4           Pari Passu.   All payments made on this Note and the Other Notes and except as otherwise set forth herein all actions taken by the Borrower with respect to this Note and the Other Notes shall be made and taken pari passu with respect to this Note and the Other Notes.

1.5           Application of Payments.  Payments made in connection with this Note shall be applied first to amounts due hereunder other than principal and interest, thereafter to interest and finally to Principal Amount.

1.6           Miscellaneous.   Interest on this Note shall be calculated on the basis of a 360-day year and the actual number of days elapsed.  Principal and interest on this Note and other payments in connection with this Note shall be payable at the Holder’s offices as designated above in lawful money of the United States of America in immediately available funds without set-off, deduction or counterclaim.  Upon assignment of the interest of Holder in this Note, Borrower shall instead make its payment pursuant to the assignee’s instructions upon receipt of written notice thereof.

ARTICLE II

CONVERSION RIGHTS

The Holder shall have the right to convert the principal due under this Note into Shares of the Borrower’s Common Stock, $0.00001 par value per share (“Common Stock”) as set forth below.

2.1.           Conversion into the Borrower’s Common Stock.

(a)           The Holder shall have the right from and after the date of the issuance of this Note and then at any time until this Note is fully paid, to convert any outstanding and unpaid principal portion of this Note, and accrued but unpaid interest, at the election of the Holder (the date of giving of such notice of conversion being a “Conversion Date”) into fully paid and non-assessable shares of Common Stock as such stock exists on the date of issuance of this Note, or any shares of capital stock of Borrower into which such Common Stock shall hereafter be changed or reclassified, at the conversion price as defined in Section 2.1(b) hereof, determined as provided herein.  Upon delivery to the Borrower of a completed Notice of Conversion, a form of which is annexed hereto as Exhibit A, Borrower shall issue and deliver to the Holder within three (3) business days after the Conversion Date (such third day being the “Delivery Date”) that number of shares of Common Stock for the portion of the Note converted in accordance with the foregoing.  The Holder will not be required to surrender the Note to the Borrower until the Note has been fully converted or satisfied.   The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing that portion of the principal of the Note and interest, if any, to be converted, by the Conversion Price.

(b)Subject to adjustment as provided in Section 2.1(c) hereof, the conversion price (“Conversion Price”) per share shall be equal to $0.75.

(c)            The Conversion Price and number and kind of shares or other securities to be issued upon conversion determined pursuant to Section 2.1(a), shall be subject to adjustment from time to time upon the happening of certain events while this conversion right remains outstanding, as follows:

A.           Fundamental Transaction.   If, at any time while this Note is outstanding, (A) the Borrower effects any merger or consolidation of the Borrower with or into another entity, (B) the Borrower effects any sale of all or substantially all of its assets in one or a series of related transactions, (C) any tender offer or exchange offer (whether by the Borrower or another entity) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, (D) the Borrower consummates a stock purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, or spin-off) with one or more persons or entities whereby such other persons or entities acquire more than the 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by such other persons or entities making or party to, or associated or affiliated with the other persons or entities making or party to, such stock purchase agreement or other business combination), (E) any "person" or "group" (as these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act), is or shall become the "beneficial owner" (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate Common Stock of the Borrower, or material Subsidiary of the Borrower, (F) the Borrower effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property or (G) a majority of the members of the Borrower’s board of directors as of the Closing Date no longer serving as directors of the Borrower, except as a result of natural causes or as a result of hiring additional outside directors in order to meet stock exchange requirements, unless prior written consent of the Holders had been obtained by the Borrower (in any such case, a "Fundamental Transaction"), this Note, as to the unpaid principal portion thereof and accrued interest thereon, if any, shall thereafter be deemed to evidence the right to convert into such number and kind of shares or other securities and property as would have been issuable or distributable on account of such Fundamental Transaction, upon or with respect to the securities subject to the conversion right immediately prior to such Fundamental Transaction.  The foregoing provision shall similarly apply to successive Fundamental Transactions of a similar nature by any such successor or purchaser.  Without limiting the generality of the foregoing, the anti-dilution provisions of this Section shall apply to such securities of such successor or purchaser after any such Fundamental Transaction.

B.           Reclassification, etc.  If the Borrower at any time shall, by reclassification or otherwise, change the Common Stock into the same or a different number of securities of any class or classes that may be issued or outstanding, this Note, as to the unpaid principal portion thereof and accrued interest thereon, shall thereafter be deemed to evidence the right to purchase an adjusted number of such securities and kind of securities as would have been issuable as the result of such change with respect to the Common Stock immediately prior to such reclassification or other change.

C.           Stock Splits, Combinations and Dividends.   If the shares of Common Stock are subdivided or combined into a greater or smaller number of shares of Common Stock, or if a dividend is paid on the Common Stock in shares of Common Stock, the Conversion Price shall be proportionately reduced in case of subdivision of shares or stock dividend or proportionately increased in the case of combination of shares, in each such case by the ratio which the total number of shares of Common Stock outstanding immediately after such event bears to the total number of shares of Common Stock outstanding immediately prior to such event.

                    D.           Share Issuance.   So long as this Note is outstanding, if the Borrower shall issue any Common Stock except for the Excepted Issuances (as defined in Section 12(a) of the Subscription Agreement), prior to the complete conversion or payment of this Note, for a consideration per share that is less than the Conversion Price that would be in effect at the time of such issue, then, and thereafter successively upon each such issuance, the Conversion Price shall be reduced to such other lower issue price.  For purposes of this adjustment, the issuance of any security or debt instrument of the Borrower or other Common Stock Equivalent carrying the right to convert such security or debt instrument into Common Stock or of any warrant, right or option to purchase Common Stock shall result in an adjustment to the Conversion Price upon the issuance of the above-described security, debt instrument, warrant, right, or option and again upon the issuance of shares of Common Stock upon exercise of such conversion or purchase rights if such issuance is at a price lower than the then applicable Conversion Price. Common Stock issued or issuable by the Borrower for no consideration or for consideration which cannot be determined at the time of issue or which is subject to reset will be deemed issuable or to have been issued for $0.00001 per share of Common Stock.  The reduction of the Conversion Price described in this paragraph is in addition to the other rights of the Holder described in the Subscription Agreement.  A convertible instrument (including a right to purchase equity of the Company) issued, subject to an original issue or similar discount or which principal amount is directly or indirectly increased after issuance will be deemed to have been issued for the actual cash amount received by the Company in consideration of such convertible instrument.  “Common Stock Equivalent” shall mean any securities of the Borrower or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

(d)           Whenever the Conversion Price is adjusted pursuant to Section 2.1(c) above, the Borrower shall promptly, but not later than the second (2nd) Trading Day after the effectiveness of the adjustment, provide notice to the Holder setting forth the Conversion Price after such adjustment and setting forth a statement of the facts requiring such adjustment.  Failure to provide the foregoing notice is an Event of Default under this Note.

(e)           During the period the conversion right exists, Borrower will reserve from its authorized and unissued Common Stock not less than an amount of Common Stock equal to 150% of the amount of shares of Common Stock issuable upon the full conversion of this Note and interest, if any.  Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable.  Borrower agrees that its issuance of this Note shall constitute full authority to its officers, agents, and transfer agents who are charged with the duty of executing and issuing stock certificates to execute and issue the necessary certificates for shares of Common Stock upon the conversion of this Note.

2.2           Partial Conversion.  This Note may be converted by the Holder in whole or in part as described in Section 2.1(a) hereof and the Subscription Agreement.  Upon partial conversion of this Note, a new Note containing the same date and provisions of this Note shall, at the request of the Holder, be issued by the Borrower to the Holder for the principal balance of this Note and interest which shall not have been converted or paid, upon surrender of the existing Note.

2.3.           Maximum Conversion.  The Holder shall not be entitled to convert on a Conversion Date that amount of the Note in connection with that number of shares of Common Stock which would be in excess of the sum of (i) the number of shares of Common Stock beneficially owned by the Holder and its affiliates on a Conversion Date, (ii) any Common Stock issuable in connection with the unconverted portion of the Note, and (iii) the number of shares of Common Stock issuable upon the conversion of the Note with respect to which the determination of this provision is being made on a Conversion Date, which would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock of the Borrower on such Conversion Date.  For the purposes of the provision to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.  Subject to the foregoing, the Holder shall not be limited to aggregate conversions of 4.99%.  The Holder shall have the authority to determine whether the restriction contained in this Section 2.3 will limit any conversion hereunder and the extent such limitation applies and to which convertible or exercisable instrument or part thereof such limitation applies.  The Holder may increase to not more than 9.99% or waive the 4.99% conversion limitation described in this Section 2.3, in whole or in part, including with respect to the payment of interest in shares of Common Stock, upon and effective after 61 days prior written notice to the Borrower.

2.4           Borrower’s Obligations.  Upon the conversion of this Note or part thereof, the Borrower shall, at its own cost and expense, take all necessary action, including obtaining and delivering an opinion of counsel to assure that the Borrower’s transfer agent shall issue stock certificates in the name of a Holder (or its permitted nominee) or such other persons as designated by Holder and in such denominations to be specified at conversion representing the number of shares of Common Stock issuable upon such conversion.  The Borrower warrants that no instructions other than these instructions have been or will be given to the Borrower’s transfer agent and that the certificates representing such shares shall contain no legend other than the legend set forth in Section 4(h) of the Subscription Agreement.  If and when a Holder sells the Conversion Shares, assuming (i) a registration statement including such Conversion Shares for registration has been filed with the Commission, is effective and the prospectus, as supplemented or amended, contained therein is current and (ii) Holder or its agent confirms in writing to the transfer agent that Holder has complied with the prospectus delivery requirements, the Borrower will reissue the Conversion Shares without restrictive legend.  In the event that the Conversion Shares are sold in a manner that complies with an exemption from registration, the Borrower will promptly instruct its counsel to issue to the transfer agent an opinion permitting removal of the legend, provided that Holder delivers reasonably requested representations in support of such opinion.

2.5           Late Delivery.  The Borrower understands that a delay in the delivery of the Conversion Shares in the form required pursuant to Section 2.4 hereof later than the Delivery Date could result in economic loss to the Holder.  As compensation to Holder for such loss, the Borrower agrees to pay (as liquidated damages and not as a penalty) to Holder for late issuance of Conversion Shares in the form required pursuant to this Note upon Conversion of the Note, the amount of $100 per Trading Day (increasing to $200 per Trading Day after ten (10) Trading Days) after the Delivery Date for each $10,000 of Note principal amount and interest (and proportionately for other amounts) being converted of the corresponding Conversion Shares which are not timely delivered.  The Borrower shall pay any payments incurred under this Section upon demand.  Furthermore, in addition to any other remedies which may be available to the Holder, in the event that the Borrower fails for any reason to effect delivery of the Conversion Shares on or before the Delivery Date, the Holder will be entitled to revoke all or part of the relevant Notice of Holder by delivery of a notice to such effect to the Borrower whereupon the Borrower and Holder shall each be restored to their respective positions immediately prior to the delivery of such notice, except that the damages payable in connection with the Borrower’s default shall be payable through the date notice of revocation or rescission is given to the Borrower.

2.6        Buy-In.   In addition to any other rights available to Holders, if the Borrower fails to deliver to a Holder Conversion Shares by the Delivery Date and if after the Delivery Date Holder or a broker on Holder’s behalf purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by Holder of the Common Stock which Holder was entitled to receive upon such conversion (a “Buy-In”), then the Borrower shall pay to Holder (in addition to any remedies available to or elected by the Holder) the amount by which (A) Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (B) the aggregate principal and/or interest amount of the Note for which such conversion request was not timely honored together with interest thereon at a rate of 15% per annum, accruing until such amount and any accrued interest thereon is paid in full (which amount shall be paid as liquidated damages and not as a penalty).  For example, if a Holder purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of $10,000 of Note principal and/or interest, the Borrower shall be required to pay Holder $1,000 plus interest. Holder shall provide the Borrower written notice and evidence reasonably acceptable to the Borrower indicating the amounts payable to Holder in respect of the Buy-In.

ARTICLE III

REDEMPTION

3.1           Fundamental Transaction.  Upon the occurrence of a Fundamental Transaction, then in addition to the Holder’s rights described in Section 2.1(c)(A), until twenty (20) business days after the Borrower notifies the Holder of the occurrence of the Fundamental Transaction, the Holder may elect to accelerate the Maturity Date as of the date of the Fundamental Transaction and receive payment of 120% of the then outstanding Principal Amount, accrued interest and any other amount owed to the Holder pursuant to the Transaction Documents.

3.2           Optional Redemption.  This Note may not be prepaid, converted, redeemed or called by the Borrower without the consent of the Holder except as described in the Note.

ARTICLE IV

EVENT OF DEFAULT

The occurrence of any of the following events of default (“Event of Default”), shall, at the option of the Holder hereof, make all sums of principal and interest then remaining unpaid hereon and all other amounts payable hereunder immediately due and payable, upon demand, without presentment or grace period, all of which hereby are expressly waived, except as set forth below:

4.1           Failure to Pay Principal or Interest.  The Borrower (i) fails to pay any installment of principal or interest under this Note when due, or (ii) fails to pay any interest or other sums due under this Note when due.

4.2           Breach of Covenant.  The Borrower or any Subsidiary breaches any material covenant or other term or condition of this Note or any Transaction Documents except for a breach of payment, in any material respect.

4.3           Breach of Representations and Warranties.  Any material representation or warranty of the Borrower made herein, or the Transaction Documents shall be false or misleading in any material respect as of the date made and the Closing Date.

4.4           Liquidation.   Any dissolution, liquidation or winding up by Borrower or a material Subsidiary of a substantial portion of their businesses.

4.5           Cessation of Operations.   Any cessation of operations by Borrower or a material Subsidiary.

4.6           Maintenance of Assets.   The failure by Borrower or any material Subsidiary to maintain any material intellectual property rights, personal, real property, equipment, leases or other assets which are necessary to conduct its business (whether now or in the future).

4.7           Receiver or Trustee.  The Borrower or any Subsidiary shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business; or such a receiver or trustee shall otherwise be appointed.

4.8           Judgments.  Any money judgment, writ or similar final process shall be entered or made in a non-appealable adjudication against Borrower or any Subsidiary or any of its property or other assets for more than $50,000 in excess of the Borrower’s or such Subsidiary’s insurance coverage, unless stayed vacated or satisfied within thirty (30) days.

4.9           Bankruptcy.  Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings or relief under any bankruptcy law or any law, or the issuance of any notice in relation to such event, for the relief of debtors shall be instituted by or against the Borrower or any Subsidiary.

4.10           Delisting.   An event resulting in the Common Stock no longer being quoted on a Principal Market; failure to comply with the requirements for continued quotation on the Principal Market for a period of ten (10) consecutive trading days; or notification from a Principal Market that the Borrower is not in compliance with the conditions for such continued quotation and such non-compliance continues for ten (10) days following such notification.

4.11           Non-Payment.   A default by the Borrower or any Subsidiary under any one or more obligations in an aggregate monetary amount in excess of $50,000 for more than twenty (20) days after the due date, unless the Borrower or such Subsidiary is contesting the validity of such obligation in good faith.

4.12           Stop Trade.  An SEC or judicial stop trade order or Principal Market trading suspension.

4.13           Failure to Deliver Common Stock or Replacement Note.  Borrower’s failures to timely deliver Common Stock to the Holder pursuant to and in the form required by this Note, and the Subscription Agreement, or, if required, a replacement Note following a partial conversion or exercise.

4.14           Reservation Default.   Failure by the Borrower to have reserved for issuance upon conversion of the Note, the number of shares of Common Stock as required in the Subscription Agreement, and this Note, and to have cured such failure with any applicable time periods provided for in the Transaction Documents.

4.15           Financial Statement Restatement.  The restatement after the date hereof of any financial statements filed by the Borrower with the Securities and Exchange Commission for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statements, have constituted a Material Adverse Effect.  For the avoidance of doubt, any restatement related to new accounting pronouncements shall not constitute a default under this Section 4.15.

4.16           Non-Registration Event.  The Borrower’s failure to materially comply with the registration obligations set forth in Section 11 of the Subscription Agreement.

4.17           Reverse Splits.   The Borrower effectuates a reverse split of its Common Stock without twenty (20) days prior written notice to the Holder.

4.18           Event Described in Subscription Agreement.  The occurrence of an Event of Default as described in the Subscription Agreement or any other Transaction Document that, if susceptible to cure, is not cured during any designated cure period.

4.19           Notification Failure.   A failure by Borrower to notify Holder of any material event of which Borrower is obligated to notify Holder pursuant to the terms of this Note or any other Transaction Document.

4.20           Cross Default.  A default by the Borrower of a material term, covenant, warranty or undertaking of any other agreement to which the Borrower and Holder are parties, or the occurrence of an event of default under any such other agreement to which Borrower and Holder are parties which is not cured after any required notice and/or cure period.

4. 21           Other Note Default.   The occurrence of an Event of Default under any Other Note.

ARTICLE V

SECURITY INTEREST

5.           Security Interest.   This Note is secured by a security interest granted to the Holder pursuant to a Security Agreement, as delivered by Borrower to Holder.

ARTICLE VI

MISCELLANEOUS

6.1           Failure or Indulgence Not Waiver.  No failure or delay on the part of the Holder hereof in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.  All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.

6.2           Notices.  All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice.  Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the first business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur.  The addresses for such communications shall be: (i) if to the Borrower to: ActiveCare Inc., 1365 West Business Park Drive, Orem, UT 84058, Attn: Mike Acton, facsimile: 855-864-2511, with a copy by fax only to (which shall not constitute notice): Durham Jones & Pinegar, 111 East Broadway, Suite 900, Salt Lake City, Utah 84111, Attn: C. Parkinson Lloyd, Esq., facsimile: (801) 415-3500, and (ii) if to the Holder, to the name, address and facsimile number set forth on the front page of this Note, and to: Grushko & Mittman, P.C., 515 Rockaway Avenue, Valley Stream, New York 11581, facsimile: (212) 697-3575.

6.3           Amendment Provision.  The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented.

6.4           Assignability.  This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to the benefit of the Holder and its successors and assigns.  The Borrower may not assign its obligations under this Note.

6.5           Cost of Collection.  If default is made in the payment of this Note, Borrower shall pay the Holder hereof reasonable costs of collection, including reasonable attorneys’ fees.

6.6           Governing Law.  This Note shall be governed by and construed in accordance with the laws of the State of New York without regard to conflicts of laws principles that would result in the application of the substantive laws of another jurisdiction.  Any action brought by either party against the other concerning the transactions contemplated by this Agreement must be brought only in the civil or state courts of New York or in the federal courts located in the State and county of New York.  Both parties and the individual signing this Agreement on behalf of the Borrower agree to submit to the jurisdiction of such courts.  The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs.  In the event that any provision of this Note is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or unenforceability of any other provision of this Note. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Borrower in any other jurisdiction to collect on the Borrower’s obligations to Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other decision in favor of the Holder.  This Note shall be deemed an unconditional obligation of Borrower for the payment of money and, without limitation to any other remedies of Holder, may be enforced against Borrower by summary proceeding pursuant to New York Civil Procedure Law and Rules Section 3213 or any similar rule or statute in the jurisdiction where enforcement is sought.  For purposes of such rule or statute, any other document or agreement to which Holder and Borrower are parties or which Borrower delivered to Holder, which may be convenient or necessary to determine Holder’s rights hereunder or Borrower’s obligations to Holder are deemed a part of this Note, whether or not such other document or agreement was delivered together herewith or was executed apart from this Note.

6.7           Maximum Payments.  Nothing contained herein shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum rate permitted by applicable law.  In the event that the rate of interest required to be paid or other charges hereunder exceed the maximum rate permitted by applicable law, any payments in excess of such maximum rate shall be credited against amounts owed by the Borrower to the Holder and thus refunded to the Borrower.

6.8           Non-Business Days.   Whenever any payment or any action to be made shall be due on a Saturday, Sunday or a public holiday under the laws of the State of New York, such payment may be due or action shall be required on the next succeeding business day and, for such payment, such next succeeding day shall be included in the calculation of the amount of accrued interest payable on such date.

6.9           Facsimile Signature.  In the event that the Borrower’s signature is delivered by facsimile transmission, PDF, electronic signature or other similar electronic means, such signature shall create a valid and binding obligation of the Borrower with the same force and effect as if such signature page were an original thereof.

6.10           Shareholder Status.  The Holder shall not have rights as a shareholder of the Borrower with respect to unconverted portions of this Note.  However, the Holder will have the rights of a shareholder of the Borrower with respect to the Shares of Common Stock to be received after delivery by the Holder of a Conversion Notice to the Borrower.

IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by an authorized officer as of the _____ day of July, 2013.

ACTIVECARE INC.

By: ________________________________

                                                                                    Name:

                                                                                    Title:

WITNESS:

______________________________________

 EXHIBIT A - NOTICE OF CONVERSION

(To be executed by the Registered Holder in order to convert the Note)

The undersigned hereby elects to convert $_________ of the principal and $_________ of the interest due on the Note issued by ACTIVECARE, INC. on August 2, 2013 into Shares of Common Stock of ACTIVECARE, INC. (the “Borrower”) according to the conditions set forth in such Note, as of the date written below.

Date of Conversion:____________________________________________________________________

Conversion Price:______________________________________________________________________

Number of Shares of Common Stock Beneficially Owned on the Conversion Date: Less than 5% of the outstanding Common Stock of ACTIVECARE, INC.

Shares To Be Delivered:_________________________________________________________________

Signature:____________________________________________________________________________

Print Name:__________________________________________________________________________

Address:_____________________________________________________________________________

   ____________________________________________________________________________

EX-10.15

Exhibit 10.15

SECURITY AGREEMENT

This SECURITY AGREEMENT, dated as of August 2, 2013 (this “Agreement”), is among ActiveCare Inc., a Delaware corporation (the “Company”), each Subsidiary of the Company which shall become a party to this Agreement by execution and delivery of the form annexed hereto as Annex A and the Subsidiary Guaranty annexed thereto (each such Subsidiary, the “Guarantor” and together with the Company, the “Debtors”), Collateral Services LLC, as collateral agent (the “Collateral Agent”) for and the holders of the Company’s Secured Convertible Notes due August 2, 2014 which were issued on August 2, 2013, in the original aggregate principal amount of up to $550,000 (collectively, the “Notes”) (collectively, the “Secured Parties”).

W I T N E S S E T H:

WHEREAS, pursuant to the Subscription Agreement (as defined in the Notes), the Secured Parties have severally agreed to extend the loans to the Company evidenced by the Notes;

WHEREAS, pursuant to a certain Subsidiary Guaranty (“Guaranty”) to be dated as of the date of the Additional Debtor Joinder, forms of which are annexed hereto as Annex A, the Guarantor agrees to guarantee and act as surety for payment of such Notes, and other obligations of the Company;

WHEREAS, in order to induce the Secured Parties to extend the loans evidenced by the Notes, each Debtor has agreed to execute and deliver to the Collateral Agent this Agreement and to grant Collateral Agent, for the ratable benefit of the Secured Parties, a security interest in certain property of such Debtor to secure the prompt payment, performance and discharge in full of all of the Debtors’ obligations under the Notes and Transaction Documents.

NOW, THEREFORE, in consideration of the agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

1.           Certain Definitions. As used in this Agreement, the following terms shall have the meanings set forth in this Section 1. Terms used but not otherwise defined in this Agreement that are defined in Article 8 or 9 of the UCC (such as “account,” “chattel paper,” “commercial tort claim,” “deposit account,” “document,” “equipment,” “fixtures,” “general intangibles,” “goods,” “instruments,” “inventory,” “investment property,” “letter-of-credit rights,” “proceeds” and “supporting obligations”) shall have the respective meanings given such terms in Article 8 or 9 of the UCC, as applicable.  Upper case terms shall have the meanings attributed to them in the Subscription Agreement.

(a)           “Collateral” means the collateral in which the Collateral Agent is granted a security interest by this Agreement and which shall include the following personal property of the Debtors, whether presently owned or existing or hereafter acquired or coming into existence, wherever situated, and all additions and accessions thereto and all substitutions and replacements thereof, and all proceeds, products and accounts thereof, including, without limitation, all proceeds from the disposition, sale or transfer of the Collateral and of insurance covering the same and of any tort claims in connection therewith, and all dividends, interest, cash, notes, securities, equity interest or other property at any time and from time to time acquired, receivable or otherwise distributed in respect of, or in exchange for, any or all of the Pledged Securities (as defined below):

(i)           All goods, including, without limitation, (A) all machinery, equipment, computers, motor vehicles, trucks, tanks, boats, ships, appliances, furniture, special and general tools, fixtures, test and quality control devices and other equipment of every kind and nature and wherever situated, together with all documents of title and documents representing the same, all additions and accessions thereto, replacements therefor, all parts therefor, and all substitutes for any of the foregoing and all other items used and useful in connection with any Debtor’s businesses and all improvements thereto; and (B) all inventory;

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(ii)           All contract rights and other general intangibles, including, without limitation, all partnership interests, membership interests, stock or other securities, rights under any of the Organizational Documents (as defined herein), agreements related to the Pledged Securities (as defined herein), licenses, distribution and other agreements, computer software (whether “off-the-shelf,” licensed from any third party or developed by any Debtor), computer software development rights, leases, franchises, customer lists, quality control procedures, grants and rights, goodwill, trademarks, service marks, trade styles, trade names, patents, patent applications, copyrights, and income tax refunds;

(iii)            All accounts, together with all instruments, all documents of title representing any of the foregoing, all rights in any merchandising, goods, raw materials, timber cut or to be cut, oil, gas, hydrocarbons, and minerals extracted or to be extracted, equipment, motor vehicles and trucks which any of the same may represent, and all right, title, security and guaranties with respect to each account, including any right of stoppage in transit;

(iv)	All documents, letter-of-credit rights, instruments and chattel paper;
(v)	All commercial tort claims;
(vi)	All deposit accounts and all cash (whether or not deposited in such deposit accounts);
(vii)	All investment property;
(viii)	All supporting obligations;
(ix)	All files, records, books of account, business papers, and computer programs; and
(x)	the products and proceeds of all of the foregoing Collateral set forth in clauses (i)-(ix) above.

Without limiting the generality of the foregoing, the “Collateral” shall include all investment property and general intangibles respecting ownership and/or other equity interests in Guarantor, including, without limitation, the shares of capital stock and the other equity interests listed on Schedule H  hereto (as the same may be modified from time to time pursuant to the terms hereof), and any other shares of capital stock and/or other equity interests of any other direct or indirect Subsidiary of any Debtor obtained in the future, and, in each case, all certificates representing such shares and/or equity interests and, in each case, all rights, options, warrants, stock, other securities and/or equity interests that may hereafter be received, receivable or distributed in respect of, or exchanged for, any of the foregoing and all rights arising under or in connection with the Pledged Securities, including, but not limited to, all dividends, interest and cash.

Notwithstanding the foregoing, nothing herein shall be deemed to constitute an assignment of any asset which, in the event of an assignment, becomes void by operation of applicable law or the assignment of which is otherwise prohibited by applicable law (in each case to the extent that such applicable law is not overridden by Sections 9-406, 9-407 and/or 9-408 of the UCC or other similar applicable law); provided, however, that to the extent permitted by applicable law, this Agreement shall create a valid security interest in such asset and, to the extent permitted by applicable law, this Agreement shall create a valid security interest in the proceeds of such asset.

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(b)           “Intellectual Property” means the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, (i) all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, all registrations, recordings and applications in the United States Copyright Office, (ii) all patents of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof, and all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, (iii) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade dress, service marks, logos, domain names and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common law rights related thereto, (iv) all trade secrets arising under the laws of the United States, any other country or any political subdivision thereof, (v) all rights to obtain any reissues, renewals or extensions of the foregoing, (vi) all licenses for any of the foregoing, (vii) any items included in the definition of Intellectual Property Rights as defined in the Subscription Agreement and not set forth above, and (viii) all causes of action for infringement of the foregoing.

(c)           “Majority in Interest” means, at any time of determination, the holders of more than fifty percent (50%) (based on then-outstanding principal amounts and accrued interest of Notes at the time of such determination) of the Notes.

(d)           “Necessary Endorsement” means undated stock powers endorsed in blank and other proper instruments of assignment duly executed and such other instruments or documents as the Collateral Agent (as that term is defined below) may reasonably request.

(e)           “Obligations” means all of the liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become due, or that are now or may be hereafter contracted or acquired, or owing to, of any Debtor to the Secured Parties, including, without limitation, all obligations under this Agreement, the Notes, the Guaranty and obligations under any other Transaction Document, instrument, agreement or other document executed and/or delivered in connection herewith or therewith in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from any of the Secured Parties as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time. Without limiting the generality of the foregoing, the term “Obligations” shall include, without limitation: (i) principal of, and interest on the Notes and the loans extended pursuant thereto; (ii) any and all other fees, indemnities, costs, obligations and liabilities of the Debtors from time to time under or in connection with this Agreement, the Notes and any other Transaction Documents, instruments, agreements or other documents executed and/or delivered in connection herewith or therewith; and (iii) all amounts (including but not limited to post-petition interest) in respect of the foregoing that would be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving any Debtor.

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(f)           “Organizational Documents” means with respect to any Debtor, the documents by which such Debtor was organized (such as a certificate of incorporation, certificate of limited partnership or articles of organization, and including, without limitation, any certificates of designation for preferred stock or other forms of preferred equity) and which relate to the internal governance of such Debtor (such as bylaws, a partnership agreement or an operating, limited liability or members agreement).

(g)           “Pledged Securities” shall have the meaning ascribed to such term in Section 4(i).

(h)           “UCC” means the Uniform Commercial Code of the State of New York and or any other applicable law of any state or states which has jurisdiction with respect to all, or any portion of, the Collateral or this Agreement, from time to time. It is the intent of the parties that defined terms in the UCC should be construed in their broadest sense so that the term “Collateral” will be construed in its broadest sense. Accordingly if there are, from time to time, changes to defined terms in the UCC that broaden the definitions, they are incorporated herein and if existing definitions in the UCC are broader than the amended definitions, the existing ones shall be controlling.

2.           Grant of Security Interest in Collateral. As an inducement for the Secured Parties to extend the loans as evidenced by the Notes and to secure the complete and timely payment, performance and discharge in full, as the case may be, of all of the Obligations, each Debtor hereby unconditionally and irrevocably pledges, grants and hypothecates to the Secured Parties a security interest in and to, a lien upon and a right of set-off against all of their respective right, title and interest of whatsoever kind and nature in and to, the Collateral (a “Security Interest” and, collectively, the “Security Interests”).

3.           Delivery of Certain Collateral. Contemporaneously or prior to the execution of this Agreement, each Debtor shall deliver or cause to be delivered to the Collateral Agent, any and all certificates and other instruments or documents representing any of the Collateral, in each case, together with all Necessary Endorsements.

4.           Representations, Warranties, Covenants and Agreements of the Debtors. Except as set forth under the corresponding section of the disclosure schedules delivered to the Secured Parties and Collateral Agent concurrently herewith (the “Disclosure Schedules”), which Disclosure Schedules shall be deemed a part hereof.  As of the date hereof, each Debtor represents and warrants to the Secured Parties as follows and, until the repayment in full of the Obligations, covenants and agrees with, the Secured Parties as follows:

(a)           Each Debtor has the requisite corporate, partnership, limited liability company or other power and authority to enter into this Agreement and otherwise to carry out its obligations hereunder. The execution, delivery and performance by each Debtor of this Agreement and the filings contemplated herein have been duly authorized by all necessary action on the part of such Debtor and no further action is required by such Debtor. This Agreement, when executed and delivered, will constitute the legal, valid and binding obligation of each Debtor, enforceable against each Debtor in accordance with its terms except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization and similar laws of general application relating to or affecting the rights and remedies of creditors and by general principles of equity.

(b)           The Debtors have no place of business or offices where their respective books of account and records are kept (other than temporarily at the offices of its attorneys or accountants) or places where Collateral is stored or located, except as set forth on Schedule A  attached hereto. Except as specifically set forth on Schedule A, each Debtor is the record owner of the real property where such Collateral is located, and there exist no mortgages or other liens on any such real property or on the Collateral except for Permitted Liens (as defined in the Subscription Agreement), which are identified on Schedule B hereto. Except as disclosed on Schedule A and except for Collateral to be held by the Collateral Agent, none of such Collateral is in the possession of any consignee, bailee, warehouseman, agent or processor.

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(c)           Except for Permitted Liens and except as set forth on Schedule B attached hereto, the Debtors are the sole owner of the Collateral (except for non-exclusive licenses granted by any Debtor in the ordinary course of business), free and clear of any liens, security interests, encumbrances, rights or claims, and are fully authorized to grant the Security Interests. Except as set forth on Schedule B attached hereto, there is not on file in any governmental or regulatory authority, agency or recording office an effective financing statement, security agreement, license or transfer or any notice of any of the foregoing (other than those that will be filed in favor of the Secured Parties pursuant to this Agreement) covering or affecting any of the Collateral.

(d)           No written claim has been received that any Collateral or any Debtor’s use of any Collateral violates the rights of any third party. There has been no adverse decision to any Debtor’s claim of ownership rights in or exclusive rights to use the Collateral in any jurisdiction or to any Debtor’s right to keep and maintain such Collateral in full force and effect, and there is no proceeding involving said rights pending or, to the best knowledge of any Debtor, threatened before any court, judicial body, administrative or regulatory agency, arbitrator or other governmental authority.

(e)           Each Debtor shall at all times maintain its books of account and records relating to the Collateral at its principal place of business and its Collateral at the locations set forth on Schedule A  attached hereto and may not relocate such books of account and records or tangible Collateral except in the ordinary course of sales unless it delivers to the Secured Parties at least 15 days prior to such relocation (i) written notice of such relocation and the new location thereof (which must be within the United States) and (ii) evidence that appropriate financing statements under the UCC and other necessary documents have been filed and recorded and other steps have been taken to perfect the Security Interests to create in favor of the Secured Parties a valid, perfected and continuing perfected first priority lien in the Collateral, except as otherwise permitted hereby.

(f)           This Agreement creates in favor of the Secured Parties a valid security interest in the Collateral, subject only to Permitted Liens securing the payment and performance of the Obligations. Upon making the filings described in the immediately following paragraph, all security interests created hereunder in any Collateral that may be perfected by filing Uniform Commercial Code financing statements shall have been duly perfected. Except for the filing of the Uniform Commercial Code financing statements referred to in the immediately following paragraph, the recordation of the Intellectual Property Security Agreement (as defined below) with respect to copyrights and copyright applications in the United States Copyright Office referred to in paragraph (m), the execution and delivery of deposit account control agreements satisfying the requirements of Section 9-104(a)(2) of the UCC with respect to each deposit account of the Debtors, and the delivery of the certificates and other instruments provided in Section 3, no action is necessary to create, perfect or protect the security interests created  hereunder.  Without limiting the generality of the foregoing, except for the filing of said financing statements, the recordation of said Intellectual Property Security Agreement, and the execution and delivery of said deposit account control agreements, no consent of any third parties and no authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for (i) the execution, delivery and performance of this Agreement, (ii) the creation or perfection of the Security Interests created hereunder in the Collateral or (iii) the enforcement of the rights of the Collateral Agent and the Secured Parties hereunder.

(g)           Each Debtor hereby authorizes the Collateral Agent to file one or more financing statements under the UCC, with respect to the Security Interests, with the proper filing and recording agencies in any jurisdiction deemed proper by it and authorizes Collateral Agent to take any other action in Collateral Agent’s absolute discretion to effectuate, memorialize and protect Secured Parties’ interest and rights under this Agreement.

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(h)           The execution, delivery and performance of this Agreement by the Debtors does not (i) violate any of the provisions of any Organizational Documents of any Debtor or, to the knowledge of any Debtor, any judgment, decree, order or award of any court, governmental body or arbitrator or any applicable law, rule or regulation applicable to any Debtor or (ii) to the knowledge of each Debtor, conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing any Debtor’s debt or otherwise) or other understanding to which such Debtor is a party or by which any property or asset of any Debtor is bound or affected. If any, all required consents (including, without limitation, from stockholders or creditors of any Debtor) necessary for any Debtor to enter into and perform its obligations hereunder have been obtained.

(i)           The capital stock and other equity interests listed on Schedule H hereto (the “Pledged Securities”) represent all of the capital stock and other equity interests of the Guarantor, and other Subsidiaries, if any, and represent all capital stock and other equity interests owned, directly or indirectly, by the Company. All of the Pledged Securities, if applicable, are validly issued, fully paid and nonassessable, and the Company is the legal and beneficial owner of the Pledged Securities, free and clear of any lien, security interest or other encumbrance except for the security interests created by this Agreement and other Permitted Liens.

(j)           The ownership and other equity interests in partnerships and limited liability companies (if any) included in the Collateral (the “Pledged Interests”) by their express terms do not provide that they are securities governed by Article 8 of the UCC and are not held in a securities account or by any financial intermediary.

(k)           Except for Permitted Liens, each Debtor shall at all times maintain the liens and Security Interests provided for hereunder as valid and perfected first priority liens and security interests in the Collateral in favor of the Secured Parties until this Agreement and the Security Interest hereunder shall be terminated pursuant to Section 14 hereof. Each Debtor hereby agrees to defend the same against the claims of any and all persons and entities. Each Debtor shall safeguard and protect all Collateral for the account of the Secured Parties.  Upon request of the Collateral Agent, each Debtor will sign and deliver to the Collateral Agent on behalf of the Secured Parties at any time or from time to time one or more financing statements pursuant to the UCC in form reasonably satisfactory to the Collateral Agent and will pay the cost of filing the same in all public offices wherever filing is, or is deemed by the Collateral Agent to be, necessary or desirable to effect the rights and obligations provided for herein. Without limiting the generality of the foregoing, each Debtor shall pay all fees, taxes and other amounts necessary to maintain the Collateral and the Security Interest hereunder, and each Debtor shall obtain and furnish to the Collateral Agent from time to time, upon demand, such releases and/or subordinations of claims and liens (other than Permitted Liens) that may be required to maintain the priority of the Security Interest hereunder.

(l)           Other than with respect to Permitted Liens, no Debtor will transfer, pledge, hypothecate, encumber, license, sell or otherwise dispose of any of the Collateral (except for non-exclusive licenses granted by a Debtor in its ordinary course of business, sales of inventory by a Debtor in its ordinary course of business and disposition of obsolete equipment) without the prior written consent of the Collateral Agent.  The foregoing notwithstanding, Debtor may replace noncash components of the Collateral with a cash or Cash Equivalent deposit made at an institution subject to a cash account control agreement acceptable to the Secured Parties, provided the amount of cash deposited subject to such agreement is not less than the highest amount of the Obligations that may be outstanding pursuant to the Transaction Documents. Cash Equivalent shall mean U.S. government Treasury bills, bank certificates of deposit, bankers' acceptances, corporate commercial paper and other money market instruments.

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(m)           Each Debtor shall keep and preserve its equipment, inventory and other tangible Collateral in good condition, repair and order and shall not operate or locate any such Collateral (or cause to be operated or located) in any area excluded from insurance coverage.

(n)           Each Debtor shall maintain with financially sound and reputable insurers, insurance with respect to the Collateral, including Collateral hereafter acquired, against loss or damage of the kinds and in the amounts customarily insured against by entities of established reputation having similar properties similarly situated and in such amounts as are customarily carried under similar circumstances by other such entities and otherwise as is prudent for entities engaged in similar businesses but in any event sufficient to cover the full replacement cost thereof. Each Debtor shall cause each insurance policy issued in connection herewith to provide, and the insurer issuing such policy to certify to the Collateral Agent, that (a) the Collateral Agent will be named as lender loss payee and additional insured under each such insurance policy; and (b) if such insurance is proposed to be cancelled or materially changed for any reason whatsoever, such insurer or the Company will promptly notify the Collateral Agent. In addition, the Collateral Agent will have the right (but no obligation) at its election to remedy any default in the payment of premiums within thirty (30) days of notice from the Company or the insurer of any such default. If no Event of Default (as defined in the Notes) exists and if the proceeds arising out of any claim or series of related claims do not exceed $100,000, loss payments in each instance will be applied by the applicable Debtor to the repair and/or replacement of property with respect to which the loss was incurred to the extent reasonably feasible, and any loss payments or the balance thereof remaining, to the extent not so applied, shall be payable to the applicable Debtor; provided , however , that payments received by any Debtor after an Event of Default occurs and is continuing or in excess of $100,000 for any occurrence or series of related occurrences shall be paid to the Collateral Agent on behalf of the Secured Parties and, if received by such Debtor, shall be held in trust for the Secured Parties and immediately paid over to the Collateral Agent unless otherwise directed in writing by the Collateral Agent. Copies of such policies or the related certificates, in each case, naming the Collateral Agent as lender loss payee and additional insured shall be delivered to the Collateral Agent at least annually and at the time any new policy of insurance is issued.

(o)           Each Debtor shall, within ten (10) days of obtaining knowledge thereof, advise Collateral Agent promptly, in sufficient detail, of any material adverse change in the Collateral, and of the occurrence of any event which would have a material adverse effect on the value of the Collateral or on the Secured Parties’ security interest.

(p)           Each Debtor shall promptly execute and deliver to the Collateral Agent such further deeds, mortgages, assignments, security agreements, financing statements or other instruments, documents, certificates and assurances and take such further action as the Collateral Agent may from time to time request and may in its sole discretion deem necessary to perfect, protect or enforce the Secured Parties’ security interest in the Collateral including, without limitation, one or more deposit account control agreements, and if applicable, the execution and delivery of a separate security agreement with respect to each Debtor’s Intellectual Property (“Intellectual Property Security Agreement”) in which the Secured Parties have been granted a security interest hereunder, all substantially in forms reasonably acceptable to the Collateral Agent, which Intellectual Property Security Agreement, and other such documents and agreements other than as stated therein, shall be subject to all of the terms and conditions hereof.

(q)           Each Debtor shall permit the Collateral Agent and its representatives and agents to inspect the Collateral during normal business hours and upon reasonable prior notice, and to make copies of records pertaining to the Collateral as may be reasonably requested by the Collateral Agent from time to time.

(r)           Each Debtor shall take commercially reasonable steps necessary to diligently pursue and seek to preserve, enforce and collect any rights, claims, causes of action and accounts receivable in respect of the Collateral.

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(s)           Each Debtor shall promptly notify the Secured Parties in sufficient detail upon becoming aware of any attachment, garnishment, execution or other legal process levied against any Collateral and of any other information received by such Debtor that may materially affect the value of the Collateral, the Security Interest or the rights and remedies of the Secured Parties hereunder.

(t)           All information heretofore, herein or hereafter supplied to the Secured Parties by or on behalf of any Debtor with respect to the Collateral is accurate and complete in all material respects as of the date furnished and in light of the circumstances under which such statements were made.

(u)           Each Debtor shall at all times preserve and keep in full force and effect its existence and good standing and any rights and franchises material to its business.

(v)           No Debtor will change its name, type of organization, jurisdiction of organization, organizational identification number (if it has one), legal or corporate structure, or add any new fictitious name unless it provides at least 15 days prior written notice to the Collateral Agent of such change and, at the time of such written notification, such Debtor provides any financing statements or fixture filings necessary to perfect and continue the perfection of the Security Interests granted and evidenced by this Agreement.

(w)           Except in the ordinary course of business, no Debtor may consign any of its inventory or sell any of its inventory on bill and hold, sale or return, sale on approval, or other conditional terms of sale without the consent of the Collateral Agent which shall not be unreasonably withheld.

(x)           No Debtor may relocate its chief executive office to a new location without providing 15 days prior written notification thereof to the Secured Parties and provided that at the time of such written notification, such Debtor provides any financing statements necessary to perfect and continue the perfection of the Security Interests granted and evidenced by this Agreement.

(y)           Each Debtor was organized and remains organized solely under the laws of the state set forth next to such Debtor’s name in Schedule D  attached hereto, which Schedule D  sets forth each Debtor’s organizational identification number or, if any Debtor does not have one, states that one does not exist.

(z)

(i)           The actual name of each Debtor is the name set forth in Schedule D attached hereto;

(ii)           no Debtor has any trade names except as set forth on Schedule E  attached hereto;

(iii)           no Debtor has used any name other than that stated in the preamble hereto or as set forth on Schedule E  for the preceding five years; and

(iv)           no entity has merged into any Debtor or been acquired by any Debtor within the past five years except as set forth on Schedule E.

(aa)           At any time that any Collateral consists of instruments, certificated securities or other items that require or permit possession by a secured party to perfect the security interest created hereby, the applicable Debtor shall deliver such Collateral to the Collateral Agent.

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(bb)           During the continuance of an Event of Default, each Debtor, in its capacity as issuer, hereby agrees to comply with any and all orders and instructions of Collateral Agent regarding the Pledged Securities consistent with the terms of this Agreement without the further consent of any Debtor as contemplated by Section 8-106 (or any successor section) of the UCC. Further, each Debtor agrees, solely with respect to the Pledged Securities, that it shall not enter into a similar agreement (or one that would confer “control” within the meaning of Article 8 of the UCC) with any other person or entity.

(cc)           each Debtor shall cause all tangible chattel paper constituting Collateral to be delivered to the Collateral Agent or, if such delivery is not possible, then to cause such tangible chattel paper to contain a legend noting that it is subject to the security interest created by this Agreement. To the extent that any Collateral consists of electronic chattel paper, the applicable Debtor shall cause the underlying chattel paper to be “marked” within the meaning of Section 9-105 of the UCC (or successor section thereto).

(dd)           If there is any investment property or deposit account included as Collateral that can be perfected by “control” through an account control agreement, the applicable Debtor shall at the request of the Collateral Agent cause such an account control agreement, in form and substance in each case satisfactory to the Collateral Agent, to be entered into and delivered to the Collateral Agent for the benefit of the Secured Parties.

(ee)           To the extent that any Collateral consists of letter-of-credit rights, the applicable Debtor shall cause the issuer of each underlying letter of credit to consent to an assignment of the proceeds thereof to the Secured Parties.

(ff)           To the extent that any Collateral is in the possession of any third party, the applicable Debtor shall join with the Collateral Agent in notifying such third party of the Secured Parties’ security interest in such Collateral and shall use commercially reasonable efforts to obtain an acknowledgement and agreement from such third party with respect to the Collateral, in form and substance reasonably satisfactory to the Collateral Agent.

(gg)           If any Debtor shall at any time hold or acquire a commercial tort claim, such Debtor shall promptly notify the Secured Parties in a writing signed by such Debtor of the particulars thereof and grant to the Secured Parties in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to the Collateral Agent.

(hh)           Each Debtor shall promptly provide written notice to the Collateral Agent of any and all accounts which arise out of contracts with any governmental authority and, to the extent necessary to perfect or continue the perfected status of the Security Interests in such accounts and proceeds thereof, shall execute and deliver to the Collateral Agent an assignment of claims for such accounts and cooperate with the Collateral Agent in taking any other steps required, in its judgment, under the Federal Assignment of Claims Act or any similar federal, state or local statute or rule to perfect or continue the perfected status of the Security Interests in such accounts and proceeds thereof.

(ii)           The Company shall cause each subsidiary of the Company to promptly become a party hereto (an “Additional Debtor”), by executing and delivering an Additional Debtor Joinder substantially in the form of Annex A  attached hereto and comply with the provisions hereof applicable to the Debtors. Concurrent therewith, the Additional Debtor shall deliver replacement schedules for, or supplements to all other Disclosure Schedules to (or referred to in) this Agreement, as applicable, which replacement schedules shall supersede, or supplements shall modify, the Schedules then in effect. The Additional Debtor shall also deliver such opinions of counsel, authorizing resolutions, good standing certificates, incumbency certificates, organizational documents, financing statements and other information and documentation as the Collateral Agent may reasonably request. Upon delivery of the foregoing to the Collateral Agent, the Additional Debtor shall be and become a party to this Agreement with the same rights and obligations as the Debtors, for all purposes hereof as fully and to the same extent as if it were an original signatory hereto and shall be deemed to have made the representations, warranties and covenants set forth herein as of the date of execution and delivery of such Additional Debtor Joinder (other than representations and warranties that specifically refer to an earlier date), and all references herein to the “Debtors” shall be deemed to include each Additional Debtor.

(jj)           Each Debtor shall vote the Pledged Securities to comply with the covenants and agreements set forth herein and in the Notes.

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(kk)           Each Debtor shall register the pledge of the applicable Pledged Securities on the books of such Debtor. Each Debtor shall notify each issuer of Pledged Securities to register the pledge of the applicable Pledged Securities in the name of the Collateral Agent on the books of such issuer. Further, except with respect to certificated securities delivered to the Collateral Agent, the applicable Debtor shall deliver to Collateral Agent an acknowledgement of pledge (which, where appropriate, shall comply with the requirements of the relevant UCC with respect to perfection by registration) signed by the issuer of the applicable Pledged Securities, which acknowledgement shall confirm that: (a) it has registered the pledge on its books and records; and (b) at any time directed by Collateral Agent during the continuation of an Event of Default, such issuer will transfer the record ownership of such Pledged Securities into the name of any designee of the Collateral Agent, will take such steps as may be necessary to effect the transfer, and will comply with all other instructions of the Collateral Agent regarding such Pledged Securities without the further consent of the applicable Debtor.

(ll)           In the event that, upon an occurrence of an Event of Default, Collateral Agent shall sell all or any of the Pledged Securities to another party or parties (herein called the “Transferee”) or shall purchase or retain all or any of the Pledged Securities, each Debtor shall, to the extent applicable: (i) deliver to Collateral Agent or the Transferee, as the case may be, the articles of incorporation, bylaws, minute books, stock certificate books, corporate seals, deeds, leases, indentures, agreements, evidences of indebtedness, books of account, financial records and all other Organizational Documents and records of the Debtors and their direct and indirect subsidiaries; (ii) use its commercially reasonable efforts to obtain resignations of the persons then serving as officers and directors of the Debtors and their direct and indirect subsidiaries, if so requested; and (iii) use its commercially reasonable efforts to obtain any approvals that are required by any governmental or regulatory body in order to permit the sale of the Pledged Securities to the Transferee or the purchase or retention of the Pledged Securities by Collateral Agent and allow the Transferee or Collateral Agent to continue the business of the Debtors and their direct and indirect subsidiaries.

(mm)           Without limiting the generality of the other obligations of the Debtors hereunder, each Debtor shall (i) cause to be registered at the United States Copyright Office all of its material copyrights, (ii) cause the security interest contemplated hereby with respect to all Intellectual Property registered at the United States Copyright Office or United States Patent and Trademark Office to be duly recorded at the applicable office, and (iii) give the Collateral Agent notice whenever it acquires (whether absolutely or by license) or creates any additional material Intellectual Property.

(nn)           Each Debtor will from time to time, at the joint and several expense of the Debtors, promptly execute and deliver all such further instruments and documents, and take all such further action as may be reasonably necessary or desirable, or as the Collateral Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Collateral Agent to exercise and enforce Collateral Agent’s rights and remedies hereunder and with respect to any Collateral or to otherwise carry out the purposes of this Agreement.

(oo)           Schedule F attached hereto lists all of the patents, patent applications, trademarks, trademark applications, registered copyrights, and domain names owned by any of the Debtors as of the date hereof.  Schedule F lists all material licenses in favor of any Debtor for the use of any patents, trademarks, copyrights and domain names as of the date hereof. All material patents and trademarks of the Debtors have been duly recorded at the United States Patent and Trademark Office and all material copyrights of the Debtors have been duly recorded at the United States Copyright Office.

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(pp)           Except as set forth on Schedule G attached hereto, none of the account debtors or other persons or entities obligated on any of the Collateral is a governmental authority covered by the Federal Assignment of Claims Act or any similar federal, state or local statute or rule in respect of such Collateral.

5.           Effect of Pledge on Certain Rights.If any of the Collateral subject to this Agreement consists of nonvoting equity or ownership interests (regardless of class, designation, preference or rights) that may be converted into voting equity or ownership interests upon the occurrence of certain events (including, without limitation, upon the transfer of all or any of the other stock or assets of the issuer), it is agreed that the pledge of such equity or ownership interests pursuant to this Agreement or the enforcement of any of Collateral Agent’s rights hereunder shall not be deemed to be the type of event which would trigger such conversion rights notwithstanding any provisions in the Organizational Documents or agreements to which any Debtor is subject or to which any Debtor is party.

6.           Defaults. The following events shall be “Events of Default”:

(a)           The occurrence of an Event of Default (as defined in the Notes) under the Notes;

(b)           Any representation or warranty of any Debtor in this Agreement shall prove to have been incorrect in any material respect when made;

(c)           The failure by any Debtor to observe or perform any of its obligations hereunder for five (5) days after delivery to such Debtor of notice of such failure by or on behalf of a Secured Party unless such default is capable of cure but cannot be cured within such time frame and such Debtor is using best efforts to cure same in a timely fashion; or

(d)           If any material provision of this Agreement shall at any time for any reason be declared to be null and void, or the validity or enforceability thereof shall be contested by any Debtor, or a proceeding shall be commenced by any Debtor, or by any governmental authority having jurisdiction over any Debtor, seeking to establish the invalidity or unenforceability thereof, or any Debtor shall deny that any Debtor has any liability or obligation purported to be created under this Agreement.

7.           Duty to Hold In Trust.

(a)           During the continuance of an Event of Default, each Debtor shall, upon receipt of any revenue, income, dividend, interest or other sums subject to the Security Interests, whether payable pursuant to the Notes or otherwise, or of any check, draft, note, trade acceptance or other instrument evidencing an obligation to pay any such sum, hold the same in trust for the Secured Parties and shall forthwith endorse and transfer any such sums or instruments, or both, to the Collateral Agent for distribution to the Secured Parties, pro-rata in proportion to their respective then-currently outstanding principal amount of Notes for application to the satisfaction of the Obligations (and if any Note is not outstanding, pro-rata in proportion to the initial purchases of the remaining Notes).

(b)           If any Debtor shall become entitled to receive or shall receive any securities or other property (including, without limitation, shares of Pledged Securities or instruments representing Pledged Securities acquired after the date hereof, or any options, warrants, rights or other similar property or certificates representing a dividend, or any distribution in connection with any recapitalization, reclassification or increase or reduction of capital, or issued in connection with any reorganization of such Debtor or any of its direct or indirect subsidiaries) in respect of the Pledged Securities (whether as an addition to, in substitution of, or in exchange for, such Pledged Securities or otherwise), such Debtor agrees to (i) hold the same in trust on behalf of and for the benefit of the Secured Parties; and (ii) to deliver any and all certificates or instruments evidencing the same to Collateral Agent on or before the close of business on the fifth Business Day following the receipt thereof by such Debtor, in the exact form received together with the Necessary Endorsements, to be held by Collateral Agent subject to the terms of this Agreement as Collateral.

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8.           Rights and Remedies Upon Default.

(a)           After the occurrence and during the continuance of any Event of Default, the Collateral Agent shall have the right to exercise all of the remedies conferred hereunder and under the Notes, and the Collateral Agent shall have all the rights and remedies of a secured party under the UCC. Without limitation, the Collateral Agent, for the benefit of the Secured Parties, shall have the following rights and powers:

(i)           The Collateral Agent shall have the right to take possession of the Collateral and, for that purpose, enter, with the aid and assistance of any person, any premises where the Collateral, or any part thereof, is or may be placed and remove the same, so long as the same can be accomplished without breach of the peace and otherwise in compliance with applicable law, and each Debtor shall assemble the Collateral and make it available to the Collateral Agent at places which the Collateral Agent shall reasonably select, whether at such Debtor’s premises or elsewhere, and make available to the Collateral Agent, without rent, all of such Debtor’s respective premises and facilities for the purpose of the Collateral Agent taking possession of, removing or putting the Collateral in saleable or disposable form.

(ii)           Upon notice to the Debtors by Collateral Agent, all rights of each Debtor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise and all rights of each Debtor to receive the dividends and interest which it would otherwise be authorized to receive and retain, shall cease. Upon such notice, Collateral Agent shall have the right to receive, for the benefit of the Secured Parties, any interest, cash dividends or other payments on the Collateral and, at the option of Collateral Agent, to exercise in such Collateral Agent’s discretion all voting rights pertaining thereto. Without limiting the generality of the foregoing, Collateral Agent shall have the right (but not the obligation) to exercise all rights with respect to the Collateral as if it were the sole and absolute owner thereof, including, without limitation, to vote and/or to exchange, at its sole discretion, any or all of the Collateral in connection with a merger, reorganization, consolidation, recapitalization or other readjustment concerning or involving the Collateral or any Debtor or any of its direct or indirect subsidiaries.

(iii)           The Collateral Agent shall have the right to seek an Order from a court appointing a Trustee  to operate the business of each Debtor using the Collateral and shall have the right to assign, sell, lease or otherwise dispose of and deliver all or any part of the Collateral, at public or private sale or otherwise, either with or without special conditions or stipulations, for cash or on credit or for future delivery, in such parcel or parcels and at such time or times and at such place or places, and upon such terms and conditions as are commercially reasonable.  Upon each such sale, lease, assignment or other transfer or disposition of Collateral, the Collateral Agent, for the benefit of the Secured Parties, may, unless prohibited by applicable law which cannot be waived, purchase all or any part of the Collateral being sold, free from and discharged of all trusts, claims, right of redemption and equities of any Debtor, which are hereby waived and released.

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(iv)           The Collateral Agent shall have the right (but not the obligation) to notify any account debtors and any obligors under instruments or accounts to make payments directly to the Collateral Agent, on behalf of the Secured Parties, and to enforce the Debtors’ rights against such account debtors and obligors.

(v)           The Collateral Agent, for the benefit of the Secured Parties, may (but is not obligated to) direct any financial intermediary or any other person or entity holding any investment property to transfer the same to the Collateral Agent, on behalf of the Secured Parties, or its designee.

(vi)           The Collateral Agent may (but is not obligated to) transfer any or all Intellectual Property registered in the name of any Debtor at the United States Patent and Trademark Office and/or Copyright Office into the name of the Collateral Agent or any purchaser of any Collateral.

(b)           The Collateral Agent shall comply with any applicable law in connection with a disposition of Collateral and such compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. The Collateral Agent may sell the Collateral without giving any warranties and may specifically disclaim such warranties. If the Collateral Agent sells any of the Collateral on credit, the Debtors will only be credited with payments actually made by the purchaser. In addition, each Debtor waives any and all rights that it may have to a judicial hearing in advance of the enforcement of any of the Collateral Agent’s rights and remedies hereunder, including, without limitation, its right following an Event of Default to take immediate possession of the Collateral and to exercise its rights and remedies with respect thereto.

(c)           If any notice to Debtor of the sale or other disposition of Collateral is required by then applicable law, five business (5) days prior written notice (which Debtor agree is reasonable notice within the meaning of Section 9.612(a) of the Uniform Commercial Code) shall be given to Debtor of the time and place of any sale of Collateral.  The rights granted in this Section are in addition to any and all rights available to Collateral Agent under the Uniform Commercial Code.

(d)           For the purpose of enabling the Collateral Agent to further exercise rights and remedies under this Section 8 or elsewhere provided by agreement or applicable law, each Debtor hereby grants to the Collateral Agent, for the benefit of the Collateral Agent and the Secured Parties, an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to such Debtor) to use, license or sublicense during the continuance of an Event of Default, any Intellectual Property now owned or hereafter acquired by such Debtor, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof.

9.           Applications of Proceeds. The proceeds of any such sale, lease or other disposition of the Collateral hereunder or from payments made on account of any insurance policy insuring any portion of the Collateral shall be applied first, to the expenses of retaking, holding, storing, processing and preparing for sale, selling, and the like (including, without limitation, any taxes, fees and other costs incurred in connection therewith) of the Collateral, if any, to the reasonable attorneys’ fees and expenses incurred by the Collateral Agent in enforcing the Secured Parties’ rights hereunder and in connection with collecting, storing and disposing of the Collateral, and then to satisfaction of the Obligations pro rata among the Secured Parties (based on then-outstanding principal amounts of Notes at the time of any such determination), and then to the payment of any other amounts required by applicable law, after which the Secured Parties shall pay to the applicable Debtor any surplus proceeds. If, upon the sale, license or other disposition of the Collateral, the proceeds thereof are insufficient to pay all amounts to which the Secured Parties are legally entitled, the Debtors will be liable for the deficiency, together with interest thereon, at the rate of 18% per annum or the lesser amount permitted by applicable law (the “Default Rate”), and the reasonable fees of any attorneys employed by the Secured Parties to collect such deficiency. To the extent permitted by applicable law, each Debtor waives all claims, damages and demands against the Secured Parties arising out of the repossession, removal, retention or sale of the Collateral, unless due solely to the gross negligence or willful misconduct of the Secured Parties as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction.

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10.           Securities Law Provision. Each Debtor recognizes that Collateral Agent may be limited in its ability to effect a sale to the public of all or part of the Pledged Securities by reason of certain prohibitions in the Securities Act of 1933, as amended, or other federal or state securities laws (collectively, the “Securities Laws”), and may reasonably be obliged to resort to one or more sales to a restricted group of purchasers who may be required to agree to acquire the Pledged Securities for their own account, for investment and not with a view to the distribution or resale thereof. Each Debtor agrees that sales so made may be at prices and on terms less favorable than if the Pledged Securities were sold to the public, and that Collateral Agent has no obligation to delay the sale of any Pledged Securities for the period of time necessary to register the Pledged Securities for sale to the public under the Securities Laws. Each Debtor shall cooperate with Collateral Agent in its attempt to satisfy any requirements under the Securities Laws (including, without limitation, registration thereunder if requested by Collateral Agent) applicable to the sale of the Pledged Securities by Collateral Agent.

11.           Costs and Expenses. Each Debtor agrees to pay all reasonable out-of-pocket fees, costs and expenses incurred in connection with any filing required hereunder, including without limitation, any financing statements pursuant to the UCC, continuation statements, partial releases and/or termination statements related thereto or any expenses of any searches reasonably required by the Collateral Agent. The Debtors shall also pay all other claims and charges which in the reasonable opinion of the Collateral Agent is reasonably likely to prejudice, imperil or otherwise affect the Collateral or the Security Interests therein. The Debtors will also, upon demand, pay to the Collateral Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Collateral Agent, for the benefit of the Secured Parties, may incur in connection with (i) the enforcement of this Agreement, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, or (iii) the exercise or enforcement of any of the rights of the Secured Parties under the Notes.  Until so paid, any fees payable hereunder shall be added to the principal amount of the Notes and shall bear interest at the Default Rate.

12.           Responsibility for Collateral. The Debtors assume all liabilities and responsibility in connection with all Collateral, and the Obligations shall in no way be affected or diminished by reason of the loss, destruction, damage or theft of any of the Collateral or its unavailability for any reason. Without limiting the generality of the foregoing, (a) neither the Collateral Agent nor any Secured Party (i) has any duty (either before or after an Event of Default) to collect any amounts in respect of the Collateral or to preserve any rights relating to the Collateral, or (ii) has any obligation to clean-up or otherwise prepare the Collateral for sale, and (b) each Debtor shall remain obligated and liable under each contract or agreement included in the Collateral to be observed or performed by such Debtor thereunder. Neither the Collateral Agent nor any Secured Party shall have any obligation or liability under any such contract or agreement by reason of or arising out of this Agreement or the receipt by the Collateral Agent or any Secured Party of any payment relating to any of the Collateral, nor shall the Collateral Agent or any Secured Party be obligated in any manner to perform any of the obligations of any Debtor under or pursuant to any such contract or agreement, to make inquiry as to the nature or sufficiency of any payment received by the Collateral Agent or any Secured Party in respect of the Collateral or as to the sufficiency of any performance by any party under any such contract or agreement, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to the Collateral Agent or to which the Collateral Agent or any Secured Party may be entitled at any time or times.

13.           Security Interests Absolute. All rights of the Secured Parties and all obligations of the Debtors hereunder, shall be absolute and unconditional, irrespective of: (a) any lack of validity or enforceability of this Agreement, the Notes or any agreement entered into in connection with the foregoing, or any portion hereof or thereof; (b) any change in the time, manner or place of payment or performance of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Notes or any other agreement entered into in connection with the foregoing; (c) any exchange, release or non-perfection of any of the Collateral, or any release or amendment or waiver of or consent to departure from any other collateral for, or any guarantee, or any other security, for all or any of the Obligations; (d) any action by the Secured Parties to obtain, adjust, settle and cancel in its sole discretion any insurance claims or matters made or arising in connection with the Collateral; or (e) any other circumstance which might otherwise constitute any legal or equitable defense available to a Debtor, or a discharge of all or any part of the Security Interests granted hereby. Until the Obligations shall have been paid and performed in full, the rights of the Secured Parties shall continue even if the Obligations are barred for any reason, including, without limitation, the running of the statute of limitations or bankruptcy. Each Debtor expressly waives presentment, protest, notice of protest, demand, notice of nonpayment and demand for performance. In the event that at any time any transfer of any Collateral or any payment received by the Secured Parties hereunder shall be deemed by final order of a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under the bankruptcy or insolvency laws of the United States, or shall be deemed to be otherwise due to any party other than the Secured Parties, then, in any such event, each Debtor’s obligations hereunder shall survive cancellation of this Agreement, and shall not be discharged or satisfied by any prior payment thereof and/or cancellation of this Agreement, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof. Each Debtor waives all right to require the Secured Parties to proceed against any other person or entity or to apply any Collateral which the Secured Parties may hold at any time, or to marshal assets, or to pursue any other remedy. Each Debtor waives any defense arising by reason of the application of the statute of limitations to any Obligations secured hereby.

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14.           Term of Agreement. This Agreement and the Security Interest shall terminate on the date on which all payments under the Notes have been indefeasibly paid in full and all other Obligations have been paid or discharged; provided, however, that all indemnities of the Debtors contained in this Agreement (including, without limitation, Annex B hereto) shall survive and remain operative and in full force and effect regardless of the termination of this Agreement.

15.           Power of Attorney; Further Assurances.

(a)           Each Debtor authorizes the Collateral Agent, and does hereby make, constitute and appoint the Collateral Agent and its officers, agents, successors or assigns with full power of substitution, as such Debtor’s true and lawful attorney-in-fact, with power, in the name of the Collateral Agent or such Debtor, after the occurrence and during the continuance of an Event of Default, (i) to endorse any note, checks, drafts, money orders or other instruments of payment (including, without limitation, payments payable under or in respect of any policy of insurance) in respect of the Collateral that may come into possession of the Collateral Agent; (ii) to sign and endorse any financing statement pursuant to the UCC or any invoice, freight or express bill, bill of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with accounts, and other documents relating to the Collateral; (iii) to pay or discharge taxes, liens, security interests or other encumbrances at any time levied or placed on or threatened against the Collateral; (iv) to demand, collect, receipt for, compromise, settle and sue for monies due in respect of the Collateral; (v) to transfer any Intellectual Property or provide licenses respecting any Intellectual Property; and (vi) generally, at the option of the Collateral Agent, and at the expense of the Debtors, at any time, or from time to time, to execute and deliver any and all documents and instruments and to do all acts and things which the Collateral Agent deems necessary to protect, preserve and realize upon the Collateral and the Security Interests granted therein in order to effect the intent of this Agreement and the Notes all as fully and effectually as the Debtors might or could do; and each Debtor hereby ratifies all that said attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding. The designation set forth herein shall be deemed to amend and supersede any inconsistent provision in the Organizational Documents or other documents or agreements to which any Debtor is subject or to which any Debtor is a party. Without limiting the generality of the foregoing, after the occurrence and during the continuance of an Event of Default, each Secured Party is specifically authorized to execute and file any applications for or instruments of transfer and assignment of any patents, trademarks, copyrights or other Intellectual Property with the United States Patent and Trademark Office and the United States Copyright Office.

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(b)           On a continuing basis, each Debtor will make, execute, acknowledge, deliver, file and record, as the case may be, with the proper filing and recording agencies in any jurisdiction, including, without limitation, the jurisdictions indicated on Schedule C attached hereto, all such instruments, and take all such action as may reasonably be deemed necessary or advisable, or as reasonably requested by the Collateral Agent, to perfect the Security Interest granted hereunder and otherwise to carry out the intent and purposes of this Agreement, or for assuring and confirming to the Collateral Agent the grant or perfection of a perfected security interest in all the Collateral under the UCC.

(c)           Each Debtor hereby irrevocably appoints the Collateral Agent as such Debtor’s attorney-in-fact, with full authority in the place and instead of such Debtor and in the name of such Debtor, from time to time in the Collateral Agent’s discretion, to take any action permitted under this Agreement and to execute any instrument which the Collateral Agent may reasonably deem necessary or advisable to accomplish the purposes of this Agreement, including the filing, in its sole discretion, of one or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of such Debtor where permitted by law, which financing statements may (but need not) describe the Collateral as “all assets” or “all personal property” or words of like import, and ratifies all such actions taken by the Collateral Agent. This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding.

16.           Notices.   All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (a) personally served, (b) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (c) delivered by a reputable overnight courier service with charges prepaid, or (d) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice.  Any notice or other communication required or permitted to be given hereunder shall be deemed effective (i) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a Business Day during normal business hours), or the first Business Day following such delivery (if delivered other than on a Business Day during normal business hours), (ii) on the first Business Day following the date deposited with an overnight courier service with charges prepaid, or (iii) on the fifth Business Day following the date of mailing pursuant to subpart (b) above, or upon actual receipt of such mailing, whichever shall first occur.  The addresses for such communications shall be:

To Debtor, to:	ActiveCare Inc.
	1365 West Business Park Drive
	Orem, Utah 84058
	Attn: Mike Acton
	Fax: 855-864-2511

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With a copy by fax only to
(which shall not constitute notice):	Durham Jones & Pinegar
	111 East Broadway, Suite 900
	Salt Lake City, Utah 84111
	Attn: C. Parkinson Lloyd, Esq.
	Fax: (801) 415-3500
To the Collateral Agent:	Collateral Services LLC
	515 Rockaway Avenue
	Valley Stream, New York 11581
	Fax: (212) 697-3575
If to Debtor or Collateral Agent,
with a copy by telecopier only to:	Grushko & Mittman, P.C.
	515 Rockaway Avenue
	Valley Stream, New York 11581
	Fax: (212) 697-3575

17.           Other Security. To the extent that the Obligations are now or hereafter secured by property other than the Collateral or by the guarantee, endorsement or property of any other person, firm, corporation or other entity, then the Collateral Agent shall have the right, in its sole discretion, to pursue, relinquish, subordinate, modify or take any other action with respect thereto, without in any way modifying or affecting any of the Secured Parties’ rights and remedies hereunder.

18.           Appointment of Collateral Agent. The Secured Parties hereby appoint Collateral Services LLC to act as their agent (“Collateral Agent”) for purposes of exercising any and all rights and remedies of the Secured Parties hereunder. Such appointment shall continue until revoked in writing by a Majority in Interest, at which time a Majority in Interest shall appoint a new Collateral Agent. The Collateral Agent shall have the rights, responsibilities and immunities set forth in Annex B hereto.

19.           Miscellaneous.

(a)           No course of dealing between the Debtors and the Collateral Agent, nor any failure to exercise, nor any delay in exercising, on the part of the Collateral Agent, any right, power or privilege hereunder or under the Notes shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

(b)           All of the rights and remedies of the Collateral Agent with respect to the Collateral, whether established hereby or by the Notes or by any other agreements, instruments or documents or by law shall be cumulative and may be exercised singly or concurrently.

(c)           This Agreement, together with the exhibits and schedules hereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into this Agreement and the exhibits and schedules hereto. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Debtors and Collateral Agent or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought.

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(d)           If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

(e)           No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

(f)           This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Debtors may not assign this Agreement or any rights or obligations hereunder without the prior written consent of a Majority in Interest (other than by merger). Any Secured Party may assign any or all of its rights under this Agreement to any Person to whom such Secured Party assigns or transfers any Obligations, provided such transferee agrees in writing to be bound, with respect to the transferred Obligations, by the provisions of this Agreement that apply to the “Secured Parties.”

(g)           Each party shall take such further action and execute and deliver such further documents as may be necessary or appropriate in order to carry out the provisions and purposes of this Agreement.

(h)           All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each Debtor agrees that all proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and the Notes (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan. Each Debtor hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. If any party shall commence a proceeding to enforce any provisions of this Agreement, then the prevailing party in such proceeding shall be reimbursed by the other party for its reasonable attorney’s fees and other costs and expenses incurred with the investigation, preparation and prosecution of such proceeding.

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(i)           This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile or other electronic transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such signature were the original thereof.

(j)           All Debtors shall jointly and severally be liable for the obligations of each Debtor to the Secured Parties hereunder.

(k)           Each Debtor shall indemnify, reimburse and hold harmless the Collateral Agent and the Secured Parties and their respective partners, members, shareholders, officers, directors, employees and agents (and any other persons with other titles that have similar functions) (collectively, “Indemnitees”) from and against any and all losses, claims, liabilities, damages, penalties, suits, costs and expenses, of any kind or nature, (including fees relating to the cost of investigating and defending any of the foregoing) imposed on, incurred by or asserted against such Indemnitee in any way related to or arising from or alleged to arise from this Agreement or the Collateral, except any such losses, claims, liabilities, damages, penalties, suits, costs and expenses which result from the gross negligence or willful misconduct of the Indemnitee as determined by a final, nonappealable decision of a court of competent jurisdiction. This indemnification provision is in addition to, and not in limitation of, any other indemnification provision in the Notes, the Subscription Agreement (as such term is defined in the Notes) or any other agreement, instrument or other document executed or delivered in connection herewith or therewith.

(l)           Nothing in this Agreement shall be construed to subject Collateral Agent or any Secured Party to liability as a partner in any Debtor or any if its direct or indirect subsidiaries that is a partnership or as a member in any Debtor or any of its direct or indirect subsidiaries that is a limited liability company, nor shall Collateral Agent or any Secured Party be deemed to have assumed any obligations under any partnership agreement or limited liability company agreement, as applicable, of any such Debtor or any if its direct or indirect subsidiaries or otherwise, unless and until any such Secured Party exercises its right to be substituted for such Debtor as a partner or member, as applicable, pursuant hereto.

(m)           To the extent that the grant of the security interest in the Collateral and the enforcement of the terms hereof require the consent, approval or action of any partner or member, as applicable, of any Debtor or any direct or indirect subsidiary of any Debtor or compliance with any provisions of any of the Organizational Documents, the Debtors hereby grant such consent and approval and waive any such noncompliance with the terms of said documents.

[SIGNATURE PAGES FOLLOW]

19

IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be duly executed on the day and year first above written.

ACTIVECARE INC.
By:	/s/ David Derrick
	Name: David derrick
	Title: CEO

COLLATERAL AGENT

COLLATERAL SERVICES LLC

By:	/s/ Barbara Mittman
	Name: Barbara Mittman
	Title:

20

OMNIBUS SECURED PARTY SIGNATURE PAGE TO

ACTIVECARE INC.

SECURITY AGREEMENT

The undersigned, in its capacity as a Secured Party, hereby executes and delivers the Security Agreement to which this signature page is attached and agrees to be bound by the Security Agreement on the date set forth on the first page of the Security Agreement.  This counterpart signature page, together with all counterparts of the Security Agreement and signature pages of the other parties named therein, shall constitute one and the same instrument in accordance with the terms of the Security Agreement.

ALPHA CAPITAL ANSTALT

[Print Name of Investor]

/s/Konrad Ackermann

[Signature]

Name: Konrad Ackermann

Title:Director_________________________________

Address:	Pradafant 7
	9490 Furstentums
	Vaduz, Lichtenstein

Fax No.: 01141714773504

Email: _______________________________________

Taxpayer ID# (if applicable): ______________________

21

OMNIBUS SECURED PARTY SIGNATURE PAGE TO

ACTIVECARE INC.

SECURITY AGREEMENT

The undersigned, in its capacity as a Secured Party, hereby executes and delivers the Security Agreement to which this signature page is attached and agrees to be bound by the Security Agreement on the date set forth on the first page of the Security Agreement.  This counterpart signature page, together with all counterparts of the Security Agreement and signature pages of the other parties named therein, shall constitute one and the same instrument in accordance with the terms of the Security Agreement.

OSHER CAPITAL PARTNERS LLC

[Print Name of Investor]

/s/Ari Kluger

[Signature]

Name: Ari Kluger

Title:  President

Address:	5 Sansberry Lane
	Spring Valley, NY 10977

Fax No.: 212-586-8244

Email: _______________________________________

Taxpayer ID# (if applicable): ______________________

22

SCHEDULE A

Principal Place of Business of Debtor:

1365 West Business Park Drive

Orem, Utah 84058

Locations Where Collateral is Located or Stored:

1365 West Business Park Drive

Orem, Utah 84058

SCHEDULE B

Exceptions to Ownership

The assets of GWire Corporation owned by ActiveCare, Inc., through its ownership of GWire, are subject to a security interest granted pursuant to a Security Agreement, previously provided to counsel for the Lenders.

Additionally, certain equipment leased by ActiveCare, Inc., is subject to a security interest granted pursuant to equipment lease agreements, previously disclosed to counsel for the Lenders.

SCHEDULE C

Jurisdictions

Delaware

Texas

SCHEDULE D

Legal Names and Organizational Identification Numbers

ActiveCare Inc..

Organized and existing under the laws of the State of Delaware.

Federal Taxpayer Identification Number87-0578125

Delaware File Number 4694931

4G Biometrics, LLC

Organized and existing under the laws of the State of Texas

Federal Taxpayer Identification Number: 27-0975678

Texas File Number: 801173144

23

SCHEDULE E

Names; Mergers and Acquisitions

ActiveCare, Inc.

Prior Names: Volu-Sol Reagents Corporation, a Utah corporation

Acquisitions:

On March 8, 2012, the Company acquired 4G Biometrics, LLC, a Texas limited liability company.

Effective September 1, 2012, GWire Corporation (a Utah corporation and subsidiary of ActiveCare, Inc.) acquired the assets and assumed certain liabilities of Green Wire, LLC, Green Wire Outsourcing, Inc., Orbit Medical Response, LLC, and Rapid Medical Response, LLC

24

SCHEDULE F

Intellectual Property

Trademarks.  ActiveCare, Inc., has registered certain of its trademarks with the United States Patent and Trademark Office, including ActiveCare™, ActiveOne™, and ActiveOne+™.  ActiveCare also use certain trademarks, trade names, and logos that have not been registered.  ActiveCare claims common law rights to these unregistered trademarks, trade names and logos.  ActiveCare also owns domain names, including www.activecare.com and www.activecaresys.com, for its primary trademarks, and claims ownership of certain unregistered copyright rights of its website content.  ActiveCare relies as well on a variety of property rights that it licenses from third parties as described below.

Patents.  At the time of our spin-off from SecureAlert, ActiveCare owned the exclusive, irrevocable, perpetual, worldwide, transferable, sublicensable license of all rights conferred by the patents, patent applications, and provisional patent applications listed in the table below for the healthcare and personal safety industries/markets.

Patent or	Country	Issue/Filing Date	Title of Patent
Application No.
11/486,989	United States	Pending/	Remote Tracking Device and System and Method for Two-Way Voice Communication Between Device and a Monitoring Center
		7/14/2006
11/486,991	United States	Pending/	Remote Tracking System and Device with Variable Sampling
		7/14/2006
11/830,398	United States	Pending/	Methods for Establishing Emergency Communications Between a Communications Device and a Response Center
		7/30/2007
12/614,242	United States	Pending/	Systems and Devices for Emergency Tracking and Health Monitoring
		11/6/2009

Also in 2009, we obtained worldwide and exclusive rights to the patents and patent applications listed in the table below under a license agreement dated May 25, 2009.

Patent or
Application No.	Country	Issue Date	Title of Patent
6,044,257	United States	28-Mar-00	Panic Button Phone
6,636,732	United States	21-Oct-03	Emergency Phone with Single Button Activation
6,226,510	United States	1-May-01	Emergency Phone for Automatically Summoning Multiple Emergency Response Services
7,092,695	United States	15-Aug-06	Emergency Phone with Alternate Number Calling Capability
7,251,471	United States	31-Jul-07	Emergency Phone with Single Button Activation

25

In May 2010, we were granted worldwide, non-exclusive rights to patents and patent applications listed in the table below under a license agreement.

Patent or Application No.	Country	Issue Date	Title of Patent
10/588.833	United States	Pending 08/09/06	Nanostructures Containing Metal-Semiconductor Compounds
PCT/US2007/008540	International	Pending 04/06/07	Nanoscale Wires Methods and Devices
PCT/US2007/024222	International	Pending 11/20/06	Millimeter-Long Nanowires
PCT/US2007/021602	International	Pending 10/10/07	Liquid Films Containing Nanostructured Materials

26

SCHEDULE G

Account Debtors

None.

27

SCHEDULE H

Pledged Securities

ActiveCare, Inc., owns 100% of the member interests of 4G Biometrics, LLC, a Texas limited liability company.

ActiveCare, Inc., also owns 100% of GWire Corporation, a Utah corporation.

28

ANNEX A

to

SECURITY

AGREEMENT

FORM OF ADDITIONAL DEBTOR JOINDER

Security Agreement dated as of August 2, 2013 made by

ActiveCare Inc.

and its Subsidiaries party thereto from time to time, as Debtors

to and in favor of

the Secured Parties identified therein (the “Security Agreement”)

Reference is made to the Security Agreement as defined above; capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in, or by reference in, the Security Agreement.

The undersigned hereby agrees that upon delivery of this Additional Debtor Joiner to the Secured Parties referred to above, the undersigned shall (a) be an Additional Debtor under the Security Agreement, (b) have all the rights and obligations of the Debtors under the Security Agreement as fully and to the same extent as if the undersigned was an original signatory thereto and (c) be deemed to have made the representations and warranties set forth therein as of the date of execution and delivery of this Additional Debtor Joinder (except to the extent such representation or warranty specifically refers to an earlier date). WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE UNDERSIGNED SPECIFICALLY GRANTS TO THE SECURED PARTIES A SECURITY INTEREST IN THE COLLATERAL AS MORE FULLY SET FORTH IN THE SECURITY AGREEMENT AND ACKNOWLEDGES AND AGREES TO THE WAIVER OF JURY TRIAL PROVISIONS SET FORTH THEREIN.

Attached hereto are supplemental and/or replacement Schedules to the Security Agreement, as applicable.

Attached hereto is an original Subsidiary Guaranty executed by the undersigned and delivered herewith.

An executed copy of this Additional Debtor Joinder shall be delivered to the Secured Parties, and the Secured Parties may rely on the matters set forth herein on or after the date hereof. This Additional Debtor Joinder shall not be modified, amended or terminated without the prior written consent of the Secured Parties.

29

IN WITNESS WHEREOF, the undersigned has caused this Joiner to be executed in the name and on behalf of the undersigned.

[Name of Additional Debtor]

By:

Name:

Title:

Address:

Dated:   

30

FORM OF SUBSIDIARY GUARANTY

1.           Identification.

This Guaranty (the “Guaranty”), dated as of August 2, 2013, is entered into by 4G Biometrics, LLC, a Texas limited liability company (“Guarantor”), for the benefit of the Collateral Agent identified below and the parties identified on Schedule A hereto (each a “Lender” and collectively, the “Lenders”).

2.           Recitals.

2.1           Guarantor is a direct or indirect subsidiary of ActiveCare Inc., a Delaware corporation (“Parent”).  The Lenders have made and/or are making loans to Parent (the “Loans”).  Guarantor will obtain substantial benefit from the proceeds of the Loans.

2.2           The Loans are and will be evidenced by certain Secured Convertible Promissory Notes (collectively, “Note” or the “Notes”) issued by Parent on, about or after the date of this Guaranty pursuant to those certain Subscription Agreements dated at or about the date hereof (“Subscription Agreements”).  The Notes issued on the Closing Date are further described on Schedule A hereto and were and or will be executed by Parent as “Borrower” for the benefit of each Lender as the “Holder” thereof.

2.3           In consideration of the Loans made and to be made by Lenders to Parent and for other good and valuable consideration, and as security for the performance by Parent of its obligations under the Notes and as security for the repayment of the Loans and all other sums due from Debtor to Lenders arising under the Notes (collectively, the “Obligations”), Guarantor, for good and valuable consideration, receipt of which is acknowledged, has agreed to enter into this Guaranty.

2.4           The Lenders have appointed Collateral Services LLC as Collateral Agent pursuant to that certain Security Agreement dated at or about the date of this Agreement (“Security Agreement”), among the Lenders and Collateral Agent.

2.5           Upper case terms employed but not defined herein shall have the meanings ascribed to them in the Transaction Documents (as defined in the Subscription Agreement).

3.           Guaranty.

3.1           Guaranty.  Guarantor hereby unconditionally and irrevocably guarantees, jointly and severally with any other guarantor of the Obligations, the punctual payment, performance and observance when due, whether at stated maturity, by acceleration or otherwise, of all of the Obligations now or hereafter existing, whether for principal, interest (including, without limitation, all interest that accrues after the commencement of any insolvency, bankruptcy or reorganization of Parent, whether or not constituting an allowed claim in such proceeding), fees, commissions, expense reimbursements, liquidated damages, indemnifications or otherwise arising under the Notes, Security Agreement, or any other Transaction Document (as defined in the Subscription Agreement) (such obligations, to the extent not paid by Parent being the “Guaranteed Obligations” and included in the definition of Obligations), and agrees to pay any and all reasonable costs, fees and expenses (including reasonable counsel fees and expenses) incurred by Collateral Agent and the Lenders in enforcing any rights under the Guaranty set forth herein.  Without limiting the generality of the foregoing, Guarantor’s liability shall extend to all amounts that constitute part of the Guaranteed Obligations and would be owed by Parent to Collateral Agent and the Lenders, but for the fact that they are unenforceable or not allowable due to the existence of an insolvency, bankruptcy or reorganization involving Parent.

31

3.2           Guaranty Absolute.  Guarantor guarantees that the Guaranteed Obligations will be paid strictly in accordance with the terms of the Notes, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of Collateral Agent or the Lenders with respect thereto.  The obligations of Guarantor under this Guaranty are independent of the Guaranteed Obligations, and a separate action or actions may be brought and prosecuted against Guarantor to enforce such obligations, irrespective of whether any action is brought against Parent or any other guarantor or whether Parent or any other guarantor is joined in any such action or actions.  The liability of Guarantor under this Guaranty constitutes a primary obligation, and not a contract of surety, and to the extent permitted by law, shall be irrevocable, absolute and unconditional irrespective of, and Guarantor hereby irrevocably waives any defenses it may now or hereafter have in any way relating to, any or all of the following:

(a)           any lack of validity of the Notes or any agreement or instrument relating thereto;

(b)           any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations, or any other amendment or waiver of or any consent to departure from the Notes, including, without limitation, any increase in the Guaranteed Obligations resulting from the extension of additional credit to Parent or otherwise;

(c)           any taking, exchange, release, subordination or non-perfection of any Collateral, or any taking, release or amendment or waiver of or consent to departure from any other guaranty, for all or any of the Guaranteed Obligations;

(d)           any change, restructuring or termination of the corporate, limited liability company or partnership structure or existence of Parent; or

(e)           any other circumstance (including, without limitation, any statute of limitations) or any existence of or reliance on any representation by Collateral Agent or  the Lenders that might otherwise constitute a defense available to, or a discharge of, Parent or any other guarantor or surety.

This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Guaranteed Obligations is rescinded or must otherwise be returned by Collateral Agent, the Lenders or any other entity upon the insolvency, bankruptcy or reorganization of the Parent or otherwise (and whether as a result of any demand, settlement, litigation or otherwise), all as though such payment had not been made.

3.3           Waiver.  Guarantor hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of the Guaranteed Obligations and this Guaranty and any requirement that Collateral Agent or the Lenders exhaust any right or take any action against any Borrower or any other person or entity or any Collateral.  Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated herein and that the waiver set forth in this Section 3.3 is knowingly made in contemplation of such benefits.  Guarantor hereby waives any right to revoke this Guaranty, and acknowledges that this Guaranty is continuing in nature and applies to all Guaranteed Obligations, whether existing now or in the future.

3.4       Continuing Guaranty; Assignments.  This Guaranty is a continuing guaranty and shall (a) remain in full force and effect until the later of the indefeasible cash or other payment in full of the Guaranteed Obligations , (b) be binding upon Guarantor, its successors and assigns, and (c) inure to the benefit of and be enforceable by the Lenders and their successors, pledgees, transferees and assigns.  Without limiting the generality of the foregoing clause (c), any Lender may pledge, assign or otherwise transfer all or any portion of its rights and obligations under this Guaranty (including, without limitation, all or any portion of its Notes owing to it) to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted such Collateral Agent or Lender herein or otherwise.

32

3.5          Subrogation.  Guarantor will not exercise any rights that it may now or hereafter acquire against the Collateral Agent or any Lender or other guarantor (if any) that arise from the existence, payment, performance or enforcement of such Guarantor’s obligations under this Guaranty, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution or indemnification, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, including, without limitation, the right to take or receive from the Collateral Agent or any Lender or other guarantor (if any), directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security solely on account of such claim, remedy or right, unless and until all of the Guaranteed Obligations and all other amounts payable under this Guaranty shall have been indefeasibly paid in full.

3.6     Maximum Obligations. Notwithstanding any provision herein contained to the contrary, Guarantor’s liability with respect to the Obligations shall be limited to an amount not to exceed, as of any date of determination, the amount that could be claimed by Lenders from Guarantor without rendering such claim voidable or avoidable under Section 548 of the Bankruptcy Code or under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar statute or common law.

4.           Miscellaneous.

4.1           Expenses.  Guarantor shall pay to the Lenders, on demand, the amount of any and all reasonable expenses, including, without limitation, reasonable attorneys’ fees, reasonable legal expenses and reasonable brokers’ fees, which the Lenders may incur in connection with exercise or enforcement of any the rights, remedies or powers of the Lenders hereunder or with respect to any or all of the Obligations.

4.2           Waivers, Amendment and Remedies.  No course of dealing by the Lenders and no failure by the Lenders to exercise, or delay by the Lender in exercising, any right, remedy or power hereunder shall operate as a waiver thereof, and no single or partial exercise thereof shall preclude any other or further exercise thereof or the exercise of any other right, remedy or power of the Lenders.  No amendment, modification or waiver of any provision of this Guaranty and no consent to any departure by Guarantor therefrom, shall, in any event, be effective unless contained in a writing signed by the Guarantor and the Majority in Interest (as such term is defined in the Security Agreement) or Lenders against whom such amendment, modification or waiver is sought, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.  The rights, remedies and powers of the Lenders, not only hereunder, but also under any other Transaction Documents and under applicable law are cumulative, and may be exercised by the Lenders from time to time in such order as the Lenders may elect.

4.3           Notices.    All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (a) personally served, (b) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (c) delivered by a reputable overnight courier service with charges prepaid, or (d) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice.  Any notice or other communication required or permitted to be given hereunder shall be deemed effective (i) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below if delivered on a Business Day during normal business hours, or the first Business Day following such delivery (if delivered other than on a Business Day during normal business hours), (ii) on the first Business Day following the date deposited with an overnight courier service with charges prepaid, or (iii) on the fifth Business Day following the date of mailing pursuant to subpart (b) above, or upon actual receipt of such mailing, whichever shall first occur.  The addresses for such communications shall be:

33

To Guarantor, to:	ActiveCare Inc.
	1365 West Business Park Drive
	Orem, Utah 84058
	Attn: Mike Acton
	Fax: 855-864-2511
With a copy by fax only to
(which shall not constitute notice):	Durham Jones & Pinegar
	111 East Broadway, Suite 900
	Salt Lake City, Utah 84111
	Attn: C. Parkinson Lloyd, Esq.
	Fax: (801) 415-3500
To the Collateral Agent:	Collateral Services LLC
	515 Rockaway Avenue
	Valley Stream, New York 11581
	Fax: (212) 697-3575
To Lenders:
	To the addresses and telecopier numbers set forth on Schedule A
If to Guarantor, Lender or
Collateral Agent, with a copy by telecopier only to:
	Grushko & Mittman, P.C.
	515 Rockaway Avenue
	Valley Stream, New York 11581
	Fax: (212) 697-3575

Any party may change its address by written notice in accordance with this paragraph.

4.4           Term; Binding Effect.  This Guaranty shall (a) remain in full force and effect until payment and satisfaction in full of all of the Guaranteed Obligations; (b) be binding upon Guarantor and its successors and permitted assigns; and (c) inure to the benefit of the Lenders and their respective successors and assigns.  All the rights and benefits granted by Guarantor to the Collateral Agent and Lenders hereunder and other agreements and documents delivered in connection therewith are deemed granted to both the Collateral Agent and Lenders.  Upon the payment in full of the Guaranteed Obligations, (i) this Guaranty shall terminate and (ii) the Lenders will, upon Guarantor’s request and at Guarantor’s expense, execute and deliver to Guarantor such documents as Guarantor shall reasonably request to evidence such termination, all without any representation, warranty or recourse whatsoever.

34

4.5           Captions.  The captions of Paragraphs, Articles and Sections in this Guaranty have been included for convenience of reference only, and shall not define or limit the provisions hereof and have no legal or other significance whatsoever.

4.6           Governing Law; Venue; Severability.  This Guaranty shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts or choice of law.  Any legal action or proceeding against Guarantor with respect to this Guaranty may be brought in the courts of the State of New York or of the United States for the Southern District of New York, and, by execution and delivery of this Guaranty, Guarantor hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts.  Guarantor hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Guaranty brought in the aforesaid courts and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum.  If any provision of this Guaranty, or the application thereof to any person or circumstance, is held invalid, such invalidity shall not affect any other provisions which can be given effect without the invalid provision or application, and to this end the provisions hereof shall be severable and the remaining, valid provisions shall remain of full force and effect.  This Guaranty shall be deemed an unconditional obligation of Guarantor for the payment of money and, without limitation to any other remedies of Lenders, may be enforced against Guarantor by summary proceeding pursuant to New York Civil Procedure Law and Rules Section 3213 or any similar rule or statute in the jurisdiction where enforcement is sought.  For purposes of such rule or statute, any other document or agreement to which Lenders and Guarantor are parties or which Guarantor delivered to Lenders, which may be convenient or necessary to determine Lenders’ rights hereunder or Guarantor’s obligations to Lenders are deemed a part of this Guaranty, whether or not such other document or agreement was delivered together herewith or was executed apart from this Guaranty.  Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.  Guarantor irrevocably appoints Parent its true and lawful agent for service of process upon whom all processes of law and notices may be served and given in the manner described above; and such service and notice shall be deemed valid personal service and notice upon Guarantor with the same force and validity as if served upon Guarantor.

4.7           Satisfaction of Obligations.  For all purposes of this Guaranty, the payment in full of the Obligations shall be conclusively deemed to have occurred when the Obligations have been paid pursuant to the terms of the Notes and the Subscription Agreements.

4.8           Counterparts/Execution.  This Agreement may be executed in any number of counterparts and by the different signatories hereto on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument.  This Agreement may be executed by facsimile signature and delivered by electronic transmission.

[THE BALANCE OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]

35

IN WITNESS WHEREOF, the undersigned have executed and delivered this Guaranty, as of the date first written above.

“GUARANTOR”

By:           _/s/ ____________________________________

Its: President

This Guaranty Agreement may be signed by facsimile signature and

delivered by confirmed facsimile transmission.

36

SCHEDULE A TO GUARANTY

LENDERS	PURCHASE PRICE AND NOTE PRINCIPAL
ALPHA CAPITAL ANSTALT Pradafant 7 9490 Furstentums Vaduz, Liechtenstein Fax: 01 141714773504	$400,000.00
OSHER CAPITAL PARTNERS LLC 5 Sansberry Lane Spring Valley, NY 10977 Fax:(212)586-8244	$150,000.00
TOTAL	$550,000.00

37

ANNEX B

to

SECURITY

AGREEMENT

THE COLLATERAL AGENT

1. Appointment.The Secured Parties (all capitalized terms used herein and not otherwise defined shall have the respective meanings provided in the Security Agreement to which this Annex B is attached (the “Agreement”), by their acceptance of the benefits of the Agreement, hereby designate Collateral Services LLC (“Collateral Agent”) as the Collateral Agent to act as specified herein and in the Agreement. Each Secured Party shall be deemed irrevocably to authorize the Collateral Agent to take such action on its behalf under the provisions of the Agreement and any other Transaction Document (as such term is defined in the Notes) and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Collateral Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Collateral Agent may perform any of its duties hereunder by or through its agents or employees.

2. Nature of Duties. The Collateral Agent shall have no duties or responsibilities except those expressly set forth in the Agreement. Neither the Collateral Agent nor any of its partners, members, shareholders, officers, directors, employees or agents shall be liable for any action taken or omitted by it as such under the Agreement or hereunder or in connection herewith or therewith, be responsible for the consequence of any oversight or error of judgment or answerable for any loss, unless caused solely by its or their gross negligence or willful misconduct as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction. The duties of the Collateral Agent shall be mechanical and administrative in nature; the Collateral Agent shall not have by reason of the Agreement or any other Transaction Document a fiduciary relationship in respect of any Debtor or any Secured Party; and nothing in the Agreement or any other Transaction Document, expressed or implied, is intended to or shall be so construed as to impose upon the Collateral Agent any obligations in respect of the Agreement or any other Transaction Document except as expressly set forth herein and therein.

3. Lack of Reliance on the Collateral Agent. Independently and without reliance upon the Collateral Agent, each Secured Party, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of the Company and its subsidiaries in connection with such Secured Party’s investment in the Debtors, the creation and continuance of the Obligations, the transactions contemplated by the Transaction Documents, and the taking or not taking of any action in connection therewith, and (ii) its own appraisal of the creditworthiness of the Company and its subsidiaries, and of the value of the Collateral from time to time, and the Collateral Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Secured Party with any credit, market or other information with respect thereto, whether coming into its possession before any Obligations are incurred or at any time or times thereafter. The Collateral Agent shall not be responsible to the Debtors or any Secured Party for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith, or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of the Agreement or any other Transaction Document, or for the financial condition of the Debtors or the value of any of the Collateral, or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of the Agreement or any other Transaction Document, or the financial condition of the Debtors, or the value of any of the Collateral, or the existence or possible existence of any default or Event of Default under the Agreement, the Notes or any of the other Transaction Documents.

38

4. Certain Rights of the Collateral Agent. The Collateral Agent shall have the right to take any action with respect to the Collateral, on behalf of all of the Secured Parties. To the extent practical, the Collateral Agent shall request instructions from the Secured Parties with respect to any material act or action (including failure to act) in connection with the Agreement or any other Transaction Document, and shall be entitled to act or refrain from acting in accordance with the instructions of Secured Parties holding a majority in principal amount of Notes (based on then-outstanding principal amounts of Notes at the time of any such determination); if such instructions are not provided despite the Collateral Agent’s request therefor, the Collateral Agent shall be entitled to refrain from such act or taking such action, and if such action is taken, shall be entitled to appropriate indemnification from the Secured Parties in respect of actions to be taken by the Collateral Agent; and the Collateral Agent shall not incur liability to any person or entity by reason of so refraining. Without limiting the foregoing, (a) no Secured Party shall have any right of action whatsoever against the Collateral Agent as a result of the Collateral Agent acting or refraining from acting hereunder in accordance with the terms of the Agreement or any other Transaction Document, and the Debtors shall have no right to question or challenge the authority of, or the instructions given to, the Collateral Agent pursuant to the foregoing and (b) the Collateral Agent shall not be required to take any action which the Collateral Agent believes (i) could reasonably be expected to expose it to personal liability or (ii) is contrary to this Agreement, the Transaction Documents or applicable law.

5. Reliance. The Collateral Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by the proper person or entity, and, with respect to all legal matters pertaining to the Agreement and the other Transaction Documents and its duties thereunder, upon advice of counsel selected by it and upon all other matters pertaining to this Agreement and the other Transaction Documents and its duties thereunder, upon advice of other experts selected by it. Anything to the contrary notwithstanding, the Collateral Agent shall have no obligation whatsoever to any Secured Party to assure that the Collateral exists or is owned by the Debtors or is cared for, protected or insured or that the liens granted pursuant to the Agreement have been properly or sufficiently or lawfully created, perfected, or enforced or are entitled to any particular priority.

6. Indemnification. To the extent that the Collateral Agent is not reimbursed and indemnified by the Debtors, the Secured Parties will jointly and severally reimburse and indemnify the Collateral Agent, in proportion to their initially purchased respective principal amounts of Notes, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Collateral Agent in performing its duties hereunder or under the Agreement or any other Transaction Document, or in any way relating to or arising out of the Agreement or any other Transaction Document except for those determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction to have resulted solely from the Collateral Agent’s own gross negligence or willful misconduct. Prior to taking any action hereunder as Collateral Agent, the Collateral Agent may require each Secured Party to deposit with it sufficient sums as it determines in good faith is necessary to protect the Collateral Agent for costs and expenses associated with taking such action.

39

7. Resignation by the Collateral Agent.

(a) The Collateral Agent may resign from the performance of all its functions and duties under the Agreement and the other Transaction Documents at any time by giving 5 days’ prior written notice (as provided in the Agreement) to the Debtors and the Secured Parties. Such resignation shall take effect upon the appointment of a successor Collateral Agent pursuant to clauses (b) and (c) below.

(b) Upon any such notice of resignation, the Secured Parties, acting by a Majority in Interest, shall appoint a successor Collateral Agent hereunder.

(c) If a successor Collateral Agent shall not have been so appointed within said 5-day period, the Collateral Agent shall then appoint a successor Collateral Agent who shall serve as Collateral Agent until such time, if any, as the Secured Parties appoint a successor Collateral Agent as provided above. If a successor Collateral Agent has not been appointed within such 5-day period, the Collateral Agent may petition any court of competent jurisdiction or may interplead the Debtors and the Secured Parties in a proceeding for the appointment of a successor Collateral Agent, and all fees, including, but not limited to, extraordinary fees associated with the filing of interpleader and expenses associated therewith, shall be payable by the Debtors on demand.

8. Rights with respect to Collateral. Each Secured Party agrees with all other Secured Parties and the Collateral Agent (i) that it shall not, and shall not attempt to, exercise any rights with respect to its security interest in the Collateral, whether pursuant to any other agreement or otherwise (other than pursuant to this Agreement), or take or institute any action against the Collateral Agent or any of the other Secured Parties in respect of the Collateral or its rights hereunder (other than any such action arising from the breach of this Agreement) and (ii) that such Secured Party has no other rights with respect to the Collateral other than as set forth in this Agreement and the other Transaction Documents. Upon the acceptance of any appointment as Collateral Agent hereunder by a successor Collateral Agent, such successor Collateral Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Collateral Agent and the retiring Collateral Agent shall be discharged from its duties and obligations under the Agreement.  After any retiring Collateral Agent’s resignation or removal hereunder as Collateral Agent, the provisions of the Agreement including this Annex B shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Collateral Agent.

40
 

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, David G. Derrick, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ActiveCare, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 27, 2013	/s/ David G. Derrick
	David G. Derrick
	Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Michael G. Acton, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ActiveCare, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 27, 2013	/s/ Michael G. Acton
	Michael G. Acton
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of ActiveCare, Inc. on Form 10-Q for the period ended June 30, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), David G. Derrick, Chairman of the Board and Chief Executive Officer, and Michael G. Acton, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ David G. Derrick

David G. Derrick

Chief Executive Officer and

Chairman of the Board of Directors

/s/ Michael G. Acton

Michael G. Acton

Chief Financial Officer

Dated: August 27, 2013

This certification accompanies each Report pursuant to §906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of §18 of the Securities Exchange Act of 1934, as amended.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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11. Notes Payable

9 Months Ended

Jun. 30, 2013

Notes

11. Notes Payable

11.                Notes Payable

As of June 30, 2013 and September 30, 2012, the Company had the following notes payable outstanding:   

		June 30,  2013	September 30, 2012
	Note payable to the former owners of Green Wire, secured by customer contracts, imputed interest rate equal to 12%, with monthly installments over a 36-month term.  During the quarter ended March 2013, the Company agreed to issue 15,000 shares of common stock to the lenders to extend two past due payments without late penalty.  The common stock has a value of $24,000 at the date of grant, which will be amortized over the remaining life of the loan.	$         1,935,578	$         2,236,737
	Series A debenture loans payable, secured by customer contracts and payable in 36 monthly installments, maturing between September and December 2015. The loans bear interest at 12% and are convertible into common stock after 180 days.  After payment of principal and interest, the holders of the Series A and Series B debentures (see Note 12), as a class, are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company’s gross profits payable for the two-year period commencing at the maturity date; provided that no royalties are payable following conversion of any Series A or Series B debenture to the holder thereof.  The Company has the right to buy out each lender's royalty by paying the respective lender $20,000 for every $25,000 loaned.  The note includes a beneficial conversion feature valued at $901,000 at inception, which the Company is amortizing over the life of the loan.  The feature had an unamortized value of $794,667 as of June 30, 2013.	2,790,152	300,000
	Unsecured note with interest at 15% (18% after due date), due November 2012, currently in default. In connection with the loan, the Company issued 60,000 shares of Series D preferred stock as a loan origination fee with a total fair value of $150,000.  The note is guaranteed by the Company’s Chief Executive Officer.	1,500,000	1,500,000
	Unsecured note with interest at 15%, due March 2013, currently in default. Note included a $25,000 loan origination fee.  In connection with the loan, the Company issued 100,000 shares of common stock as a loan origination fee with a total fair value of $70,000 at date of grant.	175,000	275,000
Unsecured notes with annual interest rate at 15% (18% after due date), due March and April 2013, respectively, currently in default.  The Company issued 20,000 shares of Series D preferred stock as loan origination fees with total fair value on the date of grant of  $195,000.		$            225,000	$                     -
Unsecured note with interest at 12%, due March 2013, currently in default.		250,000	250,000
Total before discount and current portion		6,875,730	4,561,737
Less discount		(816,275)	(187,587)
Total notes payable		6,059,455	4,374,150
Less current portion		(3,536,216)	(2,569,221)
Total notes payable, net of current portion		$         2,523,239	$         1,804,929

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10. Patent License Agreement: Schedule of Finite-Lived Intangible Assets, Future Amortization Expense (Details) (USD $)	9 Months Ended
	Jun. 30, 2013
Details
Finite-Lived Intangible Assets, Amortization Expense, Remainder of Fiscal Year	$ 31,717
Finite-Lived Intangible Assets, Amortization Expense, Rolling Year Two	126,870
Finite-Lived Intangible Assets, Amortization Expense, Rolling Year Three	126,870
Finite-Lived Intangible Assets, Amortization Expense, Rolling Year Four	126,870
Finite-Lived Intangible Assets, Amortization Expense, Rolling Year Five	126,870
Finite-Lived Intangible Assets, Amortization Expense, Rolling after Year Five	59,440
Amortization of Intangible Assets	$ 598,637

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Condensed Consolidated Statements of Operations (USD $)	3 Months Ended		9 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Revenues:
Chronic Illness Monitoring Revenue	$ 3,912,300	$ 230,625	$ 10,121,916	$ 233,743
Care Services Revenue	415,377	66,035	1,292,178	190,662
Total revenues	4,327,677	296,660	11,414,094	424,405
Cost of revenues:
Chronic Illness Monitoring Cost of Revenue	2,853,557	169,264	7,438,980	170,544
Care Services Cost of Revenue	560,205	165,038	2,027,829	495,743
Total cost of revenues	3,413,762	334,302	9,466,809	666,287
Gross margin (deficit)	913,915	(37,642)	1,947,285	(241,882)
Selling, general and administrative (including $678,596, $61,563, $2,181,098 and $4,185,673, respectively, of stock-based compensation)	2,733,452	793,232	7,606,290	6,145,136
Research and development	121,011	63,906	589,723	112,807
Total operating expenses	2,854,463	857,138	8,196,013	6,257,943
Loss from operations	(1,940,548)	(894,780)	(6,248,728)	(6,499,825)
Gain (loss) on derivatives liability		(1,320,918)	45,697	(1,346,174)
Interest expense, net	(1,065,414)	(223,379)	(2,856,397)	(459,195)
Loss on disposal of property and equipment	(101,421)		(101,421)	0
Other income (expense)	(2,636)		12,795
Total other expense, net	(1,169,471)	(1,544,297)	(2,899,326)	(1,805,369)
Net loss from continuing operations	(3,110,019)	(2,439,077)	(9,148,054)	(8,305,194)
Loss from discontinued operations	(12,301)	(3,629)	(5,312)	(104,968)
Net loss	(3,122,320)	(2,442,706)	(9,153,366)	(8,410,162)
Dividends on preferred stock	(79,219)	(14,057)	(213,192)	(40,842)
Net loss attributable to common stockholders	$ (3,201,539)	$ (2,456,763)	$ (9,366,558)	$ (8,451,004)
Continuing operations	$ (0.59)	$ (0.55)	$ (1.91)	$ (2.00)
Discontinued operations	$ 0.00	$ 0.00	$ 0.00	$ (0.03)
Net loss per common share	$ (0.59)	$ (0.55)	$ (1.91)	$ (2.03)
Weighted average common shares outstanding - basic and diluted	5,424,000	4,434,600	4,909,000	4,153,500

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4. Description of New Accounting Pronouncements Not yet Adopted

9 Months Ended

Jun. 30, 2013

Notes

4. Description of New Accounting Pronouncements Not yet Adopted

4.                   Recent Accounting Pronouncements

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements will have a material impact on the Company’s financial position, results of operations, or liquidity.

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18. Lease Commitments

9 Months Ended

Jun. 30, 2013

Notes

18. Lease Commitments

18.                Lease Commitments

The Company leases office space under non-cancelable operating leases.  Future minimum rental payments under non-cancelable operating leases as of June 30, 2013 were as follows:

Years Ending September 30,
2013	$                   53,119
2014	277,603
2015	308,330
2016	317,580
2017	327,107
Thereafter	280,077
Total	$              1,563,816

The rent expense for the Company’s facilities held under non-cancelable operating leases was $236,792 and $109,212 for the nine months ended June 30, 2013 and 2012, respectively.

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13. Derivative Liability (Details) (USD $)	9 Months Ended
	Jun. 30, 2013	Sep. 30, 2012
Details
Derivatives liability	$ 0	$ 4,015,855
Derivative, Gain on Derivative	$ 45,697

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12. Related-party Notes Payable

9 Months Ended

Jun. 30, 2013

Notes

12. Related-party Notes Payable

12.                Related-Party Notes Payable

As of June 30, 2013 and September 30, 2012, the Company had the following related-party notes payable outstanding:

	June 30,  2013	September 30, 2012
Unsecured note payable to an entity controlled by an officer of the Company.  The note payable incurred no interest and was converted into shares of common stock subsequent to June 30, 2013 (see Note 20).	$         1,235,000	$                     -
Series B unsecured debenture loans payable to an entity controlled by an officer of the Company, including 10% loan origination fees totaling $78,587, payable in 36 monthly installments, maturing December 2015.  $421,499 of the debentures were issued to settle a $400,000 Series A secured debenture issued during the three months ended December 31, 2012.  Before the settlement, the prior Series A debenture had a total outstanding balance of $383,181 and $1,845 of accrued interest.  $442,598 of the Series B debenture was issued to settle two related-party notes payable totaling $165,000 and $6,889 of accrued interest, and a $230,800 related-party note payable issued during the three months ended December 31, 2012 to settle previously accrued expenses.  The Series B debenture loan bears interest at 12% and is convertible into common stock after 180 days. After payment of principal and interest, the holders of the Series B and Series A debentures, as a class, are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company’s gross profits payable for the two-year period commencing at the maturity date; provided that no royalties are payable following conversion of any Series A or Series B debenture to the holder thereof. The Company has the right to buy out the royalty by paying the lender $22,000 for every $25,000 loaned.  During the nine months ended June 30, 2013, the Company paid $40,336 of the loan principal but is late on certain monthly payments and the debenture is currently in default.	824,121	-
Unsecured notes payable to an entity controlled by an officer of the Company with interest at 15%, due September 30, 2013.  The notes include $60,000 of loan origination fees.	600,000	-
Series B unsecured debenture loan payable to an entity controlled by an officer of the Company, including $64,227 in loan origination fees, payable in 36 monthly installments, maturing December 2015.  The debenture was issued to settle an outstanding note payable of $620,686 and $21,585 of related accrued interest.  The loan bears interest at 12% and is convertible into common stock after 180 days. After payment of principal and interest, the holders of the Series B and Series A debentures, as a class, are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company’s gross profits payable for the two-year period commencing at the maturity date; provided that no royalties are payable following conversion of any Series A or Series B debenture to the holder thereof.  The Company has the right to buy out the royalty by paying the lender $22,000 for every $25,000 loaned.  During the nine months ended June 30, 2013, the Company paid $16,401 of the loan principal. The debenture loan was converted to shares of common stock subsequent to June 30, 2013 (see Note 20).	$            690,098	$                     -
Series B unsecured debenture loans owed to an officer of the Company, including $49,777 in loan origination fees, payable in 36 monthly installments, maturing December 2015 and January 2016.  $371,547 of the debentures were issued to settle two Series A debentures and $135,000 of accrued liabilities.  The original Series A debentures had a total outstanding balance of $202,098 and $672 of related accrued interest.  The loan bears interest at 12% and is convertible into common stock after 180 days. After payment of principal and interest, the holders of the Series B and Series A debentures, as a class, are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company’s gross profits payable for the two-year period commencing at the maturity date; provided that no royalties are payable following conversion of any Series A or Series B debenture to the holder thereof.  The Company has the right to buy out the royalty by paying the lender $22,000 for every $25,000 loaned.  During the nine months ended June 30, 2013, the Company paid $24,517 of the loan principal. One of the debentures includes a beneficial conversion feature valued at $8,800 at inception, which the Company is amortizing over the life of the loan.  The feature had an unamortized value of $7,360 as of June 30, 2013.  The debenture loan was converted to shares of common stock subsequent to June 30, 2013 (see Note 20).	523,029	-
Unsecured notes payable to an entity controlled by an officer of the Company, including $7,500 of loan origination fees added to the principal, interest at 12%, due August 2012. In the event of default, the note is convertible into common stock at $0.40 per share. During the three months ended March 31, 2013, the lender agreed to extend the maturity date to June 30, 2013 with an interest rate of 18% and 5,600 shares of Series D with fair market value of $56,252 at date of grant paid as a loan origination fee.  The note payable is currently in default.	82,500	543,278
Series A debenture loans from a former CEO and Chairman of the Company, secured by customer contracts, payable in 36 monthly installments, maturing September and December 2015.  The loans bear interest at 12% and are convertible into common stock after 180 days. After payment of principal and interest, the holders of the Series B and Series A debentures, as a class, are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company’s gross profits payable for the two-year period commencing at the maturity date; provided that no royalties are payable following conversion of any Series A or Series B debenture to the holder thereof.  The Company has the right to buy out each royalty by paying the lender $20,000 for every $25,000 loaned.  During the nine months ended June 30, 2013, the Company paid $41,682 of the loan principal.  The debenture loan was converted to shares of common stock subsequent to June 30, 2013 (see Note 20).	$            327,514	$            244,196
Series A debenture loan from an officer of the Company, secured by customer contracts, payable interest only in the first 6 months and interest plus principal in the next 30 monthly installments, maturing January 2016.   The loan bears interest at 12% and is convertible into common stock after 180 days. After payment of principal and interest, the holders of the Series B and Series A debentures, as a class, are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company’s gross profits payable for the two-year period commencing at the maturity date; provided that no royalties are payable following conversion of any Series A or Series B debenture to the holder thereof. The Company has the right to buy out the royalty by paying the lender $20,000 for every $25,000 loaned.  The note includes a beneficial conversion feature valued at $250,000 at inception, which the Company is amortizing over the life of the loan.  The feature had an unamortized value of $210,695 as of June 30, 2013.  The debenture loan was converted to shares of common stock subsequent to June 30, 2013 (see Note 20).	250,000	-
Series A debenture loan from an entity controlled by an officer of the Company, secured by customer contracts, payable in 36 monthly installments, maturing December 2015.  The debenture was issued to settle a related-party note payable with an outstanding balance of $300,000 and $14,992 of related accrued interest.  The loan bears interest at 12% and is convertible into common stock after 180 days. After payment of principal and interest, the holders of the Series B and Series A debentures, as a class, are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company’s gross profits payable for the two-year period commencing at the maturity date; provided that no royalties are payable following conversion of any Series A or Series B debenture to the holder thereof.  The Company has the right to buy out the royalty by paying the lender $20,000 for every $25,000 loaned.  During the nine months ended June 30, 2013, the Company paid $14,698 of the loan principal but is late on certain monthly payments and the debenture is currently in default.	300,294	-
Unsecured notes payable to an entity controlled by an officer of the Company,  annual interest at 3% (18% after due date), due July 2013.  In the event of default, the note is convertible into common stock at $0.40 per share.	300,000	-
Unsecured notes payable to an entity controlled by an officer of the Company,  annual interest at 12% (18% after due date), due April 2013, currently in default.  In the event of default, the note is convertible into common stock at $0.40 per share.	200,000	-
Series B unsecured debenture loans from entities controlled by an officer of the Company, including $68,914 in loan origination fees added to the principal of the loans, payable in 36 monthly installments, maturing December 2015 and January 2016.  $554,556 of the debenture was issued to settle a related-party note payable with a total outstanding balance of $460,778 and $43,364 of related accrued interest.  $35,000 of the loan was issued to settle an accrued service fee.  The loans bear interest at 12% and are convertible into common stock after 180 days. After payment of principal and interest, the holders of the Series B and Series A debentures, as a class, are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company’s gross profits payable for the two-year period commencing at the maturity date; provided that no royalties are payable following conversion of any Series A or Series B debenture to the holder thereof.  The Company has the right to buy out the royalty by paying the lender $22,000 for every $25,000 loaned.  During the quarter ended March 31, 2013, the Company issued 34,400 shares of Series D with fair market value of $343,748 at date of grant as additional loan origination fees, and the Company also paid $30,102 of the loan principal.  The Company is late on certain monthly payments and the debenture is currently in default.  The notes include beneficial conversion features valued at $167,000 at inception, which the Company is amortizing over the life of the loan.  The feature had an unamortized value of $140,975 as of June 30, 2013.	$            727,954	$                     -
Series B debenture loan from an officer of the Company, secured by customer contracts, payable in 36 monthly installments, maturing June 2016.  The Company is late on certain monthly payments and the debenture is currently in default.  The loan bears interest at 12% and is convertible into common stock after 180 days. After payment of principal and interest, the holders of the Series B and Series A debentures, as a class, are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company’s gross profits payable for the two-year period commencing at the maturity date; provided that no royalties are payable following conversion of any Series A or Series B debenture to the holder thereof.  The Company has the right to buy out the royalty by paying the lender $20,000 for every $25,000 loaned.  The note includes a beneficial conversion feature valued at $72,600 at inception, which the Company is amortizing over the life of the loan.  The feature had an unamortized value of $70,679 as of June 30, 2013.	145,200	-
Unsecured note payable to an officer of the Company with interest at 12%, due September 30, 2013.  The loan is convertible into the Company's common stock at a rate of $0.75 per share, exercisable at any time.  The note includes a beneficial conversion feature valued at $22,820 at inception, which the Company is amortizing over the life of the loan.  The feature had an unamortized value of $15,104 as of June 30, 2013.	26,721	-
Unsecured notes payable with zero interest to an individual related to an officer of the Company.  The loan was repaid in full subsequent to June 30, 2013	60,000	-
Note payable to an officer of the Company with interest at 15%, due June 2012 and currently in default.  The note includes $3,000 of loan origination fees and is convertible into common stock at $0.50 per share.	33,000	33,000
Series A debenture loan from an entity controlled by an officer of the Company, secured by customer contracts, payable in 36 monthly installments, maturing December 2015.  The debenture was issued to settle a related-party note payable with a total outstanding balance of $51,000 and $3,186 of related accrued interest.  The loan bears interest at 12% and is convertible into common stock after 180 days. After payment of principal and interest, the holders of the Series B and Series A debentures, as a class, are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company’s gross profits payable for the two-year period commencing at the maturity date; provided that no royalties are payable following conversion of any Series A or Series B debenture to the holder thereof.  The Company has the right to buy out the royalty by paying the lender $20,000 for every $25,000 loaned.  During the nine months ended June 30, 2013, the Company paid $2,528 of the loan principal.	$              51,657	$                     -
Unsecured notes payable to a lender under the control of the Company’s CEO with a line of credit borrowing capacity of $2,000,000, interest at 12%, due July 2013. The notes were convertible into common stock at any time at $5.00 per share.  In connection with the notes payable, the Company issued 80,000 shares of Series D preferred stock (valued at $240,000).  The Company granted warrants to purchase 341,000 shares of common stock as a loan origination fee. These warrants vested immediately and are exercisable at $4.40 per share through November 3, 2016. The fair value of the warrants was $107,130, and was measured using a binomial valuation model with the following assumptions: exercise price $4.40; risk-free interest rate of .39%; expected life of 2.5 years; expected dividend of zero; a volatility factor of 134.57%; and market price on date of grant of $4.40.  During the fiscal year ended September 30, 2012, the Company re-priced the exercise price of the warrants from $4.40 to $1.00 per share.  During the three months ended December 31, 2012, the Company issued a Series A debenture payable to the lender in satisfaction of the outstanding balance of $620,687 plus $21,585 of accrued interest.  Upon the conversion of the note, the Company immediately recognized the unamortized debt discount of $209,143.	-	620,687
Note payable to an entity controlled by an officer of the Company, interest at 12%, due December 2012.  This note was secured by real estate.  During the three months ended December 31, 2012, the Company issued a Series A debenture payable to the entity in satisfaction of the outstanding balance of $300,000 plus $14,992 of accrued interest.	-	300,000
Unsecured note payable to an entity controlled by an officer of the Company, including a $7,500 loan origination fee, interest at 12%, due August 2012.  The note was convertible into common stock at 50% of fair market value or $0.40 per share, whichever is less.  During the three months ended December 31, 2012, the Company issued a Series A debenture payable to the entity in satisfaction of the outstanding balance of $82,500 plus $3,716 of accrued interest.	-	82,500
Unsecured note payable to an entity controlled by an officer of the Company, including a $7,500 loan origination fee, interest at 12%, due September 2012. The note was convertible into common stock at $0.40 per share or 50% of market value, whichever was less.  During the three months ended December 31, 2012, the Company issued a Series A debenture payable to the entity in satisfaction of the outstanding balance of $82,500 plus $3,173 of accrued interest.	-	82,500
Notes payable to an entity controlled by an officer of the Company, including a $26,000 loan origination fee which was convertible into Series D preferred stock at any time at $2.00 per share, interest at 15%, due December 2012.  This note was secured by real estate.  During the three months ended December 31, 2012, the Company issued a Series A debenture payable to the entity in satisfaction of the outstanding balance of $51,000 plus $3,186 of accrued interest.  Upon the conversion of the note, the Company immediately recognized the unamortized debt discount of $14,238.	$                     -	$              51,000
Total before discount and current portion	6,377,088	1,957,161
Less discount	(1,023,067)	(223,381)
Total notes payable, related-party	5,354,021	1,733,780
Less current portion	(3,676,810)	(1,563,923)
Total  notes payable, related-party, net of current portion	$         1,677,211	$            169,857

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8. Property and Equipment: Schedule of property and equipment (Details) (USD $)	Jun. 30, 2013	Sep. 30, 2012
Property and equipment, net of accumulated depreciation of $198,675 and $625,401, respectively	$ 234,968	$ 266,078
Property, Plant and Equipment, Gross	433,643	891,479
Property and equipment accumulated depreciation	(198,675)	(625,401)
Leaseholds and Leasehold Improvements
Property and equipment, net of accumulated depreciation of $198,675 and $625,401, respectively	93,913	402,016
Equipment
Property and equipment, net of accumulated depreciation of $198,675 and $625,401, respectively	250,347	374,229
Computer Software, Intangible Asset
Property and equipment, net of accumulated depreciation of $198,675 and $625,401, respectively	65,836	65,111
Furniture and Fixtures
Property and equipment, net of accumulated depreciation of $198,675 and $625,401, respectively	$ 23,547	$ 50,123

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14. Preferred Stock (Details) (USD $)	9 Months Ended		9 Months Ended
	Jun. 30, 2013	Sep. 30, 2012	Jun. 30, 2013 Loan Origination Fees	Jun. 30, 2013 Future Advisory Services	Jun. 30, 2013 Future Consulting Services	Jun. 30, 2013 Accrued Board of Director Fees and Compensation	Jun. 30, 2013 Bonus to an Officer	Jun. 30, 2013 Dividends on Series C preferred stock	Jun. 30, 2013 Dividends on Series D preferred stock	Jun. 30, 2013 Past consulting services	Jun. 30, 2013 Bonus for consulting services	Jun. 30, 2013 Bonus to CEO	Jun. 30, 2013 Series C Preferred Stock	Jun. 30, 2012 Series C Preferred Stock
Convertible Preferred Stock Shares Issued													60,000	480,000
Dividends Payable, Current													$ 40,382
Shares Series D Preferred Stock Issued			78,174	71,800	20,000	52,913	24,300	7,169	2,342	95,400	30,000	80,000
Loan origination fees			691,363
Shares Series D Preferred Stock Issued Value				230,800	60,000	61,652	97,200	40,382	13,263	333,902	105,000	320,000
Series D preferred shares converted	30,000
Shares issued from conversion of Series D preferred stock	150,000
Accrued Dividends on Series D preferred stock	172,511
Accrued Dividends on Series D Peferred Stock Settled	110,794
Series D Preferred Stock issued to settle accrued dividends	2,342
Shares issued to settle accrued dividends	10,218
Accrued dividends		$ 80,338

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16. Stock Options and Warrants: Schedule of warrants fair value assumptions (Tables)

9 Months Ended

Jun. 30, 2013

Tables/Schedules

Schedule of warrants fair value assumptions

	Nine Months Ended
	June 30,
	2013	2012
Exercise price	$1.00 - $1.65	$1.00 - $5.00
Expected term (years)	1.5 - 5	2.5
Volatility	219% - 298%	104% - 135%
Risk-free rate	0.23% - 0.88%	0.39% - 0.68%
Dividend rate	0%	0%

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1. Organization and Nature of Operations: Going Concern (Policies)

9 Months Ended

Jun. 30, 2013

Policies

Going Concern

                Going Concern

                Although the Company had a positive gross margin for the three and nine months ended June 30, 2013, it incurred negative gross margins, working capital and cash flows from operating activities for the fiscal years ended September 30, 2012 and 2011, and had negative working capital and cash flows from operating activities for the nine months ended June 30, 2013.  These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

In order for the Company to remove substantial doubt about its ability to continue as a going concern, it must continue to improve gross margins, generate positive cash flows from operating activities and obtain the necessary debt or equity funding to meet its projected capital investment requirements.  Management’s plans with respect to this uncertainty include raising additional capital by issuing equity securities and increasing the sales of the Company’s services and products.  There can be no assurance that the Company will be able to raise sufficient capital or that revenues will increase rapidly enough to offset operating losses and repay debts as they come due.  If the Company is unable to increase revenues or obtain additional financing, it will be unable to continue the development of its products and may have to cease operations.

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20. Subsequent Events

9 Months Ended

Jun. 30, 2013

Notes

20. Subsequent Events

20.                Subsequent Events

Subsequent to June 30, 2013, the Company entered into the following agreements and transactions:

(1)     In July 2013, the Company entered into three loan conversion agreements with the Company’s Chief Executive Officer and an entity controlled by the Company’s Chief Executive Officer.  The Company issued 1,704,715 shares of common stock for the conversion, at $0.75 per share, of three Series B debenture loans representing principal and interest in the amount of $1,278,536.   

(2)     In July 2013, the Company issued 3,180,000 shares of common stock, at $0.75 per share, for cash investments from the Company’s Chief Executive Officer totaling $2,385,000 during the period April 2013 through July 2013.

(3)     In July 2013, the Company entered into an additional short-term loan of $175,000 from the Company’s Chief Executive Officer with interest at 12%, due on demand.  The note included $17,500 of loan origination fees. 

(4)     In July 2013, a Series D shareholder requested to convert 20,000 shares of Series D preferred stock into 100,000 shares of common stock. 

(5)     In July 2013, the Company entered into a securities purchase agreement with accredited investors in a private placement to purchase previously unissued shares of common stock at $0.75 per share.  The Company issued 333,333 shares of common stock for $250,000.

(6)     In July 2013, the Company entered into two loan conversion agreements with a related party.  The Company issued 457,216 shares of common stock for the conversion of two Series A debenture agreements representing principal and interest in the amount of $342,912.  

(7)     In August 2013, the Company entered into loan conversion agreements with an officer of the Company.  The Company issued 333,334 shares of common stock for the conversion of a Series A debenture agreement representing principal and interest in the amount of $250,000. 

(8)     In August 2013, the Company entered into loan conversion agreements with two investors.  The Company issued 85,719 shares of common stock for the conversion of a Series A debenture agreement representing principal and interest in the amount of $64,289. 

(9)     In August 2013, the Company entered into a securities purchase agreement with accredited investors in a private placement to purchase previously unissued shares of common stock at $0.75 per share.  The Company issued 380,000 shares of common stock for $285,000.

(10) In August 2013, the Company also entered into two secured loan agreements with two investors in the amount of $550,000, guaranteed by a former Chief Executive Officer of the Company.  The loans bear annual interest of 12% with interest payments due quarterly.  The loans mature in August 2014.  The Company also issued warrants with the option to purchase 36,667 shares of the Company’s common stock at $0.75 per share related to the loan agreements.

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7. Customer Contracts Disclosure (Details) (USD $)	9 Months Ended		11 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Aug. 31, 2012	Sep. 30, 2012
Details
Customer contracts acquired			$ 2,369,882
Amortization	624,773	13,837
Customer contracts, net of accumulated amortization of $727,103 and $102,330, respectively	$ 1,642,779			$ 2,267,552

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9. Equipment Leased To Customers: Schedule of leased equipment (Tables)

9 Months Ended

Jun. 30, 2013

Tables/Schedules

Schedule of leased equipment

	June 30,  2013	September 30, 2012
Leased equipment	$                 677,341	$            457,898
Accumulated depreciation	(274,307)	(144,905)
Leased equipment, net	$                 403,034	$            312,993

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17. Segment Information: Schedule of Segment Reporting Information, by Segment (Tables)

9 Months Ended

Jun. 30, 2013

Tables/Schedules

Schedule of Segment Reporting Information, by Segment

	Corporate	Chronic Illness Monitoring	CareServices	Reagents	Total
Three months ended June 30, 2013
Sales to external customers	$                    -	$       3,912,300	$          415,377	$            97,147	$       4,424,824
Segment income (loss)	(2,779,565)	480,562	(811,016)	(12,301)	(3,122,320)
Interest income	26	-	-	-	26
Interest expense	1,065,440	-	-	-	1,065,440
Segment assets	15,161	10,125,070	3,079,681	-	13,219,912
Fixed assets and leased equipment purchases	-	-	121,282	888	122,170
Depreciation and amortization	223,438	28,609	282,773	2,893	537,713
Three months ended June 30, 2012
Sales to external customers	$                    -	$          230,625	$            66,035	$          135,636	$          432,296
Segment loss	(2,124,134)	(215,940)	(99,003)	(3,629)	(2,442,706)
Interest income	21	-	-	-	21
Interest expense	223,400	-	-	-	223,400
Segment assets	42,204	778,919	1,058,335	203,664	2,083,122
Fixed assets and leased equipment purchases	-	-	-	-	-
Depreciation and amortization	179	13,837	38,555	11,271	63,842

	Corporate	Chronic Illness Monitoring	CareServices	Reagents	Total
Nine months ended June 30, 2013
Sales to external customers	$                    -	$     10,121,916	$       1,292,178	$          351,645	$     11,765,739
Segment income (loss)	(7,083,015)	704,720	(2,769,759)	(5,312)	(9,153,366)
Interest income	50	-	-	-	50
Interest expense	2,856,447	-	-	-	2,856,447
Segment assets	15,161	10,125,070	3,079,681	-	13,219,912
Fixed assets and leased equipment purchases	-	-	382,809	888	383,697
Depreciation and amortization	536	830,966	172,466	658,499	1,662,467
Nine months ended June 30, 2012
Sales to external customers	$                    -	$          233,743	$          190,662	$          357,374	$          781,779
Segment loss	(7,705,947)	(294,166)	(305,081)	(104,968)	(8,410,162)
Interest income	102	-	-	-	102
Interest expense	459,297	-	-	-	459,297
Segment assets	42,204	778,919	1,058,335	203,664	2,083,122
Fixed assets and leased equipment purchases	-	-	1,224	-	1,224
Depreciation and amortization	536	-	114,281	29,123	143,940

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8. Property and Equipment (Details) (USD $)	3 Months Ended	9 Months Ended
	Jun. 30, 2013	Jun. 30, 2013	Jun. 30, 2012
Details
Loss on disposal of property and equipment	$ 101,421	$ 101,421	$ 0
Loss on disposal of property and equipment	(101,421)	(101,421)	0
Depreciation, Amortization and Accretion, Net		$ 71,772	$ 46,800

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6. Inventories: Schedule of Inventory, Current (Tables)

9 Months Ended

Jun. 30, 2013

Tables/Schedules

Schedule of Inventory, Current

	June 30,  2013	September 30, 2012
Chronic Illness Monitoring
Finished goods	$                 991,957	$            185,884
CareServices
ActiveHome	56,692	56,767
Reagents
Raw materials	-	41,195
Work in process	-	5,745
Finished goods	-	6,161
Reserves for obsolescence and valuation	-	(4,984)
Total inventories	$              1,048,649	$            290,768

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18. Lease Commitments (Details) (USD $)	9 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Details
Operating Leases, Rent Expense, Net	$ 236,792	$ 109,212

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18. Lease Commitments: Schedule of Future Minimum Rental Payments for Operating Leases (Details) (USD $)	Jun. 30, 2013
Details
Operating Leases, Future Minimum Payments Due, Next Twelve Months	$ 53,119
Operating Leases, Future Minimum Payments, Due in Two Years	277,603
Operating Leases, Future Minimum Payments, Due in Three Years	308,330
Operating Leases, Future Minimum Payments, Due in Four Years	317,580
Operating Leases, Future Minimum Payments, Due in Five Years	327,107
Operating Leases, Future Minimum Payments, Due Thereafter	280,077
Operating Leases, Future Minimum Payments Due	$ 1,563,816

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3. EarningsPerShareTextBlock: Schedule Of Common Stock Equivalents (Details)	Jun. 30, 2013	Jun. 30, 2012
Details
Exercise of outstanding common stock options and warrants	3,911,887	1,386,587
Conversion of Series D preferred stock	4,241,005	275,000
Conversion of Series C preferred stock	480,000	480,000
Conversion of debt	6,164,072	3,508,469
Issuance of employee restricted shares	16,700	63,700
Total common stock equivalents	14,813,664	5,713,756

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19. Fair Value Measurements

9 Months Ended

Jun. 30, 2013

Notes

19. Fair Value Measurements

19.                Fair Value Measurements

US GAAP establishes a fair value hierarchy that prioritizes the inputs used to measure fair values. The Company measured the fair values using the hierarchy levels as follows:

Level 1	The Company does not have any fair value balances classified as Level 1.
Level 2	The Company’s embedded derivatives are measured on a recurring basis using Level 2 inputs.
Level 3	The Company’s goodwill is measured using Level 3 inputs (see note 5).

The Company’s embedded derivatives liability is re-measured to fair value at each reporting date until the contingency is resolved.  See Note 13 above for more information about this liability and the inputs used for calculating fair value.

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Condensed Consolidated Statements of Cash Flows (USD $)	9 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Cash flows from operating activities:
Net loss	$ (9,153,366)	$ (8,410,162)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	926,671	231,353
Derivative valuation (gain) loss	(45,697)	1,346,174
Stock-based compensation expense	2,181,098	4,185,673
Stock issued for interest expense	751,220
Amortization of debt discounts	789,450	306,130
Loss on disposal of property and equipment	101,421
Gain on sale of discontinued operations	(55,096)
Changes in operating assets and liabilities:
Change in accounts receivable	(7,643,169)	(162,370)
Change in inventories	(811,381)	(26,120)
Change in prepaid expenses and other assets	(13,699)	(162)
Change in accounts payable	5,988,622	217,198
Change in accrued expenses	560,642	377,796
Change in deferred revenue	(11,504)	6,004
Change in deposits	(81,207)
Net cash used in operating activities	(6,515,995)	(1,928,486)
Cash flows from investing activities:
Purchases of property and equipment	(162,712)	(1,224)
Purchases of equipment leased to customers	(225,981)	(6,505)
Proceeds from sale of discontinued operations	184,318
Proceeds from sale of equipment	4,900
Acquisition of 4G Biometrics, LLC		(200,000)
Net cash used in investing activities	(199,475)	(207,729)
Cash flows from financing activities:
Principal payments on related-party notes payable	(191,831)	(85,000)
Net proceeds from related-party notes payable	1,990,799	920,000
Net proceeds from notes payable	5,386,746	1,200,000
Principal payments on notes payable	(877,753)
Net cash provided by financing activities	6,307,961	2,035,000
Net decrease in cash	(407,509)	(101,215)
Cash, beginning of the period	529,839	178,131
Cash, end of the period	122,330	76,916
Supplemental Cash Flow Information:
Cash paid for interest	575,317	5,448
Non-Cash Investing and Financing Activities:
Issuance of stock for purchase of patents		622,378
Issuance of stock for accrued dividends	151,176
Issuance of stock for settlement of liabilities	865,552	612,000
Conversion of note payable into common stock	100,000	92,400
Conversion of note payable into Series D Preferred Stock		110,000
Issuance of derivatives liability	514,643
Reclassification of derivatives liability to equity	4,484,801
Dividends on preferred stock	213,195
Conversion of notes payable to debentures	$ 1,920,797

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2. Discontinued Operations

9 Months Ended

Jun. 30, 2013

Notes

2. Discontinued Operations

2.                   Discontinued Operations

In June 2013, the Company sold its assets and liabilities related to the Reagents segment (Reagents).  This segment was engaged in the business of manufacturing and marketing medical diagnostic stains, solutions and related equipment to hospitals and medical testing labs.  The purchaser was a former employee.  The sale was solely the Company's Reagents business and not any business related to any of the Company's other segments. 

As of June 30, 2013, the Company no longer holds any ownership interest in the Reagents segment and has ceased incurring costs related to its operations and development. The sale included all applicable segment assets and liabilities including, accounts receivable, inventory, accounts payable, property, equipment and leased equipment.  The purchaser also assumed the lease for general office and warehouse space.

As a result of the sale of the Reagents business, the Company has reflected this segment as discontinued operations in the condensed consolidated financial statements for the three and nine months ended June 30, 2013 and 2012. 

The following table summarized certain operating data for discontinued operations for the three and nine months ended June 30, 2013 and 2012:

	Three months ended		Nine months ended
	June 30,		June 30,
	2013	2012	2013	2012
Revenues	$                   97,147	$            135,636	$            351,645	$            357,374
Cost of revenues	(130,797)	(94,330)	(300,396)	(291,137)
Gross margin (deficit)	(33,650)	41,306	51,249	66,237
Selling, general and administrative	(33,747)	(44,935)	(111,657)	(171,205)
Loss from discontinued operations	(67,397)	(3,629)	(60,408)	(104,968)
Gain on sale of assets	55,096	-	55,096	-
Net loss from discontinued operations	(12,301)	(3,629)	(5,312)	(104,968)

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5. Goodwill and Intangible Assets Disclosure

9 Months Ended

Jun. 30, 2013

Notes

5. Goodwill and Intangible Assets Disclosure

5.                   Acquisitions

4G Biometrics, LLC

On March 8, 2012, the Company acquired 4G Biometrics, LLC, a Texas limited liability company (“4G”).  Pursuant to the acquisition agreement, the Company acquired 100 percent of the member interests of 4G and 4G is operated as a wholly owned subsidiary of the Company.  As amended, the purchase consideration for the member interests of 4G was comprised as follows:

·         $350,000 in cash;

·         The assumption of $50,000 of accounts payable and accrued liabilities;

·         160,000 shares of Series D convertible preferred stock;

·         Options for the purchase of up to 433,333 shares of common stock of the Company at $1.00 per share to each of the three sellers with vesting as follows:

o    Options for 43,333 shares vest when 4G has 9,300 members

o    Options for another 43,333 shares vest when an additional 5,000 4G members are added, or a total of 14,300 members;

o    Options for another 43,333 shares vest when an additional 5,000 4G members are added, or a total of 19,300 members;

o    Options for another 43,333 shares vest when an additional 5,000 4G members are added, or a total of 24,300 members; and

o    so forth until fully vested.

As of June 30, 2013, options to purchase 520,000 shares of common stock have vested. 

Three of the 4G key operational managers are under two-year written employment agreements with the Company.  

Under the purchase method of accounting, the purchase price was allocated to 4G’s assets and assumed liabilities based on their estimated fair values as of the closing date of the acquisition.  The excess of the purchase price over the fair values of the net assets acquired was recorded as goodwill.

The purchase price for 4G reflects total consideration paid of $1,040,000, of which $825,894 was allocated to goodwill and $214,106 was allocated to customer contracts.

GWire

During fiscal year 2012, the Company established GWire Corporation (“GWire”) as a subsidiary.  Effective September 1, 2012, GWire acquired the assets and assumed certain liabilities of Green Wire, LLC, Green Wire Outsourcing, Inc., Orbit Medical Response, LLC, and Rapid Medical Response, LLC (collectively, “Green Wire”).  The Company entered into employment agreements with two of Green Wire’s operating managers on November 1, 2012. These two individuals were granted 27% ownership in GWire and ActiveCare retained the remaining 73%.  The purchase consideration for Green Wire consisted of the following:

·         $2,236,737 in the form of a note payable with a 36-month term (including imputed interest at 12%); and

·         20,000 shares of ActiveCare’s Series D convertible preferred stock, valued at $40,000.

Under the purchase method of accounting, the purchase price for Green Wire was allocated to the assets purchased and liabilities assumed based on their estimated fair values as of the closing date of the acquisition.

The purchase price for Green Wire reflects total consideration paid of $2,276,737, which has been allocated to $12,215 of cash, $13,976 of accounts receivable, $92,022 of property and equipment, $16,964 of deposits and other assets, $229,249 of leased equipment, $2,155,776 of customer contracts, $154,206 of accounts payable, $55,117 of accrued expenses and $34,142 of deferred revenue.

During the nine months ended June 30, 2013, the two operating managers converted their 27% ownership in GWire and 425,000 of related options into 425,000 shares of the Company’s common stock as discussed further in Note 15.  As a result, the Company owns 100% of GWire as of June 30, 2013.

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3. EarningsPerShareTextBlock

9 Months Ended

Jun. 30, 2013

Notes

3. EarningsPerShareTextBlock

3.                   Net Loss per Common Share

Net loss per common share is computed by dividing net loss attributable to common stockholders by the sum of the weighted average number of common shares outstanding and the weighted-average dilutive common share equivalents outstanding.  The computation of net loss per common share does not assume exercise or conversion of securities that would have an anti-dilutive effect.

Common share equivalents consist of shares of common stock issuable upon the exercise of stock options, stock purchase warrants and the conversion of convertible preferred stock or debt instruments.  As of June 30, 2013 and 2012, there were 14,813,664 and 5,713,756 outstanding common share equivalents, respectively, that were not included in the computation of diluted net loss per common share as their effect would be anti-dilutive. The anti-dilutive common stock equivalents outstanding as of June 30, 2013 and 2012 consisted of the following:

	June 30,  2013	June 30,  2012
Common stock options and warrants	3,911,887	1,386,587
Series D convertible preferred stock	4,241,005	275,000
Series C convertible preferred stock	480,000	480,000
Convertible debt	6,164,072	3,508,469
Restricted shares of common stock	16,700	63,700
Total common stock equivalents	14,813,664	5,713,756

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18. Lease Commitments: Schedule of Future Minimum Rental Payments for Operating Leases (Tables)

9 Months Ended

Jun. 30, 2013

Tables/Schedules

Schedule of Future Minimum Rental Payments for Operating Leases

Years Ending September 30,
2013	$                   53,119
2014	277,603
2015	308,330
2016	317,580
2017	327,107
Thereafter	280,077
Total	$              1,563,816

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1. Organization and Nature of Operations: Use of Estimates in The Preparation of Financial Statements (Policies)

9 Months Ended

Jun. 30, 2013

Policies

Use of Estimates in The Preparation of Financial Statements

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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 these estimates.

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7. Customer Contracts Disclosure: Schedule of Future Customer Contract Amortization (Tables)

9 Months Ended

Jun. 30, 2013

Tables/Schedules

Schedule of Future Customer Contract Amortization

Years Ending September 30,
2013	$                 208,257
2014	833,030
2015	601,492
	$              1,642,779

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12. Related-party Notes Payable: Schedule Of Related Party Notes Payable (Tables)

9 Months Ended

Jun. 30, 2013

Tables/Schedules

Schedule Of Related Party Notes Payable

	June 30,  2013	September 30, 2012
Unsecured note payable to an entity controlled by an officer of the Company.  The note payable incurred no interest and was converted into shares of common stock subsequent to June 30, 2013 (see Note 20).	$         1,235,000	$                     -
Series B unsecured debenture loans payable to an entity controlled by an officer of the Company, including 10% loan origination fees totaling $78,587, payable in 36 monthly installments, maturing December 2015.  $421,499 of the debentures were issued to settle a $400,000 Series A secured debenture issued during the three months ended December 31, 2012.  Before the settlement, the prior Series A debenture had a total outstanding balance of $383,181 and $1,845 of accrued interest.  $442,598 of the Series B debenture was issued to settle two related-party notes payable totaling $165,000 and $6,889 of accrued interest, and a $230,800 related-party note payable issued during the three months ended December 31, 2012 to settle previously accrued expenses.  The Series B debenture loan bears interest at 12% and is convertible into common stock after 180 days. After payment of principal and interest, the holders of the Series B and Series A debentures, as a class, are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company’s gross profits payable for the two-year period commencing at the maturity date; provided that no royalties are payable following conversion of any Series A or Series B debenture to the holder thereof. The Company has the right to buy out the royalty by paying the lender $22,000 for every $25,000 loaned.  During the nine months ended June 30, 2013, the Company paid $40,336 of the loan principal but is late on certain monthly payments and the debenture is currently in default.	824,121	-
Unsecured notes payable to an entity controlled by an officer of the Company with interest at 15%, due September 30, 2013.  The notes include $60,000 of loan origination fees.	600,000	-
Series B unsecured debenture loan payable to an entity controlled by an officer of the Company, including $64,227 in loan origination fees, payable in 36 monthly installments, maturing December 2015.  The debenture was issued to settle an outstanding note payable of $620,686 and $21,585 of related accrued interest.  The loan bears interest at 12% and is convertible into common stock after 180 days. After payment of principal and interest, the holders of the Series B and Series A debentures, as a class, are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company’s gross profits payable for the two-year period commencing at the maturity date; provided that no royalties are payable following conversion of any Series A or Series B debenture to the holder thereof.  The Company has the right to buy out the royalty by paying the lender $22,000 for every $25,000 loaned.  During the nine months ended June 30, 2013, the Company paid $16,401 of the loan principal. The debenture loan was converted to shares of common stock subsequent to June 30, 2013 (see Note 20).	$            690,098	$                     -
Series B unsecured debenture loans owed to an officer of the Company, including $49,777 in loan origination fees, payable in 36 monthly installments, maturing December 2015 and January 2016.  $371,547 of the debentures were issued to settle two Series A debentures and $135,000 of accrued liabilities.  The original Series A debentures had a total outstanding balance of $202,098 and $672 of related accrued interest.  The loan bears interest at 12% and is convertible into common stock after 180 days. After payment of principal and interest, the holders of the Series B and Series A debentures, as a class, are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company’s gross profits payable for the two-year period commencing at the maturity date; provided that no royalties are payable following conversion of any Series A or Series B debenture to the holder thereof.  The Company has the right to buy out the royalty by paying the lender $22,000 for every $25,000 loaned.  During the nine months ended June 30, 2013, the Company paid $24,517 of the loan principal. One of the debentures includes a beneficial conversion feature valued at $8,800 at inception, which the Company is amortizing over the life of the loan.  The feature had an unamortized value of $7,360 as of June 30, 2013.  The debenture loan was converted to shares of common stock subsequent to June 30, 2013 (see Note 20).	523,029	-
Unsecured notes payable to an entity controlled by an officer of the Company, including $7,500 of loan origination fees added to the principal, interest at 12%, due August 2012. In the event of default, the note is convertible into common stock at $0.40 per share. During the three months ended March 31, 2013, the lender agreed to extend the maturity date to June 30, 2013 with an interest rate of 18% and 5,600 shares of Series D with fair market value of $56,252 at date of grant paid as a loan origination fee.  The note payable is currently in default.	82,500	543,278
Series A debenture loans from a former CEO and Chairman of the Company, secured by customer contracts, payable in 36 monthly installments, maturing September and December 2015.  The loans bear interest at 12% and are convertible into common stock after 180 days. After payment of principal and interest, the holders of the Series B and Series A debentures, as a class, are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company’s gross profits payable for the two-year period commencing at the maturity date; provided that no royalties are payable following conversion of any Series A or Series B debenture to the holder thereof.  The Company has the right to buy out each royalty by paying the lender $20,000 for every $25,000 loaned.  During the nine months ended June 30, 2013, the Company paid $41,682 of the loan principal.  The debenture loan was converted to shares of common stock subsequent to June 30, 2013 (see Note 20).	$            327,514	$            244,196
Series A debenture loan from an officer of the Company, secured by customer contracts, payable interest only in the first 6 months and interest plus principal in the next 30 monthly installments, maturing January 2016.   The loan bears interest at 12% and is convertible into common stock after 180 days. After payment of principal and interest, the holders of the Series B and Series A debentures, as a class, are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company’s gross profits payable for the two-year period commencing at the maturity date; provided that no royalties are payable following conversion of any Series A or Series B debenture to the holder thereof. The Company has the right to buy out the royalty by paying the lender $20,000 for every $25,000 loaned.  The note includes a beneficial conversion feature valued at $250,000 at inception, which the Company is amortizing over the life of the loan.  The feature had an unamortized value of $210,695 as of June 30, 2013.  The debenture loan was converted to shares of common stock subsequent to June 30, 2013 (see Note 20).	250,000	-
Series A debenture loan from an entity controlled by an officer of the Company, secured by customer contracts, payable in 36 monthly installments, maturing December 2015.  The debenture was issued to settle a related-party note payable with an outstanding balance of $300,000 and $14,992 of related accrued interest.  The loan bears interest at 12% and is convertible into common stock after 180 days. After payment of principal and interest, the holders of the Series B and Series A debentures, as a class, are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company’s gross profits payable for the two-year period commencing at the maturity date; provided that no royalties are payable following conversion of any Series A or Series B debenture to the holder thereof.  The Company has the right to buy out the royalty by paying the lender $20,000 for every $25,000 loaned.  During the nine months ended June 30, 2013, the Company paid $14,698 of the loan principal but is late on certain monthly payments and the debenture is currently in default.	300,294	-
Unsecured notes payable to an entity controlled by an officer of the Company,  annual interest at 3% (18% after due date), due July 2013.  In the event of default, the note is convertible into common stock at $0.40 per share.	300,000	-
Unsecured notes payable to an entity controlled by an officer of the Company,  annual interest at 12% (18% after due date), due April 2013, currently in default.  In the event of default, the note is convertible into common stock at $0.40 per share.	200,000	-
Series B unsecured debenture loans from entities controlled by an officer of the Company, including $68,914 in loan origination fees added to the principal of the loans, payable in 36 monthly installments, maturing December 2015 and January 2016.  $554,556 of the debenture was issued to settle a related-party note payable with a total outstanding balance of $460,778 and $43,364 of related accrued interest.  $35,000 of the loan was issued to settle an accrued service fee.  The loans bear interest at 12% and are convertible into common stock after 180 days. After payment of principal and interest, the holders of the Series B and Series A debentures, as a class, are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company’s gross profits payable for the two-year period commencing at the maturity date; provided that no royalties are payable following conversion of any Series A or Series B debenture to the holder thereof.  The Company has the right to buy out the royalty by paying the lender $22,000 for every $25,000 loaned.  During the quarter ended March 31, 2013, the Company issued 34,400 shares of Series D with fair market value of $343,748 at date of grant as additional loan origination fees, and the Company also paid $30,102 of the loan principal.  The Company is late on certain monthly payments and the debenture is currently in default.  The notes include beneficial conversion features valued at $167,000 at inception, which the Company is amortizing over the life of the loan.  The feature had an unamortized value of $140,975 as of June 30, 2013.	$            727,954	$                     -
Series B debenture loan from an officer of the Company, secured by customer contracts, payable in 36 monthly installments, maturing June 2016.  The Company is late on certain monthly payments and the debenture is currently in default.  The loan bears interest at 12% and is convertible into common stock after 180 days. After payment of principal and interest, the holders of the Series B and Series A debentures, as a class, are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company’s gross profits payable for the two-year period commencing at the maturity date; provided that no royalties are payable following conversion of any Series A or Series B debenture to the holder thereof.  The Company has the right to buy out the royalty by paying the lender $20,000 for every $25,000 loaned.  The note includes a beneficial conversion feature valued at $72,600 at inception, which the Company is amortizing over the life of the loan.  The feature had an unamortized value of $70,679 as of June 30, 2013.	145,200	-
Unsecured note payable to an officer of the Company with interest at 12%, due September 30, 2013.  The loan is convertible into the Company's common stock at a rate of $0.75 per share, exercisable at any time.  The note includes a beneficial conversion feature valued at $22,820 at inception, which the Company is amortizing over the life of the loan.  The feature had an unamortized value of $15,104 as of June 30, 2013.	26,721	-
Unsecured notes payable with zero interest to an individual related to an officer of the Company.  The loan was repaid in full subsequent to June 30, 2013	60,000	-
Note payable to an officer of the Company with interest at 15%, due June 2012 and currently in default.  The note includes $3,000 of loan origination fees and is convertible into common stock at $0.50 per share.	33,000	33,000
Series A debenture loan from an entity controlled by an officer of the Company, secured by customer contracts, payable in 36 monthly installments, maturing December 2015.  The debenture was issued to settle a related-party note payable with a total outstanding balance of $51,000 and $3,186 of related accrued interest.  The loan bears interest at 12% and is convertible into common stock after 180 days. After payment of principal and interest, the holders of the Series B and Series A debentures, as a class, are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company’s gross profits payable for the two-year period commencing at the maturity date; provided that no royalties are payable following conversion of any Series A or Series B debenture to the holder thereof.  The Company has the right to buy out the royalty by paying the lender $20,000 for every $25,000 loaned.  During the nine months ended June 30, 2013, the Company paid $2,528 of the loan principal.	$              51,657	$                     -
Unsecured notes payable to a lender under the control of the Company’s CEO with a line of credit borrowing capacity of $2,000,000, interest at 12%, due July 2013. The notes were convertible into common stock at any time at $5.00 per share.  In connection with the notes payable, the Company issued 80,000 shares of Series D preferred stock (valued at $240,000).  The Company granted warrants to purchase 341,000 shares of common stock as a loan origination fee. These warrants vested immediately and are exercisable at $4.40 per share through November 3, 2016. The fair value of the warrants was $107,130, and was measured using a binomial valuation model with the following assumptions: exercise price $4.40; risk-free interest rate of .39%; expected life of 2.5 years; expected dividend of zero; a volatility factor of 134.57%; and market price on date of grant of $4.40.  During the fiscal year ended September 30, 2012, the Company re-priced the exercise price of the warrants from $4.40 to $1.00 per share.  During the three months ended December 31, 2012, the Company issued a Series A debenture payable to the lender in satisfaction of the outstanding balance of $620,687 plus $21,585 of accrued interest.  Upon the conversion of the note, the Company immediately recognized the unamortized debt discount of $209,143.	-	620,687
Note payable to an entity controlled by an officer of the Company, interest at 12%, due December 2012.  This note was secured by real estate.  During the three months ended December 31, 2012, the Company issued a Series A debenture payable to the entity in satisfaction of the outstanding balance of $300,000 plus $14,992 of accrued interest.	-	300,000
Unsecured note payable to an entity controlled by an officer of the Company, including a $7,500 loan origination fee, interest at 12%, due August 2012.  The note was convertible into common stock at 50% of fair market value or $0.40 per share, whichever is less.  During the three months ended December 31, 2012, the Company issued a Series A debenture payable to the entity in satisfaction of the outstanding balance of $82,500 plus $3,716 of accrued interest.	-	82,500
Unsecured note payable to an entity controlled by an officer of the Company, including a $7,500 loan origination fee, interest at 12%, due September 2012. The note was convertible into common stock at $0.40 per share or 50% of market value, whichever was less.  During the three months ended December 31, 2012, the Company issued a Series A debenture payable to the entity in satisfaction of the outstanding balance of $82,500 plus $3,173 of accrued interest.	-	82,500
Notes payable to an entity controlled by an officer of the Company, including a $26,000 loan origination fee which was convertible into Series D preferred stock at any time at $2.00 per share, interest at 15%, due December 2012.  This note was secured by real estate.  During the three months ended December 31, 2012, the Company issued a Series A debenture payable to the entity in satisfaction of the outstanding balance of $51,000 plus $3,186 of accrued interest.  Upon the conversion of the note, the Company immediately recognized the unamortized debt discount of $14,238.	$                     -	$              51,000
Total before discount and current portion	6,377,088	1,957,161
Less discount	(1,023,067)	(223,381)
Total notes payable, related-party	5,354,021	1,733,780
Less current portion	(3,676,810)	(1,563,923)
Total  notes payable, related-party, net of current portion	$         1,677,211	$            169,857

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12. Related-party Notes Payable: Schedule Of Related Party Notes Payable (Details) (USD $)	Jun. 30, 2013	Sep. 30, 2012
Gross notes payable related party before discount	$ 6,377,088	$ 1,957,161
Discount on notes payable related party	(1,023,067)	(223,381)
Notes payable related party current and noncurrent	5,354,021	1,733,780
Notes payable related party current portion	(3,676,810)	(1,563,923)
Notes payable, related-party, net of current portion	1,677,211	169,857
Note 17
Gross notes payable related party before discount	1,235,000
Note 9
Gross notes payable related party before discount	824,121
Note 18
Gross notes payable related party before discount	600,000
Note10Member
Gross notes payable related party before discount	690,098
Note14Member
Gross notes payable related party before discount	523,029
Note 5
Gross notes payable related party before discount	82,500	543,278
Note 4
Gross notes payable related party before discount	327,514	244,196
Note12Member
Gross notes payable related party before discount	250,000
Note 2
Gross notes payable related party before discount	300,294
Note15Member
Gross notes payable related party before discount	300,000
Note 19
Gross notes payable related party before discount	200,000
Note 20
Gross notes payable related party before discount	727,954
Note 21
Gross notes payable related party before discount	145,200
Note 11
Gross notes payable related party before discount	26,721
Note 23
Gross notes payable related party before discount	60,000
Note 8
Gross notes payable related party before discount	33,000	33,000
Note13Member
Gross notes payable related party before discount	51,657
Note 1
Gross notes payable related party before discount		620,687
Note 3
Gross notes payable related party before discount		300,000
Note16Member
Gross notes payable related party before discount		82,500
Note 7
Gross notes payable related party before discount		82,500
Note 22
Gross notes payable related party before discount		$ 51,000

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9. Equipment Leased To Customers: Schedule of leased equipment (Details) (USD $)	Jun. 30, 2013	Sep. 30, 2012
Details
Property Subject to or Available for Operating Lease, Gross	$ 677,341	$ 457,898
Leased equipment accumulated amortization	(274,307)	(144,905)
Equipment leased to customers, net of accumulated depreciation of $274,307 and $144,905, respectively	$ 403,034	$ 312,993

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6. Inventories (Details) (USD $)	9 Months Ended
	Jun. 30, 2013
Details
Inventory Write-down	$ 53,500

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Condensed Consolidated Balance Sheets Parenthetical (USD $)	Jun. 30, 2013	Sep. 30, 2012
Condensed Consolidated Balance Sheets Parenthetical
Allowance for doubtful accounts	$ 30,524	$ 20,195
Inventory reserve and valuation allowance		4,984
Property and equipment accumulated depreciation	198,675	625,401
Domain name accumulated amortization	2,681	2,145
Leased equipment accumulated amortization	274,307	144,905
Patent accumulated amortization	323,741	228,587
Contracted customer accumulated amortization	$ 727,103	$ 102,330
Preferred stock par value	$ 0.00001	$ 0.00001
Preferred stock shares authorized	10,000,000	10,000,000
Preferred stock shares issued	1,298,201	866,103
Preferred stock shares outstanding	1,298,201	866,103
Common stock par value	$ 0.00001	$ 0.00001
Common stock shares authorized	50,000,000	50,000,000
Common stock shares issued	6,026,996	4,636,977
Common stock shares outstanding	6,026,996	4,636,977

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8. Property and Equipment

9 Months Ended

Jun. 30, 2013

Notes

8. Property and Equipment

8.                   Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation and amortization.  Depreciation and amortization are determined using the straight-line method over the estimated useful lives of the assets, typically three to seven years.  Leasehold improvements are amortized over the shorter of the estimated useful lives of the asset or the term of the lease.  Expenditures for maintenance and repairs are expensed while renewals and improvements over $500 are capitalized.  Upon the sale or disposal of property and equipment, any gains or losses are included in the results of operations.

Property and equipment consisted of the following as of June 30, 2013 and September 30, 2012:

	June 30,  2013	September 30, 2012
Leasehold improvements	$                   93,913	$            402,016
Equipment	250,347	374,229
Software	65,836	65,111
Furniture	23,547	50,123
Total gross property and equipment	433,643	891,479
Accumulated depreciation and amortization	(198,675)	(625,401)
Property and equipment, net	$                 234,968	$            266,078

Assets to be disposed of are reported at the lower of the carrying amounts or fair values, less the estimated costs to sell or dispose.  During the nine months ended June 30, 2013 and 2012, the Company recorded a loss on the disposal of assets of $101,421 and $0, respectively, and disposed of $25,832 of assets related to the sale of the Reagents segment during the nine months ended June 30, 2013. Depreciation expense for the nine months ended June 30, 2013 and 2012 was $71,772 and $46,800, respectively.

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Statements of Operations Parenthetical (USD $)	3 Months Ended		9 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Statements of Operations Parenthetical
Compensation expense paid in stock or amortization of stock options and warrants	$ 678,596	$ 61,563	$ 2,181,098	$ 4,185,673

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15. Common Stock (Details) (USD $)	9 Months Ended			9 Months Ended
	Jun. 30, 2013 Exercise Of Options	Jun. 30, 2013 CommonSharesForEmploymentAgreementsMember	Sep. 30, 2012 CommonSharesForEmploymentAgreementsMember	Jun. 30, 2013 Service Compensation	Jun. 30, 2013 Dividends Accrued Series C and D preferred stock	Jun. 30, 2013 Services	Jun. 30, 2013 Conversion of Series D preferred stock	Jun. 30, 2013 Compensation For New Employees	Jun. 30, 2013 Extention Of Related Party Payables	Jun. 30, 2013 Loan Origination Fees	Jun. 30, 2013 Conversion Of Debt	Jun. 30, 2013 Extention Of Unrelated Party Payables	Jun. 30, 2013 Issuance Of New Debt	Jun. 30, 2013 Employee Bonuses	Jun. 30, 2013 To Employees
Common Shares Issued	425,000			207,361	10,218	25,000	150,000	100,000	4,758	217,833	100,000	90,000	2,600	27,650	29,600
Common Shares Issued Value				$ 310,002	$ 97,532			$ 150,000	$ 7,137	$ 100,000		$ 136,500	$ 3,900	$ 39,825
New debt to related party													26,000
Unrecognized stock-based compensation		$ 51,515	$ 245,952

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Condensed Consolidated Balance Sheets (USD $)	Jun. 30, 2013	Sep. 30, 2012
Current assets:
Cash	$ 122,330	$ 529,839
Accounts receivable, net of allowance for doubtful accounts of $30,524 and $20,195, respectively	8,205,185	644,974
Inventories, net of valuation allowances of $0 and $4,984, respectively	1,048,649	290,768
Prepaid expenses and other	20,976	7,277
Total current assets	9,397,140	1,472,858
Customer contracts, net of accumulated amortization of $727,103 and $102,330, respectively	1,642,779	2,267,552
Goodwill	825,894	825,894
Patents, net of accumulated amortization of $323,741 and $228,587, respectively	598,637	693,790
Equipment leased to customers, net of accumulated depreciation of $274,307 and $144,905, respectively	403,034	312,993
Property and equipment, net of accumulated depreciation of $198,675 and $625,401, respectively	234,968	266,078
Deposits and other	105,841	24,634
Domain name, net of accumulated amortization of $2,681 and $2,145, respectively	11,619	12,155
Total assets	13,219,912	5,875,954
Current liabilities:
Accounts payable	6,859,401	1,132,611
Accounts payable, related-party	220,438	150,395
Accrued expenses	1,715,784	2,104,623
Derivatives liability	0	4,015,855
Current portion of notes payable	3,536,216	2,569,221
Current portion of notes payable, related-party	3,676,810	1,563,923
Deferred revenue	50,104	61,608
Dividends payable	80,338	18,322
Total current liabilities	16,139,091	11,616,558
Notes payable, net of current portion	2,523,239	1,804,929
Notes payable, related-party, net of current portion	1,677,211	169,857
Total long-term liabilities	4,200,450	1,974,786
Total liabilities	20,339,541	13,591,344
Preferred stock, $.00001 par value: 10,000,000 shares authorized; 480,000 and 480,000 shares of Series C; and 818,201 and 386,103 shares of Series D, outstanding, respectively	13	9
Common stock, $.00001 par value: 50,000,000 shares authorized; 6,026,996 and 4,636,977 shares outstanding, respectively	60	46
Additional paid-in capital	39,606,073	29,643,769
Accumulated deficit	(46,725,775)	(37,359,214)
Total stockholders' deficit	(7,119,629)	(7,715,390)
Total liabilities and stockholders' deficit	$ 13,219,912	$ 5,875,954

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9. Equipment Leased To Customers (Details) (USD $)	9 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Details
Disposal of equipment leased to customers	$ 1,500	$ 9,166
Property Subject To Or Available For Operating Lease Depreciation Expense	$ 134,442	$ 42,974

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2. Discontinued Operations: Schedule of Disposal Groups, Including Discontinued Operations, Income Statement, Balance Sheet and Additional Disclosures (Tables)

9 Months Ended

Jun. 30, 2013

Tables/Schedules

Schedule of Disposal Groups, Including Discontinued Operations, Income Statement, Balance Sheet and Additional Disclosures

	Three months ended		Nine months ended
	June 30,		June 30,
	2013	2012	2013	2012
Revenues	$                   97,147	$            135,636	$            351,645	$            357,374
Cost of revenues	(130,797)	(94,330)	(300,396)	(291,137)
Gross margin (deficit)	(33,650)	41,306	51,249	66,237
Selling, general and administrative	(33,747)	(44,935)	(111,657)	(171,205)
Loss from discontinued operations	(67,397)	(3,629)	(60,408)	(104,968)
Gain on sale of assets	55,096	-	55,096	-
Net loss from discontinued operations	(12,301)	(3,629)	(5,312)	(104,968)

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17. Segment Information

9 Months Ended

Jun. 30, 2013

Notes

17. Segment Information

17.                Segment Information

The Company operates with two business segments based primarily on the nature of the Company’s products. The CareServices segment is engaged in the business of developing, distributing and marketing mobile health monitoring and concierge services to distributors and consumers.  The Chronic Illness Monitoring segment is engaged in the business of developing, distributing and marketing mobile monitoring of patient vital signs and physical activity to self-insured companies.  The Company previously operated a Reagents business which was sold in June 2013.  The Company no longer holds any ownership interest in the Reagents business.

Additionally, at the corporate level, the Company raises capital and provides for the administrative operations of the Company as a whole. 

The following table reflects certain financial information relating to each reportable segment for the three and nine months ended June 30, 2013 and 2012:

	Corporate	Chronic Illness Monitoring	CareServices	Reagents	Total
Three months ended June 30, 2013
Sales to external customers	$                    -	$       3,912,300	$          415,377	$            97,147	$       4,424,824
Segment income (loss)	(2,779,565)	480,562	(811,016)	(12,301)	(3,122,320)
Interest income	26	-	-	-	26
Interest expense	1,065,440	-	-	-	1,065,440
Segment assets	15,161	10,125,070	3,079,681	-	13,219,912
Fixed assets and leased equipment purchases	-	-	121,282	888	122,170
Depreciation and amortization	223,438	28,609	282,773	2,893	537,713
Three months ended June 30, 2012
Sales to external customers	$                    -	$          230,625	$            66,035	$          135,636	$          432,296
Segment loss	(2,124,134)	(215,940)	(99,003)	(3,629)	(2,442,706)
Interest income	21	-	-	-	21
Interest expense	223,400	-	-	-	223,400
Segment assets	42,204	778,919	1,058,335	203,664	2,083,122
Fixed assets and leased equipment purchases	-	-	-	-	-
Depreciation and amortization	179	13,837	38,555	11,271	63,842

	Corporate	Chronic Illness Monitoring	CareServices	Reagents	Total
Nine months ended June 30, 2013
Sales to external customers	$                    -	$     10,121,916	$       1,292,178	$          351,645	$     11,765,739
Segment income (loss)	(7,083,015)	704,720	(2,769,759)	(5,312)	(9,153,366)
Interest income	50	-	-	-	50
Interest expense	2,856,447	-	-	-	2,856,447
Segment assets	15,161	10,125,070	3,079,681	-	13,219,912
Fixed assets and leased equipment purchases	-	-	382,809	888	383,697
Depreciation and amortization	536	830,966	172,466	658,499	1,662,467
Nine months ended June 30, 2012
Sales to external customers	$                    -	$          233,743	$          190,662	$          357,374	$          781,779
Segment loss	(7,705,947)	(294,166)	(305,081)	(104,968)	(8,410,162)
Interest income	102	-	-	-	102
Interest expense	459,297	-	-	-	459,297
Segment assets	42,204	778,919	1,058,335	203,664	2,083,122
Fixed assets and leased equipment purchases	-	-	1,224	-	1,224
Depreciation and amortization	536	-	114,281	29,123	143,940

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6. Inventories: Schedule of Inventory, Current (Details) (USD $)	Jun. 30, 2013	Sep. 30, 2012
Details
Chronic Illness Monitoring Finished Goods	$ 991,957	$ 185,884
CareServices ActiveHome	56,692	56,767
Reagents Raw Materials		41,195
Reagents Work in Progress		5,745
Reagents Finished Goods		6,161
Reserves for Obsolescence and Valuation		(4,984)
Inventories, net of valuation allowances of $0 and $4,984, respectively	$ 1,048,649	$ 290,768

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11. Notes Payable: Schedule Of Debt Table (Details) (USD $)	Jun. 30, 2013	Sep. 30, 2012	Jun. 30, 2012
Gross notes payable before discount	$ 6,875,730	$ 4,561,737
Discount on notes payable	(816,275)	(187,587)
Notes payable current and noncurrent		4,374,150	6,059,455
Notes payable current portion	(3,536,216)	(2,569,221)
Notes payable, net of current portion	2,523,239	1,804,929	2,523,239
Note 1
Gross notes payable before discount	1,935,578	2,236,737
Note 3
Gross notes payable before discount		300,000	2,790,152
Note 2
Gross notes payable before discount		1,500,000	1,500,000
Note 4
Gross notes payable before discount		275,000	175,000
Note 6
Gross notes payable before discount			225,000
Note 5
Gross notes payable before discount		$ 250,000	$ 250,000

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20. Subsequent Events (Details) (USD $)	1 Months Ended		9 Months Ended
	Aug. 31, 2013	Jul. 31, 2013	Jun. 30, 2013
Principal and interest balance	$ 250,000
Shares issued for cash investments		3,180,000
Shares issued for cash investments price per share		$ 0.75
Cash investments			2,385,000
Short-term loan		175,000
Short-term loan interet rate		12.00%
Origination fees		17,500
Series D Shares Converted		20,000
Shares issued for conversion of Series D Shares preferred stock		100,000
Shares issued for securities purchase agreement price per share	$ 0.75	$ 0.75
Shares issued for securities purchase agreement		333,333	380,000
Cash received from securities purchase agreement	285,000	250,000
Shares issued for conversion of Series A debenture			333,334
Proceeds from two secured loans	550,000
Interest Rate for two secured loans	12.00%
Warrants with option to purchase issued	36,667
Purchase Price	$ 0.75
Three Loan Conversion
Shares issued for conversion Series B debenture loans		1,704,715
Conversion price		$ 0.75
Principal and interest balance		1,278,536
Two Loan Conversion
Principal and interest balance		342,912
Shares issued for conversion of Series A debenture		457,216
Two Investors
Principal and interest balance	$ 64,289
Shares issued for conversion of Series A debenture			85,719

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16. Stock Options and Warrants: Schedule of Share-based Compensation, Activity (Tables)

9 Months Ended

Jun. 30, 2013

Tables/Schedules

Schedule of Share-based Compensation, Activity

Options and Warrants	Number of Options and Warrants	Weighted-Average Exercise Price
Outstanding as of October 1, 2012	2,386,587	$                  1.47
Granted	2,050,300	1.04
Exercised	(525,000)	1.00
Forfeited	-	-
Outstanding as of June 30, 2013	3,911,887	1.31
Exercisable as of June 30, 2013	2,631,887	1.43

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10. Patent License Agreement: Schedule of Finite-Lived Intangible Assets, Future Amortization Expense (Tables)

9 Months Ended

Jun. 30, 2013

Tables/Schedules

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense

Years Ending September 30,
2013	$                   31,717
2014	126,870
2015	126,870
2016	126,870
2017	126,870
Thereafter	59,440
	$                 598,637

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11. Notes Payable: Schedule Of Debt Table (Tables)

9 Months Ended

Jun. 30, 2013

Tables/Schedules

Schedule Of Debt Table

		June 30,  2013	September 30, 2012
	Note payable to the former owners of Green Wire, secured by customer contracts, imputed interest rate equal to 12%, with monthly installments over a 36-month term.  During the quarter ended March 2013, the Company agreed to issue 15,000 shares of common stock to the lenders to extend two past due payments without late penalty.  The common stock has a value of $24,000 at the date of grant, which will be amortized over the remaining life of the loan.	$         1,935,578	$         2,236,737
	Series A debenture loans payable, secured by customer contracts and payable in 36 monthly installments, maturing between September and December 2015. The loans bear interest at 12% and are convertible into common stock after 180 days.  After payment of principal and interest, the holders of the Series A and Series B debentures (see Note 12), as a class, are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company’s gross profits payable for the two-year period commencing at the maturity date; provided that no royalties are payable following conversion of any Series A or Series B debenture to the holder thereof.  The Company has the right to buy out each lender's royalty by paying the respective lender $20,000 for every $25,000 loaned.  The note includes a beneficial conversion feature valued at $901,000 at inception, which the Company is amortizing over the life of the loan.  The feature had an unamortized value of $794,667 as of June 30, 2013.	2,790,152	300,000
	Unsecured note with interest at 15% (18% after due date), due November 2012, currently in default. In connection with the loan, the Company issued 60,000 shares of Series D preferred stock as a loan origination fee with a total fair value of $150,000.  The note is guaranteed by the Company’s Chief Executive Officer.	1,500,000	1,500,000
	Unsecured note with interest at 15%, due March 2013, currently in default. Note included a $25,000 loan origination fee.  In connection with the loan, the Company issued 100,000 shares of common stock as a loan origination fee with a total fair value of $70,000 at date of grant.	175,000	275,000
Unsecured notes with annual interest rate at 15% (18% after due date), due March and April 2013, respectively, currently in default.  The Company issued 20,000 shares of Series D preferred stock as loan origination fees with total fair value on the date of grant of  $195,000.		$            225,000	$                     -
Unsecured note with interest at 12%, due March 2013, currently in default.		250,000	250,000
Total before discount and current portion		6,875,730	4,561,737
Less discount		(816,275)	(187,587)
Total notes payable		6,059,455	4,374,150
Less current portion		(3,536,216)	(2,569,221)
Total notes payable, net of current portion		$         2,523,239	$         1,804,929

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7. Customer Contracts Disclosure

9 Months Ended

Jun. 30, 2013

Notes

7. Customer Contracts Disclosure

7.                   Customer Contracts

During the fiscal year ended 2012, the Company recorded customer contracts of $2,369,882 acquired in its purchase of 4G and Green Wire.  The Company is amortizing the customer contracts over their estimated useful lives.  The Company recognized $624,773 and $13,837 of amortization expense for the nine months ended June 30, 2013 and 2012, respectively.  The net balance of customer contracts was $1,642,779 and $2,267,552 as of June 30, 2013 and September 30, 2012, respectively.  The Company’s future customer contract amortization as of June 30, 2013, is as follows:

Years Ending September 30,
2013	$                 208,257
2014	833,030
2015	601,492
	$              1,642,779

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17. Segment Information: Schedule of Segment Reporting Information, by Segment (Details) (USD $)	3 Months Ended		9 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Sep. 30, 2012
Total revenues	$ 4,327,677	$ 296,660	$ 11,414,094	$ 424,405
Net loss	(3,122,320)	(2,442,706)	(9,153,366)	(8,410,162)
Interest expense, net	(1,065,414)	(223,379)	(2,856,397)	(459,195)
Total assets	13,219,912		13,219,912		5,875,954
Corporate
Net loss	(2,779,565)	(2,124,134)	(7,083,015)	(7,705,947)
Interest Income, Other	26	21	50	102
Interest expense, net	1,065,440	223,400	2,856,447	459,297
Total assets	15,161	42,204	15,161	42,204
Depreciation, Depletion and Amortization, Nonproduction	223,438	179	536	536
SegmentAssets	15,161		15,161
Chronic Illness Monitoring
Total revenues	3,912,300	230,625	10,121,916	233,743
Net loss	480,562	(215,940)	704,720	(294,166)
Total assets	10,125,070	778,919	10,125,070	778,919
Depreciation, Depletion and Amortization, Nonproduction	28,609	13,837	830,966
SegmentAssets	10,125,070		10,125,070
Care Services
Total revenues	415,377	66,035	1,292,178	190,662
Net loss	(811,016)	(99,003)	(2,769,759)	(305,081)
Total assets	3,079,681	1,058,335	3,079,681	1,058,335
Property and leased equipment purchases	121,282		382,809	1,224
Depreciation, Depletion and Amortization, Nonproduction	282,773	38,555	172,466	114,281
SegmentAssets	3,079,681		3,079,681
Reagents
Total revenues	97,147	135,636	351,645	357,374
Net loss	(12,301)	(3,629)	(5,312)	(104,968)
Total assets		203,664		203,664
Property and leased equipment purchases	888		888
Depreciation, Depletion and Amortization, Nonproduction	2,893	11,271	658,499	29,123
Total
Total revenues	4,424,824	432,296	11,765,739	781,779
Net loss	(3,122,320)	(2,442,706)	(9,153,366)	(8,410,162)
Interest Income, Other	26	21	50	102
Interest expense, net	1,065,440	223,400	2,856,447	459,297
Total assets	13,219,912	2,083,122	13,219,912	2,083,122
Property and leased equipment purchases	122,170		383,697	1,224
Depreciation, Depletion and Amortization, Nonproduction	537,713	63,842	1,662,467	143,940
SegmentAssets	$ 13,219,912		$ 13,219,912

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3. EarningsPerShareTextBlock: Schedule Of Common Stock Equivalents (Tables)

9 Months Ended

Jun. 30, 2013

Tables/Schedules

Schedule Of Common Stock Equivalents

	June 30,  2013	June 30,  2012
Common stock options and warrants	3,911,887	1,386,587
Series D convertible preferred stock	4,241,005	275,000
Series C convertible preferred stock	480,000	480,000
Convertible debt	6,164,072	3,508,469
Restricted shares of common stock	16,700	63,700
Total common stock equivalents	14,813,664	5,713,756

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2. Discontinued Operations: Schedule of Disposal Groups, Including Discontinued Operations, Income Statement, Balance Sheet and Additional Disclosures (Details) (USD $)	3 Months Ended		9 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Gross margin (deficit)	$ 913,915	$ (37,642)	$ 1,947,285	$ (241,882)
Selling, general and administrative (including $678,596, $61,563, $2,181,098 and $4,185,673, respectively, of stock-based compensation)	2,733,452	793,232	7,606,290	6,145,136
Loss from discontinued operations	(12,301)	(3,629)	(5,312)	(104,968)
Discontinued Operations
Revenues	97,147	135,636	351,645	357,374
Cost of Revenue	(130,797)	(94,330)	(300,396)	(291,137)
Gross margin (deficit)	(33,650)	41,306	51,249	66,237
Selling, general and administrative (including $678,596, $61,563, $2,181,098 and $4,185,673, respectively, of stock-based compensation)	(33,747)	(44,935)	(111,657)	(171,205)
Discontinued Operation, Amount of Other Income (Loss) from Disposition of Discontinued Operation, Net of Tax	(67,397)	(3,629)	(60,408)	(104,968)
Gain (Loss) on Disposition of Other Assets	55,096		55,096
Loss from discontinued operations	$ (12,301)	$ (3,629)	$ (5,312)	$ (104,968)

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10. Patent License Agreement

9 Months Ended

Jun. 30, 2013

Notes

10. Patent License Agreement

10.                Patent License Agreement

During fiscal year 2009, the Company licensed the use of certain patents from a third party.  Under the license agreement, the Company was required to pay $300,000 plus a 5% royalty on the net revenues of all licensed products. As of September 30, 2009, the Company had capitalized the initial license fee as a long-term asset and had recorded a corresponding current liability as the fee was not yet paid.

During fiscal year 2012, the Company agreed to purchase the related patents and settle amounts owed under the license agreement by issuing 60,000 shares of common stock and 480,000 shares of Series C preferred stock to the licensor.  The patents were valued at $922,378, based on a valuation performed by an independent valuation expert.  The value of the common stock issued was $240,000, based on the market price of the common stock on the date of issuance. The implied value of the Series C preferred stock was $682,378, which was based on the difference between the value of the patents and the common stock issued in settlement of the existing liability.

The Company is amortizing the patents over their remaining useful lives (through 2018).  The Company recognized $95,153 and $196,870 of amortization expense for the nine months ended June 30, 2013 and 2012, respectively.  The net balance of the patents was $598,637 and $693,790 as of June 30, 2013 and September 30, 2012, respectively.

The Company’s future patent amortization as of June 30, 2013, is as follows:

Years Ending September 30,
2013	$                   31,717
2014	126,870
2015	126,870
2016	126,870
2017	126,870
Thereafter	59,440
	$                 598,637

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6. Inventories

9 Months Ended

Jun. 30, 2013

Notes

6. Inventories

6.                   Inventories

Inventories are recorded at the lower of cost or market value, cost being determined using the first-in, first-out (“FIFO”) method. Inventories consisted of raw materials, work-in-process, and finished goods as of June 30, 2013 and September 30, 2012 as follows:

	June 30,  2013	September 30, 2012
Chronic Illness Monitoring
Finished goods	$                 991,957	$            185,884
CareServices
ActiveHome	56,692	56,767
Reagents
Raw materials	-	41,195
Work in process	-	5,745
Finished goods	-	6,161
Reserves for obsolescence and valuation	-	(4,984)
Total inventories	$              1,048,649	$            290,768

When required, provisions are made to reduce excess and obsolete inventories to their estimated net realizable values.  Due to competitive pressures and technological innovation, it is possible that estimates of the net realizable values could change in the near term.  During the nine months ended June 30, 2013, the Company disposed of $53,500 of inventory as part of the sale of its Reagents segment.

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1. Organization and Nature of Operations

9 Months Ended

Jun. 30, 2013

Notes

1. Organization and Nature of Operations

1.                   Basis of Presentation

                The unaudited interim condensed consolidated financial statements of ActiveCare, Inc. (the “Company” or “ActiveCare”) has been prepared in accordance with Article 8 of Regulation S-X promulgated by the Securities and Exchange Commission.  Certain information and disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) have been condensed or omitted pursuant to such rules and regulations.  In the opinion of management, the accompanying interim condensed consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company’s financial position as of June 30, 2013, and the results of its operations and its cash flows for the three and nine months ended June 30, 2013 and 2012.  These financial statements should be read in conjunction with the annual consolidated financial statements and notes thereto that are included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2012.  The results of operations for the three and nine months ended June 30, 2013 may not be indicative of the results for the full fiscal year ending September 30, 2013.

                During the quarter ended June 30, 2013, the Company announced a 10-for-1 reverse common stock split.  The condensed consolidated financial statements and notes for all periods presented have been retroactively adjusted to reflect the reverse common stock split.

                Going Concern

                Although the Company had a positive gross margin for the three and nine months ended June 30, 2013, it incurred negative gross margins, working capital and cash flows from operating activities for the fiscal years ended September 30, 2012 and 2011, and had negative working capital and cash flows from operating activities for the nine months ended June 30, 2013.  These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

In order for the Company to remove substantial doubt about its ability to continue as a going concern, it must continue to improve gross margins, generate positive cash flows from operating activities and obtain the necessary debt or equity funding to meet its projected capital investment requirements.  Management’s plans with respect to this uncertainty include raising additional capital by issuing equity securities and increasing the sales of the Company’s services and products.  There can be no assurance that the Company will be able to raise sufficient capital or that revenues will increase rapidly enough to offset operating losses and repay debts as they come due.  If the Company is unable to increase revenues or obtain additional financing, it will be unable to continue the development of its products and may have to cease operations. 

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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 these estimates.

Fair Value of Financial Instruments

The carrying amounts reported in the condensed consolidated balance sheets for accounts receivable, accounts payable, and accrued liabilities approximate fair value because of the immediate or short-term maturity of these financial instruments. The carrying amounts reported for notes payable approximate fair value because the underlying instruments are at interest rates which approximate current market rates.

US GAAP defines fair values as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date. Additionally, the inputs used to measure fair value are prioritized based on a three-level hierarchy. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

·         Level 1 — Quoted prices in active markets for identical assets or liabilities.

·         Level 2 — Observable inputs other than quoted prices included in Level 1. Assets and liabilities included in this level are valued using dealer and broker quotations, bid prices, quoted prices for similar assets and liabilities in active markets, or other inputs that are observable or can be corroborated by observable market data.

·         Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

In valuing certain contracts, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. For disclosure purposes, assets and liabilities are classified in their entirety in the fair value hierarchy level based on the lowest level of input that is significant to the overall fair value measurement. The assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement within the fair value hierarchy levels.

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10. Patent License Agreement (Details) (USD $)	9 Months Ended		12 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Sep. 30, 2012
License Agreement Description	Under the license agreement, the Company was required to pay $300,000 plus a 5% royalty on the net revenues of all licensed products
Independent valuation of patents			$ 922,378
Amortization expense	95,153	196,870
Patents, net of accumulated amortization of $323,741 and $228,587, respectively	598,637		693,790
Series C Preferred Stock
Convertible Preferred Stock Shares Issued	60,000	480,000
Stock and Warrants Issued During Period, Value, Preferred Stock and Warrants			682,378
Common stock
Value of the Common Stock issued			$ 240,000

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7. Customer Contracts Disclosure: Schedule of Future Customer Contract Amortization (Details) (USD $)	9 Months Ended
	Jun. 30, 2013
Details
Future customer contract amortization year 1	$ 208,257
Future customer contract amortization year 2	833,030
Future customer contract amortization year 3	601,492
Future customer contract amortization	$ 1,642,779

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8. Property and Equipment: Schedule of property and equipment (Tables)

9 Months Ended

Jun. 30, 2013

Tables/Schedules

Schedule of property and equipment

	June 30,  2013	September 30, 2012
Leasehold improvements	$                   93,913	$            402,016
Equipment	250,347	374,229
Software	65,836	65,111
Furniture	23,547	50,123
Total gross property and equipment	433,643	891,479
Accumulated depreciation and amortization	(198,675)	(625,401)
Property and equipment, net	$                 234,968	$            266,078

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16. Stock Options and Warrants: Schedule of warrants fair value assumptions (Details) (USD $)	9 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Fair Value Assumptions, Expected Term		2 years 6 months
Minimum
Fair Value Assumptions, Exercise Price	$ 1.00	$ 1.00
Fair Value Assumptions, Expected Term	1 year 6 months
Fair Value Assumptions, Expected Volatility Rate	219.00%	104.00%
Fair Value Assumptions, Risk Free Interest Rate	0.23%	0.39%
Maximum
Fair Value Assumptions, Exercise Price	$ 1.65	$ 5.00
Fair Value Assumptions, Expected Term	5 years
Fair Value Assumptions, Expected Volatility Rate	298.00%	135.00%
Fair Value Assumptions, Risk Free Interest Rate	0.88%	0.68%

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13. Derivative Liability

9 Months Ended

Jun. 30, 2013

Notes

13. Derivative Liability

13.                Derivative Liability

The derivative liability was $0 and $4,015,855 as of June 30, 2013 and September 30, 2012, respectively.  The elimination of the derivative liability was due to the 10-for-1 reverse common stock split, which decreased the number of outstanding shares and convertible shares of “freestanding instruments.”  It also allows the Company to reserve sufficient shares to settle “freestanding instruments.”   

The Company recognized a $45,697 derivative gain during the nine months ended June 30, 2013.  The Company had previously estimated the fair value of the embedded derivatives using a binomial option-pricing model prior to the common stock reverse split with the following assumptions: conversion price of $0.11 to $0.16 per share according to the agreements; risk free interest rate of 0.14% to 0.16%; expected life of 0.69 to 1.00 years; expected dividend of zero; a volatility factor of 233% to 282%; and a stock price of $0.16 (as of March 25, 2013).  The expected lives of the instruments are equal to the average term of the conversion option.  The expected volatility is based on the historical price volatility of the Company’s common stock.  The risk-free interest rate represents the U.S. Treasury constant maturities rate for the expected life of the related conversion option. The dividend yield represents anticipated cash dividends to be paid over the expected life of the conversion option.

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9. Equipment Leased To Customers

9 Months Ended

Jun. 30, 2013

Notes

9. Equipment Leased To Customers

9.       Equipment Leased to Customers

Equipment leased to customers as of June 30, 2013 and September 30, 2012 was as follows:

	June 30,  2013	September 30, 2012
Leased equipment	$                 677,341	$            457,898
Accumulated depreciation	(274,307)	(144,905)
Leased equipment, net	$                 403,034	$            312,993

The Company leases monitoring equipment to customers for the CareServices segment.  The leased equipment is depreciated using the straight-line method over its estimated useful life of  three years regardless of whether the equipment is leased to a customer or remaining in stock.  Customers have the right to cancel the service agreements at any time.

Assets to be disposed of are reported at the lower of the carrying amounts or fair values, less the estimated costs to sell.  During the nine months ended June 30, 2013 and 2012, the Company recorded as cost of revenues the disposal of equipment leased to customers of $1,500 and $9,166, respectively. Depreciation expense for equipment leased to customers is recorded as cost of revenues for CareServices and depreciation for the nine months ended June 30, 2013 and 2012 totaled $134,442 and $42,974, respectively.

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16. Stock Options and Warrants

9 Months Ended

Jun. 30, 2013

Notes

16. Stock Options and Warrants

16.                 Stock Options and Warrants

The fair value of each stock option or warrant grant is estimated on the date of grant using a binomial option-pricing model.  The expected life of stock options or warrants represents the period of time that the stock options or warrants are expected to be outstanding, based on the simplified method.  Expected volatilities are based on historical volatility of the Company’s common stock, among other factors.  The Company uses the simplified method within the valuation model due to the Company’s short trading history.  The risk-free rate related to the expected term of the stock options or warrants is based on the U.S. Treasury yield curve in effect at the time of grant.  The dividend yield is zero. 

During fiscal years 2013 and 2012, the Company measured the fair value of the stock options and warrants using a binomial valuation model with the following assumptions:

	Nine Months Ended
	June 30,
	2013	2012
Exercise price	$1.00 - $1.65	$1.00 - $5.00
Expected term (years)	1.5 - 5	2.5
Volatility	219% - 298%	104% - 135%
Risk-free rate	0.23% - 0.88%	0.39% - 0.68%
Dividend rate	0%	0%

During the nine months ended June 30, 2013, the Company recorded stock-based compensation expense relating to the following stock options and warrants:

·         Options to purchase 433,333 shares were granted to each of three employees of 4G, 1,300,000 total shares, as part of their employment agreements dated June 21, 2012, with an exercise price of $1.00 per share.  These options vest as described in Note 5.  The options expire in June 2017.  The value of the options at the date of grant was $1,147,163.  The Company has been amortizing the expense based on expected completion dates of the milestones.  During the nine months ended June 30, 2013, the Company recognized $721,210 of the total compensation expense. As of June 30, 2013, options for 520,000 shares have vested. 

·         Options to purchase 1,000,000 shares were granted to the Company’s CEO for services as part of his employment agreement dated July 2012, with an exercise price of $1.00 per share.  One tenth (100,000 shares) of the options vest for each milestone of 5,000 additional members added to the Company since the beginning of his employment in July 2012 until fully vested.  The options expire in July 2017.  The Company has been amortizing the expense based on expected completion dates of the milestones.  During the nine months ended June 30, 2013, the Company recognized $616,802 of the total compensation expense.  As of June 30, 2013, options for 600,000 shares have vested due to the Company reaching certain milestones according to the contract. 

·         Options to purchase 212,500 shares were granted to each of the two key managers of GWire, 425,000 in aggregate, with an exercise price of $1.00 per share.  Under the option agreements, the only method of exercise requires the employee to submit up to 212,500 shares of GWire stock, awarded as part of the employment agreements dated November 1, 2012, to the Company in exchange for equivalent shares of the Company’s common stock, up to $425,000 in total.  The options were fully vested upon issuance and expire in October 2022.  During the three months ended June 30, 2013, the two key managers converted all of these options together with 4,250,000 shares of GWire stock into 425,000 shares of the Company’s common stock.  As a result, the Company owns 100% of GWire as of June 30, 2013.

·         Options to purchase 25,300 shares were granted to GWire employees, with an exercise price of $1.00 per share.  The options vested immediately and the Company recognized the $32,572 value as a compensation expense during the nine months ended June 30, 2013.

·         Options to purchase 100,000 shares were granted as part of an employment agreement signed with a new employee dated May 2013, with an exercise price of $1.65 per share.  One quarter (25,000 shares) of the options vest after one year and the remaining balance vests equally over the following nine quarters (8,333 per quarter).  The options expire in May 2018.  During the nine months ended June 30, 2013, the Company recognized $4,128 of compensation expense associated with the options.

·         Options to purchase 100,000 shares were granted as part of a loan extension agreement with an unrelated party, with an exercise price of $1.00 per share.  The options vested immediately and the Company recognized the $103,495 value during the nine months ended June 30, 2013.

·         Options to purchase 100,000 shares were granted for consulting services rendered by a third party, with an exercise price of $1.00 per share.  The options vested immediately and the Company recognized the $134,785 value as a consulting expense during the nine months ended June 30, 2013.

The following table summarizes information about stock options and warrants outstanding as of June 30, 2013:

Options and Warrants	Number of Options and Warrants	Weighted-Average Exercise Price
Outstanding as of October 1, 2012	2,386,587	$                  1.47
Granted	2,050,300	1.04
Exercised	(525,000)	1.00
Forfeited	-	-
Outstanding as of June 30, 2013	3,911,887	1.31
Exercisable as of June 30, 2013	2,631,887	1.43

As of June 30, 2013, the outstanding options and warrants have an aggregate intrinsic value of $762,371, and the weighted average remaining term of the warrants is 3.42 years.

For the nine months ended June 30, 2013 and 2012, the Company recognized non-cash expense of $1,782,992 and $2,076,709, respectively, related to the vesting and re-pricing of all stock options and warrants granted in current and prior years.

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14. Preferred Stock

9 Months Ended

Jun. 30, 2013

Notes

14. Preferred Stock

14.                Preferred Stock

The Company is authorized to issue 10,000,000 shares of preferred stock, with a par value of $0.00001 per share.  Pursuant to the Company’s Certificate of Incorporation, the Board of Directors has the authority to amend the Company’s Certificate of Incorporation, without further stockholder approval, to designate and determine the preferences, limitations and relative rights of the preferred stock before any issuance of the preferred stock and to create one or more series of preferred stock, fix the number of shares of each such series, and determine the preferences, limitations and relative rights of each series of preferred stock, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, and liquidation preferences.  

Series C Convertible Preferred Stock

On October 4, 2011, the Company issued 480,000 shares of Series C convertible preferred stock (“Series C preferred stock”) in connection with the patent license agreement settlement (see Note 10).  The par value of the Series C is $0.00001 per share.  The Series C preferred stock is non-voting stock.  Each share of Series C preferred stock may be converted into one share of common stock, provided, however, that a holder may not convert shares of Series C preferred stock which, upon conversion, would result in the holder becoming the beneficial owner of more than 4.99% of the issued and outstanding common stock of the Company. 

During fiscal year 2012, the Company amended the rights and preferences of the Series C preferred stock as follows:

·         Required payment of dividends at a rate of 8% per annum in either cash or common stock at the Company’s discretion.  If paid in common stock, the price of the common stock is the average closing price of the last 10 trading days of each quarter; and

·         Permitted conversion of the Series C preferred stock into common stock at any time after June 30, 2012.

During the nine months ended June 30, 2013, the Company accrued $40,382 of dividends associated with outstanding shares of Series C preferred stock and settled the balance by issuing 7,169 shares of Series D preferred stock.

Series D Convertible Preferred Stock

On October 4, 2011, the Board of Directors designated 1,000,000 shares of preferred stock as Series D convertible preferred stock (“Series D preferred stock”).  As originally designated, the Series D preferred stock was to be vested immediately upon issuance, and each share of Series D preferred stock was convertible into  one share of common stock.  The original designation also provided that the Series D preferred stock would be non-voting and would not pay a dividend.  In addition, conversion of the Series D preferred stock was limited to not more than 4.99% of the issued and outstanding common stock. 

During fiscal year 2012, the Board of Directors approved the following amendments to the designation of the rights and preferences of the Series D preferred stock prior to the issuance of any of the shares:

·         Changed the conversion ratio from  one share of common stock for one share of Series D preferred stock to  five shares of common stock for one share of Series D preferred stock;

·         Added an annual dividend rate of 8%, payable quarterly beginning April 1, 2012;

·         Changed the shares from non-voting to voting, on an as-converted basis;

·         Eliminated the 4.99% conversion limitation;

·         Permitted conversion of the Series D preferred stock, commencing April 1, 2012;

·         Permitted the Company, at its option, to redeem the Series D preferred shares at a redemption price equal to 120% of the original purchase with 15 days notice.

During the nine months ended June 30, 2013, the Company issued the following shares of Series D preferred stock:

·         78,174 shares for $691,363 in loan origination fees;

·         71,800 shares for future advisory services through December 2014, the value on the date of grant was $230,800;

·         20,000 shares for future consulting services through December 2013, the value on the date of grant was $60,000;

·         52,913 shares for $150,000 in previously accrued Board of Directors’ fees and $61,652 of additional compensation for past services;

·         24,300 shares for a bonus to an officer for past services, the value on the date of grant was $97,200;

·         7,169 shares for dividends on Series C preferred stock, the value on the date of grant was $40,382;

·         2,342 shares for dividends on Series D preferred stock, the value on the date of grant was $13,263;

·         95,400 shares for past consulting services by an entity controlled by an officer of the Company, which were previously accrued in the amount of $333,902;

·         30,000 shares for a bonus to an entity controlled by an officer of the Company for consulting services, the value on the date of grant was $105,000;

·         80,000 shares for a bonus to the CEO of the Company for signing an employment agreement with the Company, the value at the date of grant was $320,000, which cannot convert to common stock until the Company has 20,000 members.

During the nine months ended June 30, 2013, an employee of the Company converted 30,000 shares of Series D preferred stock into 150,000 shares of common stock.  The Company also accrued $172,511 of dividends on shares of Series D preferred stock and settled $110,794 of the balance by issuing 2,342 shares of Series D preferred stock and 10,218 shares of common stock during the nine months ended June 30, 2013.  As of June 30, 2013, the Company had a remaining balance of $80,338 of accrued dividends.

Liquidation Preference

Upon any liquidation, dissolution or winding up of the Company, before any distribution or payment may be made to the holders of the common stock, the holders of the Series C preferred stock and Series D preferred stock are entitled to be paid out of the assets an amount equal to $1.00 per share plus all accrued but unpaid dividends.  If the assets of the Company are insufficient to make payment in full to all holders of preferred stock, then the assets shall be distributed among the holders of preferred stock ratably in proportion to the full amounts to which they would otherwise be respectively entitled.

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Document and Entity Information	9 Months Ended
	Jun. 30, 2013	Aug. 27, 2013
Document and Entity Information
Entity Registrant Name	ACTIVECARE, INC.
Document Type	10-Q
Document Period End Date	Jun. 30, 2013
Amendment Flag	false
Entity Central Index Key	0001429896
Current Fiscal Year End Date	--09-30
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q3
Entity Common Stock, Shares Outstanding		11,919,343

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15. Common Stock

9 Months Ended

Jun. 30, 2013

Notes

15. Common Stock

15.                Common Stock

During the nine months ended June 30, 2013, the Company issued 1,390,019 shares of common stock as follows:

·         425,000 shares for the exercise of options held by two key managers of GWire (see Note 16);

·         207,361 shares valued at $310,002 as compensation for services to six independent consultants;

·         10,218 shares valued at $97,532 as dividends accrued for Series C and Series D preferred stock holders;

·         25,000 shares valued at $37,500 for service provided by an entity controlled by an officer of the Company;

·         150,000 shares for the conversion of 30,000 shares of Series D preferred stock;

·         100,000 shares valued at $150,000 as compensation for a new key employee as an incentive to work for the Company, which vests 25% during the first year of employment and the remaining 75% evenly over the following nine quarters;

·         4,758 shares valued at $7,137 for the extension of related-party payables;

·         217,833 shares as loan origination fees at a value of $329,789;

·         100,000 shares for the conversion of outstanding debt in the amount of $100,000;

·         90,000 shares valued at $136,500 for the extension of third party notes payable;

·         2,600 shares valued at $3,900 as part of the issuance of $26,000 of new debt to a related party;

·         27,650 shares for employee bonuses valued at the date of grant at $39,825;

·         29,600 shares to employees in accordance with the following restricted stock agreement:

The Company agreed to issue 97,500 restricted shares of common stock to certain employees in connection with Company milestones in fiscal year 2010.  During the nine months ended June 30, 2013, the Company issued 29,600 restricted shares of common stock valued at $399,600 on the date of the grant, and reduced the shares of non-vested common stock by 17,400 shares due to the change of employment status of several individuals.  During the fiscal year ended September 30, 2012 no restricted shares of common stock were issued to employees.  During the nine months ended June 30, 2013 and 2012, the Company recognized compensation expense of $0 and $117,187, respectively.  As of June 30, 2013 and September 30, 2012, the unrecognized stock-based compensation was $51,515 and $245,952, respectively, and will be recognized over the remaining vesting term.

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16. Stock Options and Warrants: Schedule of Share-based Compensation, Activity (Details) (USD $)	9 Months Ended
	Jun. 30, 2013	Jun. 30, 2013
Details
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Beginning Balance	2,386,587	3,911,887
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Beginning Balance	$ 1.47	$ 1.31
Share-based compensation arrangement by share-based payment award, Options, Grants in period	2,050,300
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price	$ 1.04
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period	(525,000)
Share-based Compensation Arrangements by Share-based Payment Award, Options, Exercises in Period, Weighted Average Exercise Price	$ 1.00
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number		2,631,887
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price		$ 1.43

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16. Stock Options and Warrants (Details) (USD $)	9 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Aggregate intrinsic value	$ 762,371
Weighted average remaining term of the warrants	3.42
Expense related to the vesting and re-pricing of all stock options and warrants	1,782,992	2,076,709
Employees of 4G
Options to purchase	433,333
Exercise Price	$ 1.00
Options to purchase value	1,147,163
Compensation Expense	721,210
Company's CEO
Options to purchase	1,000,000
Exercise Price	$ 1.00
Compensation Expense	616,802
Managers Of GWire
Options to purchase	212,500
Exercise Price	$ 1.00
To GWire Employees
Options to purchase	25,300
Exercise Price	$ 1.00
Compensation Expense	32,572
Employee Agreements
Options to purchase	100,000
Exercise Price	$ 1.65
Compensation Expense	4,128
Loan Extension Agreement
Options to purchase	100,000
Exercise Price	$ 1.00
Compensation Expense	103,495
Consulting Services
Options to purchase	100,000
Exercise Price	$ 1.00
Compensation Expense	$ 134,785