10-K

  UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)
þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2014
OR
¨	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, Utah  84058

(Address of principal executive offices)

(877) 219-6050

(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.00001 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨  No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨  No þ

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 þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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  þ    No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company þ

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

The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of March 31, 2014 was approximately $13 million, based on the average bid and asked price ($0.75 per share) and a total of 17,386,452 shares issued and outstanding to non-affiliates on that date.

There were 47,264,183 shares of the registrant’s common stock outstanding as of January 12, 2015.  During the quarter ended June 30, 2013, the registrant implemented a 10-for-1 reverse common stock split.  The financial statements and data for all periods covered by this report have been retroactively adjusted to reflect the effect of the reverse stock split.

Transitional Small Business Disclosure Format (Check one):  Yes ¨      No þ

Documents Incorporated by Reference

None.

Explanatory Note

On November 12, 2014, the registrant filed an amendment (the “Amended 10-K”) to its Annual Report on Form 10-K filed previously for the year ended September 30, 2013.  The Amended 10-K contained restated audited financial statements of the registrant for and as of the year ended September 30, 2013.  The Amended 10-K, and related amended Quarterly Reports on Form 10-Q for the periods ended December 31, 2013, March 31, 2014 and June 30, 2014, restate and correct the consolidated financial statements of the registrant, including the consolidated balance sheet and the related statements of operations, stockholders’ deficit, and cash flows.  This restated and corrected data and the restated financial statements for the period ended September 30, 2013, are included in this report.

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ACTIVECARE, INC.

FORM 10-K

For the Fiscal Year Ended September 30, 2014

INDEX

		Page
	Part I
Item 1	Business	1
Item 1A	Risk Factors	8
Item 2	Properties	13
Item 3	Legal Proceedings	13
Item 4	Mine Safety Disclosures (omitted)
	Part II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	13
Item 6	Selected Financial Data (omitted)
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 7A	Quantitative and Qualitative Disclosures About Market Risk (omitted)
Item 8	Financial Statements and Supplementary Data	22
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	22
Item 9A	Controls and Procedures	22
Item 9B	Other Information	23
	Part III
Item 10	Directors, Executive Officers and Corporate Governance	24
Item 11	Executive Compensation	26
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	30
Item 13	Certain Relationships and Related Transactions, and Director Independence	32
Item 14	Principal Accounting Fees and Services	34
	Part IV
Item 15	Exhibits, Financial Statement Schedules	35
Signatures		37

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PART I

Disclosure Regarding Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, relating to our operations, results of operations, and other matters that are based on our current expectations, estimates, assumptions, and projections.  Words such as “may,” “will,” “should,” “likely,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” and similar expressions are used to identify these forward-looking statements.  These statements are not guarantees of future performance and involve risks, uncertainties, and assumptions that are difficult to predict.  Forward-looking statements are based upon assumptions as to future events that might not prove to be accurate.  Actual outcomes and results could differ materially from what is expressed or forecast in these forward-looking statements.  Risks, uncertainties, and other factors that might cause such differences, some of which could be material, include, but are not limited to, the factors discussed under Item 1A of this report entitled “Risk Factors.”

Item 1.  Business

Background

ActiveCare, Inc. (“we,” “us,” “our,” the “Company” or “ActiveCare”) was formed March 5, 1998 as a wholly owned subsidiary of SecureAlert, Inc. dba Track Group [OTCQB: SCRA], a Utah corporation, formerly known as RemoteMDx, Inc. (“SecureAlert”).  We were spun off from SecureAlert in February 2009.  Effective July 15, 2009, we changed our name to ActiveCare, Inc., and our state of incorporation to Delaware. Our fiscal year ends on September 30.

During fiscal year 2013, we announced a 10-for-1 reverse common stock split, and all periods presented have been retroactively adjusted to reflect the reverse common stock split.

In this Annual Report on Form 10-K, unless indicated otherwise, references to “dollars” and “$” are to United States dollars.

We own or have rights to trademarks, service marks or trade names that we use in connection with the operation of our business, including, without limitation, “CareCenter,” “4G,” “Green Wire,” “ActiveOne,” “ActiveOne+,” “ActiveHome,” “ActiveCare” and the stylized “ActiveCare” logo.  Solely for convenience, some of the trademarks, service marks and trade names referred to in this report are listed without the ©, ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our copyrights, trademarks, service marks, trade names and domain names. The trademarks, service marks and trade names of other companies appearing in this report are, to our knowledge, the property of their respective owners.

General

In fiscal year 2012, we launched an additional product line focused on technology for assisting the chronically ill.  Our focus is on markets addressing chronic conditions and disease states.  Remote patient monitoring (“RPM”) is a technology to enable monitoring of patient vital signs and physical functions outside of conventional clinical settings (e.g., in the home, work or travel).  Physiological data such as blood sugar levels, blood pressure, pulse rate, and blood oxygen levels are collected by sensors on medical peripheral devices.  Examples of these devices include glucometers, blood pressure cuffs, weight scales, and pulse oximeters.  The data is stored for future assessment or transmitted to healthcare providers or third parties via wireless telecommunication devices.  Disease states targeted by RPM technology providers typically include diabetes, congestive heart failure, sleep apnea, activity monitoring, and diet management.  Since the launch of our Chronic Illness Monitoring segment in 2012, its primary focus has been on those patients diagnosed with diabetes.  We believe that we can improve the lives of the chronically ill through the use of technology, while reducing the cost of care.  Central to these efforts is our “CareCenter.”  This service is designed to monitor and track patients’ health conditions and chronic illnesses on a real time basis.  As part of these efforts we have staffed this CareCenter with trained specialists to assist the chronically ill in managing their daily lives; 24 hours per day, seven days per week.  In order for the CareCenter to service our customers, we have developed and continue to develop products and technologies designed to improve the health of the chronically ill.

There are obvious problems associated with aging and patients diagnosed with chronic conditions.  According to a 2004 presentation to the American Telemedicine Association, approximately one in every four Americans suffers from a chronic illness, which typically becomes more severe and prominent with age.  The demographics of chronic illnesses include over 29 million people with diabetes (according to the Centers for Disease Control and Prevention’s 2014 National Diabetes Statistics Report) and close to 14 million with coronary heart disease (according to reports published by the American Heart Association), as well as over 10 million with osteoporosis (according to a study by the University of Maryland Medical Center).  All of these reports and studies, as well as those cited elsewhere in this report, are on file with the Company. 

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According to a 2010 analysis from the Centers for Disease Control and Prevention (“CDC”), as many as 1 in 3 U.S. adults could have diabetes by 2050 if current trends continue.  Diabetes currently affects approximately 9% of the overall U.S. population or 29 million people.  According to a 2012 diabetes fact sheet the annual cost of treating an individual diagnosed with diabetes, and the comorbidities associated with the disease, can range from $12,000 to $16,000 per year.  This combination costs the U.S. health system up to $245 billion annually.  A major driver of the diabetic related claims is the lack of adherence to regular blood glucose monitoring.  It is estimated by the National Center for Biotechnology Information that less than 30% of diabetics monitor their blood glucose levels on a regular basis.

With U.S. healthcare costs increasing annually, we believe that cost containment is a primary issue facing the industry. These escalating costs will only intensify as the baby-boom generation ages.  As of 2000, 35 million Americans were 65 years of age or older, and this number is projected to increase to 55 million by the year 2020, according to a study by the U.S. Department of Health and Human Services.  By that year, one in six Americans will be over the age of 65 and by the middle of the century, the number of elderly could reach more than 86 million people, more than double the present number.  According to an article published in the National Review Online and the sources cited therein, approximately 80% of healthcare costs occur in the last two years of life.  This combined with an aging population supports the assertion that the nation is in dire need of viable cost-saving options for health care.

We believe the ability to monitor chronic illness in your own home will mitigate health care costs for the chronically ill and the elderly. Through the technologies we are developing, we believe we can both enhance lives of and provide peace of mind with the knowledge that their vital signs are being monitored.  At the same time we believe we can save millions of dollars in the health care sector as we identify problems and issues before they become crises.

We believe that through the technologies we have already developed and are continuing to develop, we can enhance the lives not only of the growing diabetic segment of today’s population, but also the lives of other segments of the population, such as those with other chronic illnesses.  The CareCenter is staffed around the clock with advisors that receive calls originating from our clients who utilize our products.  We can immediately communicate with them and emergency personnel in times of need and communicate their location and an abbreviated medical history.

Our Product and Service Strategy

During 2014, our product/service strategy fell into two distinctly different categories; chronic illness monitoring and care services (“CareServices”) or personal emergency response systems (“PERS”).  In December 2014, we sold substantially all of our customer contracts and equipment leased to customers associated with our CareServices segment.  The sale of our CareServices contracts allows us to focus solely on our Chronic Illness Monitoring segment.

Chronic Illness Monitoring

Chronic illness monitoring involves the use of biometric monitoring devices in combination with proprietary data and algorithms to assess 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 can be 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 products and supplies, (2) medical and claims data aggregation, and (3) algorithms for the analysis of the data.  Biometric monitoring products and supplies 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 and capture data from any 510(k) or HL7 compliant monitoring device (see “Regulatory Matters” on page 7 of this report).  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 fiscal year ended September 30, 2014, we spent approximately $215,000 on research and development for chronic illness monitoring related to ongoing improvements to methods and systems for the capture and analysis of data, as well as scalable architectures to migrate to production applications and deployments that were developed during the fiscal years ended September 30, 2013 and 2012.  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. 

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Care Services

We have developed products that incorporate GPS, cellular capability, and fall detection, all of which are connected to our 24-hour CareCenter with the push of a button.  The transmitter can be worn on a neck pendant or belt clip, or carried in a purse, and sends a cellular signal to our CareCenter.  When the wearer of the device pushes the button, the staff at the CareCenter evaluate the situation and decide whether to call emergency services or a designated friend or family member.

Currently, there are separate products on the market that provide service to the PERS industry as well as products that provide fall detection, geographical location, and clinical health parameters.  However, we believe that no product on the market today has successfully integrated all of these technologies in a single effective device.  Further, none of the current solutions in the market focus on providing CareServices – assistance with everyday needs – as an alternative to costly assisted living or in-home care services as we do.

CareCenter

The central point of our product offerings is our CareCenter.  Our CareCenter is staffed 24x7 with CareCenter specialists who are 911-certified and trained.  In addition, we have nurses on duty and on call that are available to assist with medical issues or questions.  Our CareCenter specialists and CareCenter provide monitoring related to chronic illness test results, contacting testers who have not tested when scheduled and onboard new users to our services.

In contrast to a typical monitoring center, our CareCenter is equipped to respond to real-time alerts and data to better assist users of our services.  In addition, the CareCenter’s software will identify the caller, access the individual’s medical information, and assist with emergency dispatch.  We believe the CareCenter is a cornerstone of our business and will support current technology as well as evolve to support the integration of future technologies.

Recent Developments

We have financed operations primarily through the sale of equity securities, long-term debt and short-term debt.  Until revenues are sufficient to meet our needs, we will attempt to secure financing through equity or debt securities.  There is no assurance that we will be able to obtain financing on satisfactory terms or at all.  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 fiscal year 2014, we (1) completed the sale of Series F preferred stock for net proceeds of $3,580,771, after considering $675,229 of related costs; (2) converted $2,326,801 of debt and accrued interest to common stock; (3) converted $574,592 of debt and accrued interest to Series F preferred stock; and (4) converted $83,473 of debt and accrued interest to Series E preferred stock.  These transactions strengthened our balance sheet, provided working capital and allowed us to fulfill larger contracts.

During September 2014, David G. Derrick resigned as our Chief Executive Officer and remains the Executive Chairman of our Board of Directors.  Michael Z. Jones, our President, was named our interim Chief Executive Officer.  During December 2014, we sold substantially all of our customer contracts and equipment leased to customers associated with our CareServices segment.  Additional equipment in stock was sold to the buyer pursuant to a written invoice.  The purchase price included a cash payment of $412,280 for the customer contracts and $66,458 for the equipment in stock.  The sale of the CareServices segment allows us to focus our resources solely on the Chronic Illness Monitoring segment.

Our Growth Strategy

Our plan is to continue to focus on addressing the diabetic population and to execute our existing business plan serving this chronic illness market during fiscal year 2015.  We market our products through insurance companies, disease management companies, third-party administrators (“TPAs”), and self-insured companies.  We plan to invest in research and development and patent filings, as we broaden the services we offer.  We will continue to look for ways to provide solutions for other chronic illness and disease states markets.

Our strategy is to develop relationships with these various customers.  TPAs administer the claims, payments, co-pays, and medical coding for self-insured companies.  They effectively act as the medical benefits administrators for their customers, most of which are not large enough to justify a fully operational in-house department.  Disease management companies are hired by insurance companies and self-insured companies to actively engage with members and employees with the goal that more interaction will reduce significant health care claims.  Our strategy is achieved by providing specific information related to the benefits to be realized by all parties, which, in most cases is substantial to the self-insured companies and the insurance companies.  The key to monetary savings is the CareCenter, which operates 24x7 and is integral to chronic illness monitoring. The CareCenter is the real-time recipient of all test results which are delivered using cellular glucometers. This information is gathered, sorted and reported.  This information, which the customers have generally never before seen, is then delivered to the customers. The ultimate objective is to increase the percentage of diabetics who are regularly testing, which has been proven to be a major factor in reducing the cost of claims based on statistical history. Once the customers recognize the benefits to be realized from this information for one or more patients, it is a natural progression to add the rest of the customer’s members or clients to the ActiveCare solution.

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Our ultimate objective is to become a chronic illness monitor for all of our customer’s members, measuring not only blood sugar for diabetics, but also blood pressure, weight, and blood oxygen levels.

Research and Development Program

During fiscal year 2014, we spent approximately $215,000, compared to $605,000 in fiscal year 2013, on research and development related to chronic illness monitoring.  The research and development program focused on ongoing improvements to methods and systems for the capture and analysis of data, as well as scalable architectures to migrate to production applications and deployments during fiscal year 2014 that were developed during the fiscal years 2013 and 2012.

Competition

Over the past decade technology device manufacturers have rushed to provide peripheral devices to capture data related to chronic health conditions rather than provide any assessment or intelligence regarding the data being captured.  In most cases the data captured remains static on the peripheral device or data capture system, providing little to no perspective on the current and recent condition of the patient.  In cases in which the data are utilized, the application of that data is typically limited to the “point of care” or physician’s office.  The ActiveCare solution is a complex combination of components that provide an overall care system.  The analysis of the competitive landscape will focus on six primary market segments representing the primary components of our system, noting the implications for us resulting from the strengths of the leaders in each segment.

Legacy Consumer Oriented Monitoring and Communications Device Providers

Overview – While not a primary threat to our business model, several leading providers of health care technologies have targeted the patient monitoring market and made significant investments in pursuing the segment.  The primary business focus of these companies is high-end diagnostics equipment, point of care technologies, and health information technologies.  While the investments in telehealth technologies have totaled significant dollars they represent a very small component of these competitors’ overall business in the health care segment.  The approach to entering the market has typically been to acquire an existing technology and attempt to distribute that technology through existing distribution channels in complementary offerings.  Examples of providers in this segment include:

·   Philips – Telestation

·   Bosch - HealthStation

·   Honeywell – Genesis

Strengths – The strengths of this segment are the competitors’ overall position in the health care market, existing distribution channels and availability of capital to fund and pursue future opportunities.

Weaknesses – The value proposition of the providers in this segment has been focused on providing a consumer-based platform for “telemedicine,” or providing care to a patient not at the same location as the provider of care.  Solutions have been an extension of the videophone concept, and in some cases have included connectivity to blood pressure and blood oxygen measuring peripherals. The weaknesses in the execution of this approach include:

·   The market / product strategy has been as a tertiary complement to the core business, lacking focus on execution.

·   The business model has been hardware based, focusing on the product as a “part” of the primary hardware business.

·   Solutions have been limited to facilitating the moment of care, and do not capture or make data available for later assessment.

·   Products have been based on legacy technologies, lacking ease of use and rich functionality.

·   Revenue models have been based on sources outside of the primary economics of health care; federal and state funded grants, patient payer, and as a bundled component of a sponsoring product line or business.

Summary – We do not directly compete with the offerings in this segment.  The possible threat is based on the competitors’ reassessment of strategy in this market and the ability to fund and customize products.  If they follow past patterns, we believe that we would be a prime candidate for partner relationship or acquisition by one of these competitors to gain an immediate presence in a more viable business model.

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Current Consumer Peripheral Monitoring Device Providers

Overview – Competitors in this segment have specialized in the delivery of low cost diagnostic peripherals for measuring blood pressure, weight, pulse rate, blood sugar and activity.  Examples include:

·   A and D Medical

·   Telcare

Strengths – These competitors have refined the product requirements to meet the needs of the market.  Products are easy to use and accurately capture vitals and metrics.  In the past five years significant effort has been made to lower the cost of products as they compete more on cost rather than functionality or other benefits.

Weaknesses – These products continue to evolve as commodity offerings, differentiating on price rather than any other feature.  Solutions have been targeted on facilitating the moment of care, and lack complementing strategies to make data for later assessment.

Summary – Currently this segment provides us with some key partnerships.  They facilitate the means of capturing patient data with an easy to use, low cost offering.  While some devices have been innovative, the strategies continue to focus primarily on the manufacture and sale of hardware components.

Next Generation Monitoring Device Providers

Overview – The past five years have seen a proliferation of consumer-oriented devices to monitor individuals’ physical activity, sleep patterns and pulse rate.  The strategy of those in this segment has also been focused on integration with smartphones and other consumer devices.  Examples include:

·   Activity monitoring

o   MisFit

o   Striiv

o   Lark

·   Consumer vital signs monitoring

o   iHealth

o   Digifit

·   Sleep and diet monitoring

o   FitBit

Strengths – The rapid evolution of product and strategy has been fueled by the culture and investors that innovated the technology segment.  Companies such as Apple, Google, Frog Design and Stanford Research Institute (SRI) are directly or indirectly funding and leading efforts of innovation.  Designs are state-of-the-art and are focused on attracting use by consumers in daily activity.  The segment has a strong first adopter appeal.

Weaknesses – To date, the business models of the products in the segment have been an evolution of the products produced by traditional monitoring device companies, with one notable exception; products are not yet qualified for clinical data capture and are relegated to providing consumers with the most basic of physical monitoring data.  Providers in this segment have noted intentions to become more robust, capturing clinical data type and securing federal 510(k) medical device certification in future products.  It has also been forecasted by technology thought leaders that the segment strategy will fail unless it adds complementing user value and revenue opportunities.

Summary – Competitors in this segment are expected to become strategic partners for our business model as they evolve their ability to capture and transmit clinical data.  We expect to expand into strategic market segments complementing the strengths of these technologies, offering data analytics, and personal fitness planning and wellness management services.

Health / Insurance Data Service Providers

Overview – Health data informatics has become a strategic focus of health care providers and payer organizations over the past 30 years.  Aggregation, analytics, informatics and predictive modeling have enabled service providers to differentiate and better manage the process of health care.  Traditionally providers specialized in offering information or services based on a vertical focus of EHR patient data, geographic and regional health care information, or insurance claims processing data.  Examples include:

·   CareFX – recently acquired by Harris Healthcare

·   Medicity – acquired by Aetna

·   Certify Data Systems

·   Benefit Informatics

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Strengths – Data aggregation and utilization are core competencies of the companies in this segment.  Product and service offerings have been successfully marketed to insurance companies and health plan providers.

Weaknesses – Sources of the data driving the product strategy of these competitors is becoming increasingly available, forcing an evolution of the business model in two directions; to become a provider of advanced services (rather than data), or to be acquired by large insurance and care groups to mine that specific groups’ data.  While significant federal and state funding has driven the efforts to create regional health information organizations, projects have become graveyards for careers and future funding.  The fallout of this effort has had a significant impact on the viability of several major data services providers.

Summary – This segment presents us with direct competition and business opportunities.  Forced to rapidly evolve their strategies, competitors are recognizing the value of real-time and “prior to care event” data.  Increasing efforts are being made to facilitate data at the point of care and make that data available to the entire care and reimbursement cycle. Having the ability to capture and assess the data upstream of current offerings strategically differentiates our business, giving visibility to health risks in advance of change of condition and cost.  Partnering with leaders in this segment should enable us to further gain expertise in this field as well as complement our data repository. Having data of past care from these partners in combination with data of current patient conditions allows for extremely valuable predictive modeling and services.

Dependence on Major Customers and Vendor

During fiscal year 2014, we had two customers that accounted for 67% of total revenue. During fiscal year 2013, we had one customer that accounted for 44% of total revenue.  Although we are able to integrate and capture data from multiple devices, during the fiscal years 2014 and 2013 we purchased substantially all of our products and supplies from one vendor.  See Note 3 to the consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Intellectual Property

Trademarks.  We have registered certain of our trademarks with the United States Patent and Trademark Office, including ActiveCare®, ActiveOne®, and ActiveOne+®.  We also use certain trademarks, trade names, and logos that have not been registered.  We claim common law rights to these unregistered trademarks, trade names and logos.  We also own domain names, including www.activecare.com, for our primary trademarks and we claim ownership of certain unregistered copyrights of our website content.  We rely as well on a variety of property rights that we license from third parties as described below.

Patents.  We own 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.

Patent or Application No.	Country	Issue/Filing Date	Title of Patent
11/486,989	United States	Pending/ 7/14/2006	Remote Tracking Device and System and Method for Two-Way Voice Communication Between Device and a Monitoring Center
11/486,991	United States	Pending/ 7/14/2006	Remote Tracking System and Device with Variable Sampling
11/830,398	United States	Pending/ 7/30/2007	Methods for Establishing Emergency Communications Between a Communications Device and a Response Center
12/614,242	United States	Pending/ 11/6/2009	Systems and Devices for Emergency Tracking and Health Monitoring
61/827,454	United States	Pending/ 5/24/2013	System and Method for Identifying, Tracking and Treating Chronic Illness Using Real-time Biometric Data

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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	March 28, 2000	Panic Button Phone
6,636,732	United States	October 21, 2003	Emergency Phone with Single Button Activation
6,226,510	United States	May 1, 2001	Emergency Phone for Automatically Summoning Multiple Emergency Response Services
7,092,695	United States	August 15, 2006	Emergency Phone with Alternate Number Calling Capability
7,251,471	United States	July 31, 2007	Emergency Phone with Single Button Activation
We were granted worldwide, non-exclusive rights to patents and patent applications listed in the table below under a license agreement dated May 15, 2010.

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

Trade Secrets.  We own certain intellectual property, including trade secrets, which we seek to protect, in part, through confidentiality agreements with employees and other parties, although some employees who are involved in research and development activities have not entered into these agreements. Even where these agreements exist, there can be no assurance that these agreements will not be breached, that we would have adequate remedies for any breach, or that our trade secrets will not otherwise become known to or independently developed by competitors.

Regulatory Matters

The testing, manufacture, distribution, advertising and marketing of medical devices in the United States is subject to extensive regulation by federal, state and local governmental authorities, including the Food & Drug Administration (“FDA”).  Certain of our products may be subject to and required to receive regulatory clearances or approvals, as the case may be, before we may market them. Under United States law, a medical device is an article, which, among other things, is intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment or prevention of disease, in man or other animals (see Food, Drug & Cosmetic Act (the “Act”) § 201(h)).

Devices are subject to varying levels of regulatory control, the most comprehensive of which requires that a clinical evaluation be conducted before a device receives clearance or approval for commercial distribution. The FDA classifies medical devices into one of three classes. Class I devices are relatively simple and can be manufactured and distributed with general controls. Class II devices are somewhat more complex and require greater scrutiny. Class III devices are new and frequently help sustain life.  Examples of the varying levels of regulatory control are described in the following paragraphs.

In the United States, a company generally can obtain permission to distribute a new device in two ways – through a Section 510(k) premarket notification application (“510(k) submission”), or through a Section 515 premarket approval (“PMA”) application. The 510(k) submission applies to any device that is substantially equivalent to a “Predicate Device” (a device first marketed prior to May 28, 1976 or a device marketed after that date which was substantially equivalent to a pre-May 28, 1976 device). These devices are either Class I or Class II devices. Under the 510(k) submission process, the FDA will issue an order finding substantial equivalence to a Predicate Device and permitting commercial distribution of that device for its intended use. A 510(k) submission must provide information supporting its claim of substantial equivalence to the Predicate Device. The FDA permits certain low risk medical devices to be marketed without requiring the manufacturer to submit a premarket notification. In other instances, the FDA may not only require that a premarket notification be submitted, but also that such notification be accompanied by clinical data. If clinical data from human experiences are required to support the 510(k) submission, these data must be gathered in compliance with Integral Device Exemption (“IDE”) regulations for clinical trials performed in the United States. The FDA review process for premarket notifications submitted pursuant to section 510(k) should take about 90 days on average, but it can take substantially longer if the FDA has concerns. Furthermore, there is no guarantee that the FDA will “clear” the device for marketing, in which case the device cannot be distributed in the United States. There is no guarantee that the FDA will deem the device subject to the 510(k) process, as opposed to the more time-consuming, resource intensive and problematic process described below.

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We do not manufacture our own devices.  We have contracted with a third party to manufacture the device for us.  Manufacturers of medical devices are required to register with the FDA before they begin to manufacture devices for commercial distribution. As a result, any entity that manufactures products on our behalf will be subject to periodic inspection by the FDA for compliance with the FDA’s Quality System Regulation (“QSR”) requirements and other regulations. These regulations require us and our manufacturers to manufacture products and maintain documents in a prescribed manner with respect to design, manufacturing, testing and control activities. Further, we are required to comply with various FDA and other agency requirements for labeling and promotion. The Medical Device Reporting regulations require that we provide information to the FDA whenever there is evidence to reasonably suggest that a device may have caused or contributed to a death or serious injury or, if a malfunction were to occur, could cause or contribute to a death or serious injury. In addition, the FDA prohibits us from promoting a medical device for unapproved indications.

In the United States, Health Insurance Portability and Accountability Act (“HIPAA”) regulations require national standards for some types of electronic health information transactions and the data elements used in those transactions, security standards to ensure the integrity and confidentiality of health information and standards to protect the privacy of individually identifiable health information. Covered entities under HIPAA, which include health care organizations such as our clients, our employer clinic business model and our claims processing, transmission and submission services, are required to comply with the privacy standards, the transaction regulations and the security regulations. As a business associate of our clients who are covered entities, we are generally required by contract to comply with the HIPAA regulations as they pertain to handling of covered client data. However, the extension of these HIPAA obligations to business associates by law has created additional liability risks related to the privacy and security of individually identifiable health information.

Employees

As of September 30, 2014, we had 45 full-time and four part-time employees in the U.S.  None of these employees are represented by a labor union or subject to a collective bargaining agreement.  We have never experienced a work stoppage and our management believes that our relations with employees are good.

Additional Available Information

We maintain executive offices and principal facilities at 1365 West Business Park Drive, Orem, Utah, 84058.  Our telephone number is (877) 219-6050. We maintain a website at www.activecare.com. The information on our website should not be considered part of this report.  We make available, free of charge at our corporate website, copies of our annual reports filed under the Exchange Act with the United States Securities and Exchange Commission (“SEC”) on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and all amendments to these reports, as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act.  We also provide copies of our Forms 8-K, 10-K, 10-Q, proxy and annual report at no charge to investors upon request.

All reports filed with the SEC are available free of charge through the SEC website at www.sec.gov.  In addition, the public may read and copy materials we have filed with the SEC at the SEC’s public reference room located at 450 Fifth St., N.W., Washington, D.C. 20549.  

Item 1A.  Risk Factors  

We have identified the following important factors that could cause actual results to differ materially from those projected in any forward looking statements we may make from time to time.  We operate in a continually changing business environment in which new risk factors emerge from time to time.  We can neither predict these new risk factors, nor can we assess the impact, if any, of these new risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those projected in any forward-looking statement.  If any of these risks, or combination of risks, actually occur, our business, financial condition and results of operations could be seriously and materially harmed, and the trading price of our common stock could decline.

Investors should also be aware that while we do, from time to time, communicate with securities analysts, it is against our policy to disclose to them any material non-public information or other confidential commercial information.  Accordingly, stockholders should not assume that we agree with any statement or report issued by any analyst, regardless of the content of the statement or report.  Furthermore, we do not confirm financial forecasts or projections issued by others.  Thus, to the extent that reports issued by securities analysts contain any projections, forecasts, or opinions, such reports are not the responsibility of ActiveCare.

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Because of our history of accumulated deficits, recurring losses and negative cash flows from operating activities, we must improve profitability and may be required to obtain additional funding if we are to continue as a “going concern.”

We incurred negative cash flows from operating activities and recurring net losses in fiscal years 2014 and 2013.  We had negative working capital at the end of each of those years.  As of September 30, 2014 and 2013, our accumulated deficit was $78,327,447 and $64,817,684, respectively.  These factors raise substantial doubt about our ability to continue as a going concern. The financial statements included with this report do not include any adjustments that might result from the outcome of this uncertainty.  In order for us to remove substantial doubt about our ability to continue as a going concern, we must achieve profitability, generate positive cash flows from operating activities and obtain necessary debt or equity funding.  If we are unable to increase revenues or obtain additional financing, we will be unable to continue the development of our products and services and we may have to cease operations.

Our financial statements have been prepared on the assumption that we will continue as a going concern.  Our independent registered public accounting firm has issued its report dated January 13, 2015, which includes an explanatory paragraph stating that our recurring losses, among other things, raise substantial doubt about our ability to continue as a going concern.  It has been necessary to rely upon debt and the sale of our equity securities to sustain operations.  Our management anticipates that we may require additional capital over the next 12 months to fund ongoing operations.  There can be no guarantee that we will be able to obtain such funds, or obtain them on satisfactory terms, and that such funds would be sufficient.  If such additional funding is not obtained, we may be required to scale back or discontinue operations.

Our profitability depends upon achieving success in our future operations through implementing our business plan, increasing sales, and expanding our customer base, for which there can be no assurance given.

Profitability depends upon many factors, including the success of our sales program, our ability to identify and obtain the rights to additional products to add to our existing product line, expansion of our customer base, maintenance or reduction of expense levels and the success of our business activities.  We anticipate that we will generate operating income in the next 12 months.  Our ability to achieve profitable operations will depend on our success in developing and maintaining valuable product and monitoring solutions, sales strategies, and strategic partnerships.  There can be no assurance that we will be able to develop and maintain adequate resources to fund these goals.  If adequate funds are not available, we may be required to materially curtail or cease operations.

Our products are not based entirely on technology that is proprietary to us, which means that we do not have a technological advantage over our competitors, and that we must rely on the owners of the proprietary technology that is the basis for our products to protect that technology.  We have no control over such protection.

Our products utilize technology based in part on patents that have been licensed to us for use within our markets.  Our success in adding to our existing product line will depend on our ability to acquire or otherwise license competitive technologies and products and to operate without infringing the proprietary rights of others, both in the United States and internationally.  No assurance can be given that any licenses required from third parties will be made available on terms acceptable to us, or at all.  If we do not obtain such licenses, we could encounter delays in product introductions while we attempt to adopt alternate sources.  We could also find that the manufacture or sale of products requiring such licenses is not possible.  Litigation may be necessary to defend against claims of infringement, to protect trade secrets or know-how owned by us, or to determine the scope and validity of the proprietary rights of others.  Such litigation could have an adverse and material impact on us and on our operations.

Our products are subject to the risks and uncertainties associated with the protection of intellectual property and related proprietary rights. We believe that our success depends in part on our ability to obtain and enforce patents, maintain trade secrets and operate without infringing on the proprietary rights of others in the United States and in other countries.

We own or have license rights under several patents; we have also applied for several additional patents and those applications are awaiting action by the United States Patent Office. There is no assurance those patents will issue or that when they do issue they will include all of the claims currently included in the applications. Even if they do issue, those new patents and our existing patents must be protected against possible infringement. The enforcement of patent rights can be uncertain and involve complex legal and factual questions. The scope and enforceability of patent claims are not systematically predictable with absolute accuracy. The strength of our own patent rights depends, in part, upon the breadth and scope of protection provided by the patent and the validity of our patents, if any.

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We also rely on trade secrets laws to protect portions of our technology for which patent protection has not yet been pursued or is not believed to be appropriate or obtainable.

These laws may protect us against the unlawful or unpermitted disclosure of any information of a confidential and proprietary nature, including but not limited to our know-how, trade secrets, methods of operation, names and information relating to vendors or suppliers and customer names and addresses. We intend to protect this unpatentable and unpatented proprietary technology and processes, in addition to other confidential and proprietary information in part, by entering into confidentiality agreements with employees, collaborative partners, consultants and certain contractors. There can be no assurance that these agreements will not be breached, that we will have adequate remedies for any breach, or that our trade secrets and other confidential and proprietary information will not otherwise become known or be independently discovered or reverse-engineered by competitors.

Recent changes in insurance and health care laws have created uncertainty in the health care industry.

The Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act, each enacted in March 2010, generally known as the Health Care Reform Law, significantly expanded health insurance coverage to uninsured Americans and changed the way health care is financed by both governmental and private payers. We expect expansion of access to health insurance to increase the demand for our products and services, but other provisions of the Health Care Reform Law could affect us adversely. Additionally, further federal and state proposals for health care reform are likely. We cannot predict what further reform proposals, if any, will be adopted, when they may be adopted, or what impact they may have on us.

The collection, retention and disclosure of personal information and patient health information is regulated by law and subjects us and our business associates to potential liability for unauthorized disclosure and other use of such information.

State, federal and foreign laws, such as the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA), regulate the confidentiality of sensitive personal information and the circumstances under which such information may be released. These measures may govern the disclosure and use of personal and patient medical record information and may require users of such information to implement specified security measures, and to notify individuals in the event of privacy and security breaches. Evolving laws and regulations in this area could restrict the ability of our customers to obtain, use or disseminate patient information, or could require us to incur significant additional costs to re-design our products in a timely manner to reflect these legal requirements, either of which could have an adverse impact on our results of operations. Other health information standards, such as regulations under HIPAA, establish standards regarding electronic health data transmissions and transaction code set rules for specified electronic transactions, for example, transactions involving claims submissions to third-party payers. These also continue to evolve and are often unclear and difficult to apply. In addition, under the federal Health Information Technology for Economic and Clinical Health Act (HITECH Act), which was passed in 2009, some of our business that was previously only indirectly subject to federal HIPAA privacy and security rules became directly subject to such rules because we may serve as “business associates” to persons or entities that are subject to these rules. On January 17, 2013, the Office for Civil Rights of the Department of Health and Human Services released a final rule implementing the HITECH Act and making certain other changes to HIPAA privacy and security requirements. Compliance with the rule was required by September 23, 2013, and increased the requirements applicable to some of our business. Failure to maintain the confidentiality of sensitive personal information in accordance with the applicable regulatory requirements, or to abide by electronic health data transmission standards, could expose us to breach of contract claims, fines and penalties, costs for remediation and harm to our reputation.

Our industry is fragmented, and we experience intense competition from a variety of sources, many of which are better financed and better managed than we are.

We face, and will continue to face, competition in the Chronic Illness Monitoring market.  Many, if not most, of our competitors and potential competitors are much larger and consequently have greater access to capital.  Moreover, many of our competitors have far greater name recognition and experience in the Chronic Illness Monitoring industry.  There can be no assurance that competition from other companies will not render our products noncompetitive.

We are highly dependent on our executive officers and certain of our sales, technical and operations employees.

We depend heavily on our executive officers and certain sales, technical, and operations employees.  The loss of services of any of these individuals could impede the achievement of our objectives.  There can be no assurance that we will be able to attract and retain qualified executives, sales, or technical personnel on acceptable terms.

We rely on third parties to manufacture our product line.

We do not own or operate manufacturing facilities for the manufacture of our Chronic Illness Monitoring products.  Consequently, we are dependent on these contract manufacturers for the production of our products and will depend on third-party manufacturing resources to manufacture products we may add to our product line in the future.  During the fiscal years 2014 and 2013, we purchased substantially all of our products and supplies from one vendor. Although there are other vendors who manufacture similar products and supplies, our systems would need to be modified to accommodate those products and supplies. A change in suppliers could cause a delay in providing products and services to customers and a possible loss of sales.  In the event we are unable to obtain or retain third-party manufacturing, we will not be able to continue operations as they relate to the sale of products.

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From time to time, we may be subject to expensive claims relating to product liability law; our ability to insure against this risk is limited.

The use of any of our existing or potential products in clinical settings may expose us to liability claims. These claims could be made directly by persons who assert that inaccuracies or deficiencies in their test results were caused by defects in our products.  Alternatively, we could be exposed to liability indirectly by being named as a third-party defendant in actions brought against companies or persons who have purchased our products.  We have obtained limited product liability insurance coverage and we intend to expand our insurance coverage on an as needed basis as sales revenue increases.  However, insurance coverage is becoming increasingly expensive, and no assurance can be given that we will be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability.  There can also be no assurance that we will be able to obtain commercially reasonable product liability insurance for any products added to our product line in the future.  A successful product liability claim or series of claims brought against us could have a material adverse effect on our business, financial condition and results of operations.

Ineffective internal controls could impact our business and operating results.

Our internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud.  Even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements.  If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business and operating results may be harmed and we could fail to meet our financial reporting obligations.

Risks Related to Ownership of Our Common Stock

Concentration of ownership among our existing executive officers, directors and principal stockholders may prevent new investors from influencing significant corporate decisions.

Our executive officers, directors and principal stockholders own, in the aggregate, approximately 54% of our outstanding common stock.  In addition, certain of our officers and our directors have been granted warrants to purchase common stock and own convertible Series D and Series E preferred stock.  The exercise of such warrants and conversion of preferred stock might also result in substantial dilution to our existing stockholders.  As a result of the ownership of the shares currently held, their ownership and potential exercise of these options and preferred stock, these stockholders may be able to exercise significant control over matters requiring stockholder approval, including the election of directors, amendment of our certificate of incorporation and approval of significant corporate transactions and will have significant control over our management and policies.  The interests of these stockholders may not be consistent with the interests of all other stockholders.

This control or the potential for such control may have the effect of deterring hostile takeovers, delaying or preventing changes in control or changes in management, or limiting the ability of our other stockholders to approve transactions that they may deem to be in our best interests.

Penny stock regulations may impose certain restrictions on marketability of our securities.

The SEC has adopted regulations which generally define a “penny stock” to be any equity security that has a market price (as defined) of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions.  As a result, our common stock is subject to rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with their spouse).  For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser’s written consent to the transaction prior to the purchase.  Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the transaction, of a risk disclosure document mandated by the SEC relating to the penny stock market.  The broker-dealer must also disclose the commission payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market.  Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.  Consequently, the “penny stock” rules may restrict the ability of broker-dealers to sell our securities and may affect the ability of investors to sell our securities in the secondary market and the price at which such purchasers can sell any such securities. 

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Investors should be aware that, according to the SEC, the market for penny stocks has suffered in recent years from patterns of fraud and abuse.  Such patterns include:

•   Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;

•   Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;

•   “Boiler room” practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons;

•   Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and

•   The wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses.

Our management is aware of the abuses that have occurred historically in the penny stock market.

Our stock price may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the price you paid for them.

The market price of our common stock may fluctuate significantly in response to a number of factors, most of which we cannot control, including:

• Market conditions or trends in our industry or the economy as a whole and, in particular, in the retail sales environment;

• Timing of promotional events;

• Changes in key personnel;

• Entry into new markets;

• Announcements by us or our competitors of new product offerings or significant acquisitions;

• Actions by competitors;

• The level of expenses associated with new product development and marketing;

• Changes in operating performance and stock market valuations of competitors;

• The public’s response to press releases or other public announcements by us or third parties, including our filings with the SEC;

• The financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;

• Changes in financial estimates by any securities analysts who follow our common stock, our failure to meet these estimates or failure of those analysts to initiate or maintain coverage of our common stock;

• The development and sustainability of an active trading market for our common stock;

• Future sales of our common stock by our officers, directors and significant stockholders;

• Other events or factors, including those resulting from war, acts of terrorism, natural disasters or responses to these events; and

• Changes in accounting principles.

In addition, the stock markets have recently experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many retail companies.  In the past, stockholders in some companies have instituted securities class action litigation following periods of market volatility.  If we were involved in securities litigation, we could incur substantial costs and our resources, and the attention of management could be diverted from our business.

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Anti-takeover provisions in our charter documents and Delaware law might discourage or delay acquisition attempts.

Our certificate of incorporation and bylaws contain provisions that may make the acquisition of our Company more difficult without the approval of our Board of Directors. These provisions:

·   Authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without stockholder approval, and which may include super voting, special approval, dividend, or other rights or preferences superior to the rights of the holders of common stock; and

·   Establish advance notice requirements for nominations for elections to our Board of Directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.

These anti-takeover provisions and other provisions under Delaware law could discourage, delay, or prevent a transaction involving a change in control of our Company, even if doing so would benefit our stockholders. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire.

If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, our stock price and trading volume could decline.

Any future trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business.  We do not currently have and may never obtain research coverage by securities and industry analysts.  If no securities or industry analysts commence coverage of us, the trading price for our common stock would be negatively impacted.  If we obtain securities or industry analyst coverage and if one or more of the analysts who covers us downgrades our common stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline.  If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our common stock could decrease, which could cause our stock price and trading volume to decline.  

We do not expect to pay any cash dividends on our common stock for the foreseeable future.

The continued operation and expansion of our business will require substantial funding.  Accordingly, we do not anticipate that we will pay any cash dividends on shares of our common stock for the foreseeable future.  Any determination to pay dividends on the common stock in the future will be at the discretion of our Board of Directors and will depend upon results of operations, financial condition, contractual restrictions, including our senior secured credit facility and other indebtedness we may incur, restrictions imposed by applicable law and other factors our Board of Directors deems relevant.  No dividends may be paid on the common stock unless and until all accrued and unpaid dividends are paid on the preferred stock.  Accordingly, if you purchase or own shares of our common stock, realization of a gain on your investment will depend on the appreciation of the price of our common stock, which may never occur. Investors seeking cash dividends in the foreseeable future should not purchase our common stock.

Item 2.  Properties

We lease office facilities of approximately 17,350 square feet located at 1365 West Business Park Drive, Orem, Utah, 84058.  This lease expires in July 2018 and the monthly rent is approximately $24,500 subject to annual adjustments.

Management believes the facilities described above are adequate to accommodate presently expected growth and needs of our operations.

Item 3.  Legal Proceedings

We are not involved directly in any legal proceedings which management believes would have a material effect upon our business or financial condition, nor are any such material legal proceedings anticipated.

PART II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock has traded on the OTCQB under the symbol “ACAR.”  The following table sets forth the range of high and low market prices of our common stock as reported for the periods indicated.  The information is available online at http://finance.yahoo.com.  During the quarter ended June 30, 2013, we implemented a 10-for-1 reverse common stock split.  The data below have been retroactively adjusted to reflect the effects of the reverse stock split.

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Fiscal Year Ended September 30, 2013		High	Low
First Quarter	$	1.50	$	0.40
Second Quarter	$	2.80	$	0.80
Third Quarter	$	11.00	$	0.90
Fourth Quarter	$	1.62	$	0.66
Fiscal Year Ended September 30, 2014		High	Low
First Quarter	$	1.45	$	0.80
Second Quarter	$	1.00	$	0.60
Third Quarter	$	0.75	$	0.35
Fourth Quarter	$	0.61	$	0.22

Holders

As of January 12, 2015, there were approximately 1,900 holders of record of our common stock and 47,264,183 shares of common stock outstanding. We have granted options and warrants for the purchase of approximately 10,992,000 shares of common stock.  We have issued and outstanding 70,070 shares of Series E preferred stock, 45,000 shares of Series D preferred stock, and 5,361 shares of Series F preferred stock.  There are two holders of Series D preferred stock, 11 holders of Series E preferred stock and eight holders of Series F preferred stock.  These shares of preferred stock are convertible into a total of 6,063,830 shares of common stock subject to the terms and conditions of their respective Designation of Rights and Preferences.

Dividends

Since incorporation, we have not declared any cash dividends on our common stock.  We do not anticipate declaring cash dividends on our common stock for the foreseeable future.   Our Series C and Series D preferred stock carry 8% annual dividend rates.  Our Series E preferred stock carries a 3.322% monthly dividend rate.  Our Series F preferred stock carries an 8% annual dividend rate until April 30, 2015, 16% from May 1, 2015 until July 31, 2015, 20% from August 1, 2015 until October 31, 2015, and 25% thereafter.

Dilution

The Board of Directors determines when and under what conditions and at what prices to issue stock.  In addition, a significant number of shares of common stock are reserved for issuance upon the exercise of stock options and warrants.  The issuance of any shares of common stock for any reason will result in dilution of the equity and voting interests of existing stockholders. 

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company, 59 Maiden Lane, Plaza Level, New York, NY 11219.

Equity Compensation Plans

Under management agreements in fiscal years 2012, 2013 and 2014, we granted our former Chief Executive Officers, former directors, and former and current officers equity compensation in the form of restricted stock and warrants for the purchase of common stock.  The following table summarizes certain information concerning equity plan awards outstanding as of September 30, 2014.

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Equity Compensation Plan Information

	Number of  securities to be issued upon  exercise of  outstanding options, warrants,  and rights			Weighted -average exercise  price of outstanding options, warrants, and rights		Number of securities remaining available for future issuance  under equity  compensation plans  (excluding securities reflected in the first column)
Plan Category(1)	(#)			($)		(#)
Equity compensation plans approved by security holders		-		$	-		-
Equity compensation plansnot approved by security holders		1,946,487			0.65		-
Totals		1,946,487	(1)	$	0.65		-
_____
(1)   Includes 786,487 shares of common stock issuable upon exercise of outstanding warrants granted to our former chief executive officers, 1,045,000 shares of common stock issuable upon exercise of outstanding warrants granted to former members of our Board of Directors, and 115,000 shares of common stock issuable upon exercise of outstanding warrants granted to former officers.

Recent Sales of Unregistered Securities

The following discussion summarizes sales of our common stock and other equity securities without registration of the offer and sale of such securities under the Securities Act of 1933 (the “Securities Act”) in reliance upon exemptions from registration pursuant to rules and regulations promulgated under the Securities Act not previously reported by the Company.

During the three months ended September 30, 2014, we did not issue any shares of common or preferred stock without registration under the Securities Act.

Item 7.  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 is intended to help the reader better understand our Company, our operations and our present business environment.  This information is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements for the fiscal years ended September 30, 2014 and 2013 and the accompanying notes thereto contained in this report.

Restatement of Previously Issued Financial Statements

As discussed further in Note 2 to the “Notes to Consolidated Financial Statements” contained in Item 15 of this Form 10-K, we have previously restated our consolidated financial statements for the fiscal year ended September 30, 2013 on Form 10-K/A filed on November 10, 2014. Specifically, we restated our consolidated financial statements as the result of certain errors that existed in our previously filed consolidated financial statements related to the manner in which we recognized revenues for our Chronic Illness Monitoring segment.

The impact of these errors to the applicable line items in the consolidated financial statements is set forth in Note 2 of the “Notes to Consolidated Financial Statements”. The net impact of the restatement increased our net loss by approximately $1.5 million for the year ended September 30, 2013.

Key Business Indicators

In assessing the performance of our business, we consider a variety of performance and financial measures.  The key measures for determining how our business is performing are net sales, gross profit margin and selling, general and administrative expenses.

Net Revenues

Net revenues constitute gross revenues net of any returns and merchandise discounts.

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Gross Loss

Gross loss is equal to our net revenues minus our cost of revenues. Gross margin measures gross loss as a percentage of our net revenues.  Cost of revenues includes the direct costs of purchased merchandise, inventory allowances, commissions, distribution costs, freight costs and purchasing costs.

Our cost of revenues is substantially higher in higher volume quarters because cost of revenues generally increases as net revenues increase.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include administration, stock-based compensation (discussed below) and occupancy costs.  These expenses do not generally vary proportionately with net revenues.  As a result, selling, general and administrative expenses as a percentage of net sales are usually higher in lower volume quarters and lower in higher volume quarters.

Stock-based Compensation Expense

During fiscal year 2014, we granted 11,196,970 shares of common stock and 2,514,025 common stock purchase warrants to our employees and consultants.  Stock-based compensation expense for fiscal year 2014 was approximately $3,585,000. See “Critical Accounting Policies” below.

Fiscal Year 2014 Compared to Fiscal Year 2013

Revenues

Net revenues for fiscal year 2014 were $6,108,000 compared to $4,245,000 for fiscal year 2013, an increase of $1,863,000 or 44%.  The increase is due to sales to new and existing customers related to improving our solution and allocating more resources to the sales process.

Cost of Revenues

Cost of revenues for fiscal year 2014 was $6,438,000, compared to $3,323,000 for fiscal year 2013, an increase of $3,115,000.  The increase in cost of revenues is due to increased sales and a reserve for inventory obsolescence of $1,661,000.

Gross Loss

Gross loss for fiscal year 2014 was $330,000, compared to a gross profit for fiscal year 2013 of $922,000, a decrease of $1,252,000.  The decrease in gross profit resulted primarily from an increase in the reserve for inventory obsolescence offset, in part, by an increase in sales.  We expect gross profit to improve in fiscal year 2015 as we acquire more Chronic Illness Monitoring customers, retain existing customers and manage inventory.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for fiscal year 2014 were $9,800,000, compared to $8,752,000 for fiscal year 2013, an increase of $1,048,000, or 12%.  The increase in expenses incurred was primarily due to increases in payroll and related taxes of $741,000, employee and company insurance of $140,000 and stock-based compensation of $139,000, offset, in part, by a decrease in investor relations expenses of $285,000.

Research and Development Expenses

Research and development expenses for fiscal year 2014 were $215,000, compared to $605,000 for fiscal year 2013, a decrease of $390,000.  The decrease is due to the completion of certain Chronic Illness Monitoring platforms during fiscal year 2013.  We expect to continue investing in research and development as we develop new platforms for Chronic Illness Monitoring.

Gain on Derivatives Liability

Gain on derivatives liability for fiscal year 2014 was $373,000, compared to a loss on derivatives liability of $333,000 for fiscal year 2013.  The derivatives liability recorded as of September 30, 2014 relates to a variable conversion feature for the Series F preferred stock related to a potential milestone adjustment.  Derivatives liabilities recorded as of September 30, 2013 include convertible debt instruments with variable conversion elements.  The derivatives liability as of September 30, 2013 was eliminated due to the conversion of notes payable with variable conversion features.

Loss on Induced Conversion of Debt and Sale of Common Stock

During 2014 and 2013, we offered an induced conversion rate to all debt holders of $0.75 of debt per share of common stock, which was below the market price of the stock.  During the fiscal years ended September 30, 2014 and 2013, debt and accrued interest of approximately $541,000 and $10,004,000, respectively, were converted to shares of common stock.  During fiscal year 2014, debt and accrued interest due to related parties of approximately $1,786,000 were converted to shares of common stock at $0.60 of debt per share of common stock, which was below the market price of the stock.  We also offered the private placement of common stock to existing investors at $0.75 per share, which was below the market price.  The difference between the offered price and the market price of all common stock issued is recorded as a loss on induced conversion of debt and sale of common stock, and for the fiscal years ended September 30, 2014 and 2013 was approximately $114,000 and $9,356,000, respectively.  We believe this improved our balance sheet and positioned us to invest more resources in growing the Chronic Illness Monitoring business.

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Interest Expense

Interest expense for fiscal year 2014 was $1,936,000, compared to $5,584,000 for fiscal year 2013.  The decrease is due to the conversion of debt and accrued interest to equity during fiscal years 2014 and 2013 of $2,985,000 and $10,004,000, respectively.  The majority of debt was converted to shares of common stock as noted above in “Loss on Induced Conversion of Debt”.

Other Income and Expense

The loss on disposal of equipment for fiscal year 2014 was $42,000, compared to $200,000 for fiscal year 2013.  The disposals of assets during fiscal year 2013 were higher due to the move of our corporate headquarters to Orem, Utah.

Discontinued Operations

During December 2014, we sold substantially all of our customer contracts and equipment leased to customers associated with our CareServices segment.  Additional equipment in stock was sold to the buyer pursuant to a written invoice.  The purchase price included a cash receipt of $412,280 for the customer contracts and $66,458 for the equipment in stock.  In June 2013, we sold the net assets and operations of the reagents business segment of the Company to a third party for $184,000 in cash.  During fiscal years 2014 and 2013, we recognized a loss from discontinued operations of $1,453,000 and $3,184,000, respectively.

Net Loss

Net loss for fiscal year 2014 was $13,462,000, compared to $27,138,000 for fiscal year 2013 for the reasons described above.

Dividends on Preferred Stock

Dividends on preferred stock for fiscal year 2014 were $737,000, compared to $321,000 for fiscal year 2013.  The increase is due to additional dividends for Series F preferred stock which was issued during fiscal year 2014.

Liquidity and Capital Resources

Our primary sources of liquidity are the proceeds from the sale of our equity securities and debt.  We have not historically financed operations from cash flows from operating activities.  We anticipate that we will continue to seek funding to supplement revenues from the sale of our products and services through the sale of equity securities and debt until we achieve positive cash flows from operating activities.

Our cash balance as of September 30, 2014 was $197,000.  At that time, we had a working capital deficit of $6,010,799, compared to a working capital deficit of $4,758,000 as of September 30, 2013.  The decrease in working capital is primarily due to a decrease in inventory related to sales, an increase in the reserve for inventory obsolescence, a decrease in accounts receivable due to customer collections, and an increase in related-party accounts payable and accrued expenses, offset by a reduction to accounts payable due to vendor payments and a reduction in derivatives liability.

Operating activities in fiscal year 2014 used cash of $4,413,000, compared to $8,945,000 in fiscal year 2013.  The decrease in cash used in operating activities is due to the reduction in net loss, the collection of accounts receivable for sales in fiscal year 2013, and the use of existing inventory, offset, in part, by payments made on accounts payable.

Investing activities in fiscal year 2014 used cash of $99,000, compared to $296,000 in fiscal year 2013.  The decreased use of cash in investing activities is due to fewer purchases of property and equipment during fiscal year 2014.

Financing activities in fiscal year 2014 provided cash of $4,485,000, compared to $8,935,000 in fiscal year 2013. The decrease in cash provided from financing activities is due to the decrease in debt and sale of equity during fiscal year 2014.

We had an accumulated deficit as of September 30, 2014 of $78,327,000, compared to $64,818,000 as of September 30, 2013.  Our total stockholders’ deficit as of September 30, 2014 was $5,144,000 compared to $2,298,000 as of September 30, 2013.  These changes were primarily due to our net loss for fiscal year 2014, offset by the sale of Series F preferred stock and the conversion of debt to equity.

Going Concern

We incurred negative cash flows from operating activities and recurring net losses in fiscal years 2014 and 2013.  We had negative working capital and negative total equity, and had certain debt that was in default as of September 30, 2014 and 2013.  These factors, among others, raise substantial doubt about our ability to continue as a going concern. The financial statements included in this Form 10-K do not include any adjustments that might result from the outcome of this uncertainty.

In order for us to eliminate substantial doubt about our ability to continue as a going concern, we must achieve profitability, generate positive cash flows from operating activities and obtain necessary debt or equity funding.  Our management’s plans with respect to this uncertainty include raising additional capital by issuing debt or equity securities and increasing the sales of our products and services.  There can be no assurance that we will be able to raise sufficient additional capital or that revenues will increase rapidly enough to offset operating losses.  If we are unable to increase revenues or obtain additional financing, we will be unable to continue the development of our products and may have to cease operations.

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Off Balance Sheet Arrangements

We are not a party to any off balance sheet arrangements.

Impact of Inflation

Our results of operations and financial condition are presented based on historical cost.  While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe the effects of inflation, if any, on our results of operations and financial condition have been immaterial.

Recent Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 states that only disposals representing a strategic shift in operations that has, or will have, a major effect on an entity’s operations when any of the following occurs: The component of an entity or group of components of an entity is classified as held for sale, the component of an entity or group of components of an entity is disposed of by sale, or the component of an entity or group of components of an entity is disposed of other than by sale. ASU 2014-08 is effective for annual periods beginning on or after December 15, 2014.  We are currently assessing the impact, if any, of implementing this guidance on our consolidated financial position, results of operations and liquidity.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under US GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing US GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein. Early adoption is not permitted. We are currently assessing the impact, if any, of implementing this guidance on our financial position, results of operations and liquidity.

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This standard sets forth management’s responsibility to evaluate, each reporting period, whether there is substantial doubt about our ability to continue as a going concern, and if so, to provide related footnote disclosures. The standard is effective for annual reporting periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. We are currently assessing the impact, if any, of implementing this guidance and will incorporate it in our assessment of going concern.

In November 2014, the FASB issued ASU, 2014-16, Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity. The ASU clarifies how current guidance should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Specifically, the amendments clarify that an entity should consider all relevant terms and features, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of a host contract. The ASU is effective for fiscal years and interim periods beginning after December 15, 2015. We are currently assessing the impact, if any, of implementing this guidance on our consolidated financial position, results of operations and liquidity.

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 the consolidated results of operations or financial condition.

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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 as of the balance sheet dates and the reported amounts of revenues and expenses for the reporting periods. Actual results could differ from these estimates.

In May 2013, we effected a 10-for-1 reverse common stock split.  The consolidated financial statements and notes for all periods presented have been retroactively adjusted to reflect the reverse common stock split.

Fair Value of Financial Instruments

We measured the fair values of our assets and liabilities using the US GAAP hierarchy.  The carrying amounts reported in the consolidated balance sheets for cash, accounts receivable, accounts payable, and accrued liabilities approximate fair values due to the short-term nature and liquidity of these financial instruments. Derivative financial instruments are recorded at fair value based on current market pricing models. The carrying amounts reported for notes payable approximate fair value because the underlying instruments are at interest rates which approximate current market rates.

Concentrations of Credit Risk

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

In the normal course of business, we provide credit terms to our customers and require no collateral.  We perform ongoing credit evaluations of our customers’ financial condition.  We maintain an allowance for doubtful accounts receivable based upon management’s specific review and assessment of each account at the period end.

During fiscal year 2014, we had revenues from two significant customers which represented 67% of total revenues.  During fiscal year 2013, we had revenues from one significant customer which represented 44% of total revenues.  As of September 30, 2014 and 2013, accounts receivable from significant customers represented 80% and 82% of total accounts receivable, respectively.

During the fiscal years 2014 and 2013, we purchased substantially all of our products and supplies from one vendor.

Accounts Receivable

Accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts.  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.  Accounts receivable are written off when management determines the likelihood of collection is remote.  A receivable is considered to be past due if any portion of the receivable balance has not been received by the contractual payment date.  Interest is not charged on accounts receivable that are past due.

Inventory

Inventory is recorded at the lower of cost or market, cost being determined using the first-in, first-out (“FIFO”) method.  Inventory is for the Chronic Illness Monitoring segment and consists of diabetic supplies.  Inventory held by distributors is reported as inventory until the supplies are shipped to the end user by the distributor.  We estimate an inventory reserve for obsolescence and excessive quantities.  Due to competitive pressures and technological innovation, it is possible that estimates of net realizable values 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, which range between 3 and 7 years.  Leasehold improvements are amortized over the shorter of the estimated useful lives of the assets or the terms of the lease.  Equipment leased to customers is depreciated over the 3-year estimated useful lives of the related equipment, regardless of whether the equipment is leased to a customer or remaining in stock, and is recorded in cost of revenues for CareServices.  Expenditures for maintenance and repairs are expensed as incurred.  Upon the sale or disposal of property and equipment, any gains or losses are included in the results of operations.

Goodwill

Goodwill is reviewed for impairment annually or more frequently when an event occurs or circumstances change that indicate that the carrying value may not be recoverable.  Our annual testing date is September 30.  The identification and measurement of goodwill impairment involves the estimation of the fair value of our reporting units.  The estimates of fair value of reporting units are based on the best information available as of the date of the assessment, which primarily incorporate management assumptions about expected future cash flows.  Future cash flows can be affected by changes in industry or market conditions.  Goodwill was not impaired as of September 30, 2014 or 2013.

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Impairment of Long-Lived Assets

Purchased intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets, which range from two to twenty years.  Long-lived assets, including intangible assets with finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable.  Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition.  We impaired our CareServices customer contracts by $89,460 and patents by $408,332 as of September 30, 2014, which were recorded as part of discontinued operations related to the CareServices segment for the fiscal year ended September 30, 2014.  The impairment of the customer contracts is due to the sales price being lower than their net book value as of the date of sale.  The patents impaired were solely related to the CareServices segment that provide no future cash flows after the CareServices customer contracts and equipment leased to customers were sold in December 2014.  Our other long-lived assets were not impaired as of September 30, 2014.  No long-lived assets were impaired as of September 30, 2013.

Revenue Recognition

Revenues have historically been from three sources: (1) sales of Chronic Illness Monitoring services and supplies; (2) sales from CareServices; (3) sales of medical diagnostic stains from our Reagents segment.  The CareServices segment was sold in December 2014 and the Reagents segment was sold in June 2013.  Information regarding revenue recognition policies relating to the Chronic Illness Monitoring and CareServices business segments is contained in the following paragraphs.

Chronic Illness Monitoring

Chronic Illness Monitoring revenues are recognized when persuasive evidence of an arrangement exists, delivery of the product or service to the end user has occurred, prices are fixed or determinable and collection is reasonably assured.

We enter into agreements with insurance companies, disease management companies, third-party administrators, and self-insured companies (collectively, the customers) to lower medical expenses by distributing diabetic testing products and supplies to employees (end users) covered by their health plans or the health plans they manage.  Cash is due from the customer or the end user’s health plan as the products and supplies are deployed to the end user.  We also monitor the end user’s test results in real-time with our 24x7 CareCenter.  Customers who are billed separately for monitoring are obligated to pay as the service is performed and revenue is recognized ratably over the period of the contract.  The term of these contracts is generally one year and, unless terminated by either party, will automatically renew for another year.  Collection terms are net 30 days after claims are submitted.  There is no contingent revenue in these contracts.

We also enter into agreements with distributors who take title to products and distribute those products to the end user.  Delivery is considered to occur when the supplies are delivered by the distributor to the end user.  Cash is due from the distributor, the customer or the end user’s health plan as initial products are deployed to the end user.  Subsequent sales (resupplies) are shipped directly from us to the end user and cash is due from the customer or the end user’s health plan.

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

Multiple-Element Arrangements

We evaluate each element in a multiple-element arrangement to determine whether it represents a separate unit of accounting. In order to account for elements in a multiple-element arrangement as separate units of accounting, the deliverables must have stand-alone value upon delivery.  In determining whether monitoring services have stand-alone value, the nature of our monitoring services, whether we sell supplies to new customers without monitoring services, and availability of monitoring services from the other vendors is considered.

During the three months ended June 30, 2014, we began to provide enhanced monitoring services to a key customer, which pays a separating monthly monitoring fee.

When multiple deliverables included in an arrangement are separable into different units of accounting, the arrangement consideration is allocated to the identified separate units of accounting based on the relative selling prices. Multiple-element arrangements accounting guidance provides a hierarchy to use when determining the relative selling price for each unit of accounting. Vendor-specific objective evidence (VSOE) of selling price, based on the price at which the item is regularly sold by the vendor on a stand-alone basis, should be used if it exists. If VSOE of selling price is not available, third-party evidence (TPE) of selling price is used to establish the selling price if it exists. If VSOE of selling price and TPE of selling price are not available, then the best estimate of selling price (BESP) is to be used. During 2014, VSOE was established for the monitoring services we provide.  VSOE for supplies was previously established.  Therefore, total consideration under a multiple deliverable contract is allocated to supplies and monitoring through application of the relative fair value method.

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CareServices

“CareServices” include contracts in which we lease monitoring devices and provide monitoring services to end users.  We typically enter into contracts on a month-to-month basis with end users that use CareServices.  However, these contracts may be cancelled by either party at any time with 30-days notice.  Under a standard contract, the device and service become billable on the date the end user orders the device, and remains billable until the device is returned to the Company.  Revenue on devices is recognized at the end of each month the CareServices have been provided.  In those circumstances in which payment is received in advance, we record these payments as deferred revenue.

CareServices revenue is recognized when persuasive evidence of an arrangement exists, delivery of the device or service has occurred, prices are fixed or determinable and payment has occurred or 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 end users are included as a component of cost of revenues.  All CareServices sales are made with net 30-day payment terms.

Income Taxes

We recognize deferred income tax assets or liabilities for the expected future tax consequences of events that have been recognized in the financial statements or income tax returns.  Deferred income tax assets or liabilities are determined based upon the difference between the financial reporting bases and tax reporting bases of assets and liabilities using enacted tax rates expected to apply when the differences are expected to be settled or realized.  Deferred income tax assets are reviewed periodically for recoverability and valuation allowances are provided as necessary.  As of September 30, 2014, management has determined to provide a 100% allowance against deferred income tax assets as it is more likely than not these assets will not be realized.  Interest and penalties related to income tax liabilities, when incurred, are classified in interest expense and income tax provision, respectively.

Warrant Exercises

We issue common shares in connection with warrant exercises when we have received verification that the proceeds have been deposited and when we have received an exercise letter from the warrant holder.  We issue common shares in connection with note conversions after we verify the outstanding note balance and the eligibility of conversion, and have received a conversion letter from the lender.

Stock-Based Compensation

We measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award.  That cost is recognized in the statement of operations over the period during which the employee is required to provide service in exchange for the award – the requisite service period.  The grant-date fair values of the equity instruments are estimated using option-pricing models adjusted for the unique characteristics of those instruments.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Certain written and oral statements made by us in this report are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934 as amended (the Exchange Act).  Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and may contain words such as “believe,” “anticipate,” “expect,” “estimate,” “project,” or words or phrases of similar meaning.  In our reports and filings we may make forward looking statements regarding our expectations about future sales growth, future training and consulting sales activity, renewal of existing contracts, anticipated expenses, the adequacy of existing capital resources, projected cost reduction and strategic initiatives, expected levels of depreciation and amortization expense, expectations regarding tangible and intangible asset valuation expenses, future compliance with the terms and conditions of our debt obligations, the expected repayment of our liabilities in future periods, expectations regarding income tax expenses as well as tax assets and credits and the amount of cash expected to be paid for income taxes, estimated capital expenditures, and cash flow estimates used to determine the fair value of long-lived assets.  These, and other forward-looking statements, are subject to certain risks and uncertainties that may cause actual results to differ materially from the forward-looking statements.  These risks and uncertainties are disclosed from time to time in reports filed by us with the SEC, including reports on Forms 8-K, 10-Q, and 10-K.  Such risks and uncertainties include, but are not limited to, the matters discussed in Item 1A of this annual report on Form 10-K for the fiscal year ended September 30, 2014, entitled “Risk Factors.”  

The risks included here are not exhaustive.  Other sections of this report may include additional factors that could adversely affect our business and financial performance.  Moreover, we operate in a very competitive and rapidly changing environment.  New risk factors may emerge and it is not possible for our management to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any single factor, or combination of factors, may cause actual results to differ materially from those contained in forward-looking statements.  Given these risks and uncertainties, investors should not rely on forward-looking statements as a prediction of actual results.

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The market price of our common stock has been and may remain volatile.  In addition, the stock markets in general have experienced increased volatility.  Factors such as quarter-to-quarter variations in revenues and earnings or losses and our failure to meet expectations could have a significant impact on the market price of our common stock.  In addition, the price of our common stock can change for reasons unrelated to our performance.  Due to our low market capitalization, the price of our common stock may also be affected by conditions such as a lack of analyst coverage and fewer potential investors.

Forward-looking statements are based on management’s expectations as of the date made, and we do not undertake any responsibility to update any of these statements in the future except as required by law.  Actual future performance and results will differ and may differ materially from that contained in or suggested by forward-looking statements as a result of the factors set forth in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in our filings with the SEC.

Item 8.  Financial Statements and Supplementary Data

The consolidated financial statements are included beginning on page F-1 of this report:

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

During the years ended September 30, 2014 and 2013, there were no: (i) disagreements with our independent registered public accounting firm on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to such firm’s satisfaction, would have caused the independent registered public accounting firm to make reference to the subject matter thereof in connection with their reports for such years; or (ii) reportable events, as described under Item 304(a)(1)(v) of Regulation S-K, except for the material weaknesses noted in Item 9A.

Item 9A.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our former Chief Executive Officer, interim Chief Executive Officer, and 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 Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, the former Chief Executive Officer, interim Chief Executive Officer, and Chief Financial Officer concluded that, as of September 30, 2014, our disclosure controls and procedures were not effective.  During the audit process, we identified material weaknesses discussed below in the Report of Management on Internal Control over Financial Reporting.

Report of Management on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:

(i)	pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
(ii)	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in 2013 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.

In the course of management's assessment, it identified the following material weaknesses in internal control over financial reporting:

·   Ineffective controls over the evaluation of distributor contracts for revenue recognition

·   Ineffective controls over the review and approval of manual journal entries

·   Ineffective controls over segregation of access to the accounting information system

·   Ineffective controls over inventory records

We did not maintain an effective financial reporting process to prepare financial statements in accordance with U.S. generally accepted accounting principles. Specifically, we initially failed to appropriately account for and disclose the recognition of revenue related to Chronic Illness Monitoring distributor contracts.  We restated our financial statements as a result of these issues.

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. Our management, audit committee, and directors will continue to work to ensure that our controls and procedures become adequate and effective.

This annual report on Form 10-K does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to the rules of the SEC that permit the Company to provide only management’s report in this annual report Form 10-K.

Changes in Internal Control over Financial Reporting

During fiscal year 2014, we hired additional finance and accounting personnel to improve internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act).

Inherent Limitations on the Effectiveness of Internal Controls

The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to completely eliminate misconduct. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

Item 9B.  Other Information

None.

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PART III

Item 10.  Directors, Executive Officers and Corporate Governance

Set forth below are the name, age, position and a description of the business experience of each of our executive officers, directors and other key employees as of September 30, 2014.

Name	Age	Position
David G. Derrick	62	Executive Chairman (Director)
Jeffrey Peterson	37	Director and Vice President of Finance
Robert J. Welgos	76	Director
Michael Z. Jones	52	President and Interim Chief Executive Officer
Marc C Bratsman	37	Chief Financial Officer, Secretary-Treasurer
Darrell Meador	51	President of Sales

David G. Derrick – Executive Chairman (Director)

Mr. Derrick has been the Chairman of our Board of Directors since July 2012 and was our Chief Executive Officer from July 2012 through September 2014.  From February 2001 through 2011, Mr. Derrick was the Chairman and Chief Executive Officer of SecureAlert, our former parent corporation.  Prior to joining SecureAlert, Mr. Derrick occupied directorship and management positions in other companies.  From 1979 to 1982, Mr. Derrick was a faculty member at the University of Utah, College of Business.  Mr. Derrick graduated from the University of Utah with a Bachelor of Arts degree in Economics and a Masters in Business Administration degree with an emphasis in Finance.  Our Board of Directors believes Mr. Derrick’s long association with our business and its development and his long support of the Company uniquely qualify him to serve as our Executive Chairman.

Jeffrey Peterson – Director and Vice President of Finance

Mr. Peterson has been our Vice President of Finance since July 2012 and joined our Board of Directors in May 2014.  He has been involved in numerous early stage ventures in the public and private sectors, with an emphasis in healthcare and technology while assisting such companies in advisory and investment initiatives.  Mr. Peterson served in various capacities within ActiveCare from July 2011 until July 2012.  From January 2010 until July 2012, he was the Director of Investor Relations for SecureAlert.  Prior to SecureAlert, Mr. Peterson was a co-owner of a stock brokerage firm in Utah, where his roles included broker, market maker, communications officer, while holding the numerous FINRA security licenses.  He graduated from the University of Utah with a Bachelor of Arts Degree in Finance and Business Administration and is a founding member of the University Venture Fund.  Mr. Peterson also currently holds board observatory seats with Juneau Biosciences and CoNextions Medical.

Robert J. Welgos – Director

Mr. Welgos joined our Board of Directors in June 2009.  He has a Bachelor of Science in engineering from the Newark College of Engineering (1962), and worked for 38 years with Allied Signal Corp (now Honeywell International), in various technical department management positions, including being responsible for operations of Customer Technical Service Dept., Design Engineering, Testing Laboratories, and Process Laboratories.  He also served as the Manager, North American Distributor Sales and Director of International Operations, where he established distribution networks throughout the Pacific Rim and South America.  During this period, he was instrumental in the creation of joint ventures with Lucky Goldstar in Korea and Japan Synthetic Rubber in Japan.  Mr. Welgos retired from Allied Signal Corp in 2000.  Mr. Welgos is the Chairman of our board’s Audit Committee.  Among other things, Mr. Welgos’ education and extensive experience in the industries described above qualify him to advise management in our research and development agenda and customer service solutions.  In addition, his experience in Asia is important as we source our products and manufacturing.

Michael Z. Jones – President and Interim Chief Executive Officer

Mr. Jones joined us in August 2012, was named President in April 2014 and was named Interim Chief Executive Officer in September 2014.  He founded a medical technology company in 2007, filing several patents in the field of video collaboration as a tool for delivery of medical care.  Mr. Jones led in the advancement of medical collaboration and the utilization of informatics technologies for the treatment of obesity and diabetes.  Mr. Jones was previously Executive Vice President of Sales and Marketing and has led numerous sales and operations organizations during his career.  A published author and contributor to periodicals and industry publications, Mr. Jones graduated summa cum laude from the University of Utah with a Bachelor of Arts in English.  He serves on the board of directors of the National Alliance on Mental Illness for the State of Utah.  He is the Company’s principal executive officer.

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Marc C Bratsman – Secretary, Treasurer and Chief Financial Officer

Mr. Bratsman joined us as Director of Accounting in August 2013 and became Secretary, Treasurer and Chief Financial Officer in May 2014.  He spent nine years of his career in the Seattle office of Grant Thornton with experience auditing companies in both the public and private sectors.  He left Grant Thornton as a Senior Audit Manager in October 2011 and moved to Utah to work as the Chief Financial Officer of a vertically integrated e-Commerce company with 110 employees.  Mr. Bratsman received a Masters of Accounting from Brigham Young University and is a Certified Public Accountant in the State of Washington.  He is the Company’s principal finance and accounting officer.

Darrell Meador – President of Sales

Mr. Meador joined us as President of Sales in March 2012 and has spent the last 15 years involved in healthcare technology and new business initiatives.  He was one of the founders of 4G Biometrics, the predecessor of ActiveCare Biometrics and was previously the Vice-President of Marketing and Sales for a leader in the healthcare monitoring industry and started and built their telehealth business segment.  Mr. Meador served as the President for an innovative managed care organization focused on diabetes for five years and was the founder and President of a start-up consulting firm specializing in technology, management and education for healthcare and related companies for two years. He was also the co-founder and President of a provider of distance learning and communication services to the healthcare industry for seven years.  Mr. Meador received his Bachelor or Arts Degree from the University of North Texas in 1986 and was an Academic All-American at Panola Junior College while on a baseball scholarship.

Compensatory Arrangement with Executive Chairman

On July 12, 2012, we entered into a written Employment Agreement containing compensation and other terms related to David G. Derrick’s appointment as our Chief Executive Officer and Executive Chairman of the Board of Directors.  The term of the Employment Agreement was two years and expired on July 12, 2014.  Mr. Derrick does not currently have an employment agreement.

The compensation payable to Mr. Derrick under the Employment Agreement included a base salary of $300,000 per year plus $15,000 of business expense reimbursement per month.  In March 2014, Mr. Derrick forfeited the expense reimbursement in exchange for the reduction of the exercise price on options to purchase 584,100 shares of common stock from $1.00 to $0.00.  Beginning in May 2014, Mr. Derrick opted to have 100% of his base salary paid in stock.  During fiscal year 2013, we also granted Mr. Derrick 80,000 Series D preferred shares as a bonus and we recognized $320,000 of compensation expense due to the vesting of the Series D preferred stock during fiscal year 2013.  The Employment Agreement also included the grant of an option to purchase 1,000,000 shares common stock at an exercise price of $1.00 per share, vesting at the rate of 100,000 shares for every 5,000 members added by the Company during Mr. Derrick’s employment by the Company.  During fiscal year 2013, $782,885 was recorded as deferred compensation due to the issuance of the options.  During fiscal years 2014 and 2013, $122,745 and $660,140 was recognized as compensation expense, respectively.  During fiscal year 2013, we also granted Mr. Derrick a $350,000 bonus for services for fiscal years 2013 and 2014 to be used to exercise options.  We recognized $175,000 as compensation expense during each fiscal year in connection with this bonus.  During fiscal year 2014, we granted 110,000 shares of common stock to Mr. Derrick with a fair value of $52,800 in lieu of base salary payment and accrued 275,000 shares of common stock with a fair value of $66,000 in lieu of base salary.  We also granted Mr. Derrick 5,000,000 shares of common stock with a value of $2,400,000 that was recorded as deferred compensation that will vest over two years, of which $300,000 was recognized as compensation expense in fiscal year 2014.  We also revalued options to purchase 150,000 shares of common stock and recognized an additional $7,368 as compensation expense during fiscal year 2014.

Mr. Derrick resigned his position as Chief Executive Officer effective September 30, 2014.  Mr. Derrick accepted the Board of Directors’ request to continue as our Executive Chairman of our Board of Directors.   Mr. Derrick will continue to receive his existing compensation arrangements during his appointment as Executive Chairman.  Our President, Michael Z. Jones, was appointed interim Chief Executive Officer.  Mr. Jones does not have an employment agreement.  His base salary is $180,000 per year and was granted 290,000 shares of common stock for his appointment subsequent to fiscal year 2014.  The shares vest evenly each quarter through fiscal years 2015 and 2016.

Director Compensation

The table below summarizes the compensation we paid to our outside directors for their services as directors for the fiscal year ended September 30, 2014.

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	Fees Earned  or Paid in Cash		Stock Awards		Option Awards		Non-Equity  Incentive Plan  Compensation		Change in  Pension Value  and Nonqualified  Deferred  Compensation  Earnings		All Other Compensation		Total
Name	($)		($)		($)		($)		($)		($)		($)
(a)	(b)		(c)		(d)		(e)		(f)		(g)		(h)
David G. Derrick (1)		-		-		-		-		-		-		-
Robert J. Welgos (2)		-	$	90,746		-		-		-		-	$	90,746
Jeffrey Peterson (3)		-		-		-		-		-		-		-
William K. Martin (4)		-		-	$	433,166		-		-		-	$	433,166
James G. Carter (5)		-		-		-		-		-		-		-
Jack Johnson (6)		-		-		-		-		-		-		-

(1)	Mr. Derrick is former Chief Executive Officer and current Executive Chairman of the Board of Directors.  His compensation for the fiscal year ended September 30, 2014 is disclosed in the Summary Compensation Table, below.  Mr. Derrick did not receive additional compensation for his service on the Board of Directors.
(2)	Mr. Welgos received 100,000 shares of common stock for special projects and the exercise price of previously granted options to purchase 15,000 shares of common stock was modified from $1.00 per share to $0 per share for services, which was converted into shares of common stock.
(3)	Mr. Peterson is Vice President of Finance and was appointed a member of the Board of Directors in April 2014.  His compensation for the fiscal year ended September 30, 2014 is disclosed in the Summary Compensation Table, below.  Mr. Peterson did not receive additional compensation for his service on the Board of Directors.
(4)	Mr. Martin received options to purchase 1,000,000 shares of common stock at $0.50 per share for service.  The options vest as expected milestones are reached.  Mr. Martin resigned his position in July 2014.
(5)	Mr. Carter did not receive any compensation during the fiscal year ended September 30, 2014.  Mr. Carter resigned his position in March 2014.
(6)	Mr. Johnson did not receive any compensation during the fiscal year ended September 30, 2014.  Mr. Johnson resigned his position in February 2014.

Item 11.  Executive Compensation

Section 162(m) Compliance

Section 162(m) of the Internal Revenue Code (“Code”), limits us to a deduction for federal income tax purposes of no more than $1,000,000 of compensation paid to certain executive officers in a taxable year. Compensation in excess of $1,000,000 may be deducted if it is “performance-based compensation” within the meaning of the Code.

Our Board of Directors has determined that the stock purchase warrants granted under management contracts as described above, with an exercise price at least equal to the fair value of our common stock on the date of grant should be treated as “performance-based compensation.”  Our Board of Directors believes that we should be able to continue to manage our executive compensation program for our Named Executive Officers, defined below, so as to preserve the related federal income tax deductions, although individual exceptions may occur.

Summary Compensation Table

The following table summarizes information concerning the compensation awarded to, earned by, or paid to, four of our top paid officers including our Chief Executive Officer (Principal Executive Officer) during fiscal years 2014 and 2013 (collectively, the “Named Executive Officers”) who were serving in such capacities as of September 30, 2014.

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Name and  principal position	Year ended September 30	Salary		Bonus		Stock awards		Option awards		Nonequity incentive plan compensation		Nonqualified  deferred  compensation earnings		All other  compensation		Total
		($)		($)		($)		($)		($)		($)		($)		($)
(a)	(b)	(c)		(d)		(e)		(f)		(g)		(h)		(i)		(j)
Michael Jones,	2014	$	158,918		-	$	42,016		-		-		-	$	25,654	$	226,588
PEO	2013	$	180,000		-		-		-		-		-	$	26,944	$	206,944
David G. Derrick,	2014	$	175,000		-	$	418,800	$	440,016		-		-	$	31,150	$	1,064,966
Executive Chairman	2013	$	300,000		-	$	1,010,140		-		-		-	$	33,343	$	1,343,483
Jeffery Peterson	2014	$	114,450		-	$	424,190	$	5,165		-		-		-	$	543,805
Vice President of Finance	2013	$	125,800		-	$	685,378		-		-		-		-	$	811,178
Darrell Meador,	2014	$	158,918		-	$	129,791	$	109,138		-		-	$	25,683	$	423,530
President of Sales	2013	$	180,000		-	$	282,299		-		-		-	$	24,071	$	486,370

(1) Column (i) includes long-term care insurance and other personal benefits. The amounts included in that column, representing premiums paid by us for the applicable insurance policies, include the following:  

	Year ended  September 30	Health Insurance		Dental, Vision, & Term  Life Insurance
Michael Jones,	2014	$	24,897	$	757
PEO	2013	$	26,144	$	800
David G. Derrick,	2014	$	29,712	$	1,438
Executive Chairman	2013	$	31,937	$	1,406
Darrell Meador,	2014	$	24,916	$	767
President of Sales	2013	$	23,342	$	729

(2)

All amounts except those reported in column (c) and column (i) are non-cash amounts and represent stock or option grants.

(3)

Amounts in column (e) represent non-cash compensation expense of stock grants based on the market value of the stock on the grant date. During fiscal year 2014, we granted shares of common stock as compensation for past and future service.  The schedule below includes stock granted during fiscal year 2014, the accrual of stock granted subsequent to September 30, 2014 for fiscal year 2014 services and amortization of stock granted in prior fiscal years.  The granted stock does not include stock quantities, values or deferred balances for accrued amounts or stock granted in prior years being amortized during fiscal year 2014.

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	Stock Granted		Value of granted stock		Amount deferred		Amount recognized		Accrual of stock  granted subsequent  to fiscal year end		Amortization of  past deferrals		Total stock awards
Michael Jones,		381,450	$	183,096	$	151,200	$	31,896	$	10,120	$	-	$	42,016
PEO
David G. Derrick,		5,110,000	$	2,452,800	$	2,100,000	$	352,800	$	66,000	$	-	$	418,800
Executive Chairman
Jeffery Peterson		4,072,334	$	1,954,720	$	1,710,380	$	244,340	$	179,850	$	-	$	424,190
Vice President of Finance
Darrell Meador,		21,450	$	10,296	$	-	$	10,296	$	10,120	$	109,375	$	129,791
President of Sales

	Of the shares issued to Mr. Jones, 21,450 shares were issued in lieu of salary and 360,000 shares were issued for continued service which vest quarterly over two years. Of the shares issued to Mr. Derrick, 110,000 shares were issued in lieu of salary and 5,000,000 shares were issued for continued service which, vest quarterly over two years. Of the shares issued to Mr. Peterson, 76,334 shares were issued in lieu of salary, which vest quarterly over two years, and 3,996,000 shares were issued for continued service, which also vest quarterly over two years. Of the shares issued to Mr. Meador, 21,450 shares were issued in lieu of salary.
	During the fiscal year ended September 30, 2013, we granted Mr. Derrick non-cash compensation as described above. During fiscal year 2013, we granted Mr. Peterson 115,717 shares of Series D preferred stock for a bonus and service provided valued at $685,378, and during fiscal year 2013, we granted Mr. Meador options to purchase 433,333 shares of common stock at $1.00 per share associated with the 4G acquisition. We recorded the option valued at $382,388 as deferred compensation, $282,299 was recognized as compensation expense. The remaining value of the option will be amortized at a rate of 43,333 shares for every 5,000 members added. During fiscal year 2013, we also granted 150,000 shares of common stock to Mr. Meador for extending his employment agreement to fiscal year 2015, $187,500 of value was recorded to deferred compensation. The value will be amortized over fiscal year 2015.
(4)	Amounts in column (f) represent non-cash compensation expense of options to purchase common stock granted based on the fair value calculated using a binomial option-pricing model.  During 2014, we did not grant any options to purchase shares of common stock to the officers named in this schedule.  The amount of fiscal year 2014 option awards includes additional amounts for repriced options in addition to their previous values and amortization recognized for options granted in prior years. During fiscal year 2014, we reduced the exercise price of Mr. Derrick’s options to purchase 584,100 shares of common stock from $1.00 per share to $0.00 per share and we recognized an additional $7,368 of compensation expense.  The options were exercised upon reduction.  We also reduced the exercise price of Mr. Derrick’s options to purchase 150,000 shares of common stock from $1.00 per share to $0.50 per share and we recognized an additional $7,368 of compensation expense.  We reduced the exercise price of Mr. Meador’s options to purchase 433,333 shares of common stock from $1.00 per share to $0.50 per share and we recognized an additional $20,946 of compensation expense and $672 of deferred compensation to be amortized in the same manner as the related options.  We reduced the exercise price of Mr. Peterson’s options to purchase 650,000 shares of common stock from $1.10 per share to $0.50 per share.  The options were exercised upon reduction and the 650,000 shares of common stock issued vest quarterly over two years. We recognized an additional $5,165 of compensation expense and $36,157 of deferred compensation to be amortized evenly over two years.

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Outstanding Equity Awards at Fiscal Year-End

The following table summarizes information regarding options and other equity awards owned by the Named Executive Officers as of September 30, 2014.  See footnotes following the table below:

	Number of Securities Underlying Unexercised Options (#)		Number of Securities Underlying Unexercised Options (#)		Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options		Option Exercise Price		Option Expiration	Number of Shares or Units of Stock That Have Not Vested		Market Value of Shares or Units of Stock That Have Not Vested		Equity Incentive Plan Awards: Number of Unearned Shares, Units, or Other Rights That Have Not Vested		Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units, or Other Rights That Have Not Vested
Name	Exercisable		Unexercisable		(#)		($)		Date	(#)		($)		(#)		($)
(a)	(b)		(c)		(d)		(e)		(f)	(g)		(h)		(i)		(j)
Michael Jones,		-		-		-	$	-			315,000	$	75,600		-	$	-
PEO
David G. Derrick,		-		150,000		-	$	1.00	7/11/2017		4,375,000	$	1,050,000		-	$	-
Executive Chairman
Jeffery Peterson
Vice President of Finance		-		-		-	$	-			4,132,042	$	991,690		-	$	-
Darrell Meador,
President of Sales		173,333		260,000		-	$	1.00	6/20/2017		-	$	-		-	$	-

(1)

Column (c) includes options to purchase shares of common stock with various vesting periods.  The options held by Mr. Derrick to purchase 150,000 shares of common stock vest at the rate of 100,000 shares for every 5,000 members added during Mr. Derrick’s employment by the Company.  The unexercisable options held by Mr. Meador to purchase 260,000 shares of common stock vest at the rate of 43,333 shares for every 5,000 members added.

(2)

Column (g) includes unvested shares of common stock that vest quarterly over a remaining period of 21 months and will be completely vested on June 24, 2016 or will vest immediately in the event of a change in control.

Options Exercised and Vested

During the fiscal year ended September 30, 2014, warrants for the purchase of 736,667 shares of common stock were vested and options for the purchase of 1,234,100 shares of common stock were exercised.

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Exchange Act requires our officers, directors, and persons who beneficially own more than 10 percent of our common stock to file reports of ownership and changes in ownership with the SEC.  Officers, directors, and greater-than-ten-percent shareholders are also required by the SEC to furnish us with copies of all Section 16(a) forms that they file.

Based solely upon a review of these forms that were furnished to us, we believe that all reports required to be filed by these individuals and persons under Section 16(a) were filed during fiscal year 2014 and that such filing were timely except the following, which were filed in December 2014 and which were late:

·   Mr. Derrick, our Executive Chairman, filed one Form 4 reporting 28 transactions and one amended Form 3

·   ADP Management Corporation, an entity controlled by Mr. Derrick, our Executive Chairman, filed one Form 3

·   Mr. Peterson, a director and our Vice President of Finance, filed one Form 4 reporting 18 transactions and one Form 3

·   Tyumen Holdings, LLC, an entity controlled by Mr. Peterson, a director and our Vice President of Finance, filed one Form 3

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·   Mr. Welgos, a director, filed one Form 4 reporting 12 transactions

·   Mr. Martin, a former director, filed one Form 4 reporting 14 transactions

·   Mr. Johnson, a former director, filed one Form 4 reporting six transactions

·   Mr. Jones, our interim Chief Executive Officer, filed one Form 4 reporting four transactions and one Form 3

·   Mr. Bratsman, our Chief Financial Officer, filed one Form 4 reporting three transactions

·   Mr. Acton, our former Chief Financial Officer, filed one Form 4 reporting 14 transactions

·   Mr. Meador, our President of Sales, filed one Form 4 reporting five transactions

·   Mr. Olson, our former Chief Technology Officer and Chief Operating Officer, filed one Form 4 reporting five transactions and one Form 3

Indemnification of Officers and Directors

Our certificate of incorporation provides that we will indemnify our directors and officers to the fullest extent permitted by the Delaware General Corporation Law, or DGCL.  We expect to obtain directors’ and officers’ liability insurance that insures such persons against the costs of defense, settlement or payment of a judgment under certain circumstances.

In addition, our certificate of incorporation provides that our directors will not be liable for monetary damages for breach of fiduciary duty.

We entered into indemnification agreements with each of our executive officers and directors.  The indemnification agreements provide the executive officers and directors with contractual rights to indemnification, expense advancement and reimbursement, to the fullest extent permitted under the DGCL.

There is no pending litigation or proceeding naming any of our directors or officers to which indemnification is being sought, and we are not aware of any pending or threatened litigation that may result in claims for indemnification by any director or officer.

As previously reported in our Form 10-Q filed August 19, 2014, our Executive Chairman, David G. Derrick, self-reported to the SEC certain related-party transactions and disclosure deficiencies at SecureAlert that occurred while Mr. Derrick was the Chief Executive Officer and a director of SecureAlert.  The adjustments were determined by the auditors of SecureAlert to be immaterial but were nonetheless reflected in SecureAlert’s quarterly report on Form 10-Q/A for the quarter ended March 31, 2012.

Subsequent to August 19, 2014, on November 24, 2014, Administrative Proceedings were filed against Mr. Derrick for alleged violations of the Securities Act of 1933, the Securities Exchange Act of 1934 and certain rules thereunder.  On December 8, 2014 a Joint Prehearing Conference Statement was submitted stipulating procedural dates.

We are not the subject of or otherwise involved in the SEC’s investigation.  The proceedings are not directed at us or any of our other employees or directors.  We cannot predict the outcome of the matter with the SEC.  At this time, we do not expect these proceedings to materially affect with our day-to-day operations.

Board of Directors

Election and Vacancies

Directors hold office until the next annual meeting of the stockholders and until their successors have been elected or appointed and duly qualified.  Vacancies on the board which are created by the retirement, resignation or removal of a director may be filled by the vote of the remaining members of the board, with such new director serving the remainder of the term or until his successor shall be elected and qualify.

Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following tables set forth information as of January 12, 2015 (the “Table Date”) by:

·   each person or group who is known by us to own beneficially more than 5% of our outstanding shares of common stock;

·   each of our Named Executive Officers serving as of such date;

·   each of our directors; and

·   all of the executive officers and directors as a group.

Beneficial ownership for the purposes of the following table is determined in accordance with the rules and regulations of the SEC.  These rules generally provide that a person is the beneficial owner of securities if such person has or shares the power to vote or direct the voting thereof, or to dispose or direct the disposition thereof or has the right to acquire such powers within 60 days.  Common stock subject to options that are currently exercisable or exercisable within 60 days of the table date is deemed to be outstanding and beneficially owned by the person holding the options.  These shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person. Percentage of beneficial ownership is based on 47,264,183 shares of common stock outstanding as of the table date.  Except as disclosed in the footnotes to this table and subject to applicable community property laws, we believe that each stockholder identified in the table possesses sole voting and investment power over all shares of common stock shown as beneficially owned by the stockholder.  Unless otherwise indicated in the table or footnotes below, the address for each beneficial owner is c/o ActiveCare, Inc., 1365 West Business Park Drive, Orem, Utah 84058.

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5% Stockholders
		Amount and Nature
		of Beneficial
Title of Class	Name and Address of Beneficial Owner	Ownership	Percent of Class
Common	Advance Technology Investors LLC (1)	4,961,778	10.42%
	154 Rock Hill Road
	Spring Valley, NY 10977
Executive Officers and Directors
		Amount and Nature
		of Beneficial
Title of Class	Name and Address of Beneficial Owner	Ownership	Percent of Class
Common	Jeffery Peterson (2)	12,524,907	26.47%
Common	David G. Derrick (3)	9,132,664	19.35%
Common	Michael Jones (4)	1,080,680	2.29%
Common	William K. Martin (5)	836,266	1.77%
Common	Marc C Bratsman (6)	690,692	1.46%
Common	Darrell Meador (7)	567,174	1.20%
Common	Robert J. Welgos (8)	269,403	0.57%
Common	James G. Carter (9)	199,736	0.42%
Common	Jack Johnson (10)	15,000	0.03%
All executive officers and directors as a group (9 persons)(11)		25,316,522	53.57%

 (1) Includes 4,511,778 shares of common stock, and options to purchase 450,000 shares of common stock, owned by Advanced Technology Investors LLC (“ATI”) and its related entity. By agreement, ATI may not vote or take delivery of common shares that would result in ATI becoming the beneficial owner of more than 9.99% of the issued and outstanding common stock of the Company at any given time.

(2) Includes 12,399,907 shares of common stock and 25,000 shares of Series D preferred stock, which are convertible to 125,000 shares of common stock, owned by Mr. Jeffrey Peterson, a director and our Vice President of Finance, and entities that are controlled by him.  Of the total shares of common stock owned or controlled by Mr. Peterson, 6,554,776 shares are held by Tyumen Holdings, LLC, 2,862,966 shares by Wynnman’s Hill, LLC, 2,566,386 shares by Bluestone Advisors, LLC, 239,259 shares by Keystone Partners, LLC, 156,250 shares by Rimrock Capital, LLC, and 20,270 shares by Banyan Investment Company, LLC.

 (3) Includes 9,132,664 shares of common stock owned by Mr. David G. Derrick, Executive Chairman of our Board of Directors, and entities that are controlled by him.  Of the total shares of common stock owned or controlled by Mr. Derrick, 9,090,908 shares are held by ADP Management Corporation, 37,006 shares by Purizer Corporation, and 4,750 shares by Mr. Derrick.

 (4) Includes 1,080,680 shares of common stock, owned by Mr. Michael Jones, our President and Interim Chief Executive Officer.

 (5) Includes 721,266 shares of common stock and options to purchase 115,000 shares of common stock owned by Mr. William K. Martin, a former member of our Board of Directors, and entities that are controlled by him.  Of the total shares of common stock owned or controlled by Mr. Martin, 582,888 shares are held by Zenith Holding Ltd and 138,378 shares by Mr. Martin.

 (6) Includes 690,692 shares of common stock owned by Mr. Marc C Bratsman, our Chief Financial Officer and Secretary-Treasurer.

 (7) Includes 393,841 shares of common stock and 173,333 warrants owned by Mr. Darrell Meador, our President of Sales.

 (8) Includes 269,403 shares of common stock owned by Mr. Robert J. Welgos, a member of our Board of Directors.

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 (9) Includes 184,736 shares of common stock and options to purchase 15,000 shares of common stock owned by Mr. James G. Carter, a former member of our Board of Directors.

(10) Includes 15,000 shares of common stock owned by Mr. Jack Johnson, a former member of our Board of Directors.

(11) Duplicate entries eliminated.

Item 13.  Certain Relationships and Related Transactions, and Director Independence

Related-Party Transactions

Related-Party Notes Payable

As of September 30, 2014, we owed $2,016,532 of notes payable to two of our officers, one of our board members, one of our former officers and one of our former board members, or entities controlled by each, with annual interest rates ranging from 12% to 18%.  Four entities controlled by Jeffrey Peterson, Vice President of Finance, Banyan Investment Company, LLC, Keystone Partners, LLC, The Mark and Nancy Peterson Foundation and Rimrock Capital, LLC, were owed notes payable totaling $1,639,500.  Michael Jones, interim Chief Executive Officer, was owed a note payable of $13,644.  An entity under control of David Derrick, Executive Chairman of the Board of Directors, ADP Management Corporation, was owed notes payable totaling $306,667.  Michael Acton, our former Chief Financial Officer, was owed a note payable of $30,000.  Bill Martin, a former director, was owed a note payable of $26,721.  During the fiscal year ended September 30, 2014, we also issued options to purchase 650,000 shares of common stock to related parties exercisable at a price of $1.10 per share, which were later reduced to an exercise price of $0.00 and exercised, and 168,630 shares of common stock to related parties with total value of $169,963 at the date of grant related to notes payable.

During fiscal year 2014, we repaid $1,137,166 of principal and $11,859 of interest on related-party notes payable to one of our officers and one of our former officers, or entities controlled or relatives thereof.  We paid five entities controlled by Jeffrey Peterson, Vice President of Finance, Wynnman’s Hill, LLC, Banyan Investment Company, LLC, Keystone Partners, LLC, The Mark and Nancy Peterson Foundation and Rimrock Capital, LLC, $717,166 of principal, $567,166 of which was loaned to us during the year, and $1,972 of interest.  We paid Michael Acton, our former Chief Financial Officer, and his spouse $420,000 of principal, $407,000 of which was loaned to us during the year, and $9,887 of interest.

As of September 30, 2013, we owed notes payable totaling $1,896,135 of related-party notes to four of our officers, or entities controlled by officers, and one of our board members, with annual interest rates ranging from 12% to 18%.  Two entities controlled by Jeffrey Peterson, Vice President of Finance, Wynnman’s Hill, LLC and Bluestone Advisors, LLC, were owed notes payable totaling $1,637,770 and all notes were repaid or converted to common stock subsequent to year end.  An entity under control of David Derrick, Executive Chairman of the Board of Directors, ADP Management Corporation, was owed a note payable of $175,000 and $160,000 was converted to common stock subsequent to year end.  Michael Acton, Chief Financial Officer, was owed a note payable of $43,000.  Bill Martin, former director, was owed a note payable of $26,721.  Michael Jones, interim Chief Executive Officer, was owed a note payable of $13,644.  During the fiscal year ended September 30, 2013, we also issued 341,000 warrants exercisable at a price of $0.10 per share and 80,000 shares of Series D preferred stock with total value of $347,130 at the date of grant related to notes payable.

Loan Conversion and Preferred Stock Conversion

During fiscal year 2014, we entered into loan conversion agreements with related parties.  We issued 3,197,119 shares of common stock for the conversion of notes payable representing principal and interest in the amount of $1,945,500.

During fiscal year 2014, we entered into Series D preferred stock conversion agreements with related parties.  We issued 4,391,667 shares of common stock for the conversion of 627,381 shares of Series D preferred stock.

Cash Advances

As of September 30, 2014, we owed $785,000 to three entities controlled by Jeffrey Peterson, our Vice President of Finance, Banyan Investment Company, LLC, Blackhawk Properties LLC and The Mark and Nancy Peterson Foundation, and $60,000 to an entity controlled by David Derrick, our Executive Chairman of the Board of Directors, ADP Management Corporation.  These amounts are recorded in accounts payable, related-party.

During fiscal year 2014, we received cash advances totaling $885,000 from three entities controlled by Jeffrey Peterson, our Vice President of Finance, and repaid $100,000 of the receipts.  We also received cash advances totaling $135,000 from an entity controlled by David Derrick, our Executive Chairman, and repaid $75,000 of the receipts.

Indemnification Agreements

We have entered into indemnification agreements with each of our current directors and executive officers. These agreements require us to indemnify these individuals to the fullest extent permitted under Delaware law against liabilities that may arise by reason of their service to us, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified. We also intend to enter into indemnification agreements with our future directors and executive officers.

32

Procedures for Related-Party Transactions

Under our code of business conduct and ethics adopted in June 2009, our employees, officers and directors are discouraged from entering into any transaction that may cause a conflict of interest for us.  In addition, they must report any potential conflict of interest, including related-party transactions, to their managers or our corporate counsel who then reviews and summarizes the proposed transaction for our audit committee.  Pursuant to its charter, our audit committee is required to then approve any related-party transactions, including those transactions involving our directors. In approving or rejecting such proposed transactions, the audit committee will be required to consider the relevant facts and circumstances available and deemed relevant to the audit committee, including the material terms of the transactions, risks, benefits, costs, availability of other comparable services or products and, if applicable, the impact on a director’s independence.  Our audit committee will approve only those transactions that, in light of known circumstances, are in, or are not inconsistent with, our best interests, as our audit committee determines in the good faith exercise of its discretion.  A copy of our code of business conduct and ethics and audit committee charter are available on our corporate website at www.activecare.com.

Corporate Governance and Director Independence

Board Composition

Our business and affairs are managed under the direction of our Board of Directors.  Our Board of Directors is comprised of three directors, one of which (Mr. Welgos) is independent within the meaning of the Nasdaq Marketplace Rules.  This means that the Board of Directors has determined that this director (1) is not an officer or employee of ActiveCare or its subsidiary and (2) has no direct or indirect relationship with ActiveCare that would interfere with the exercise of his independent judgment in carrying out the responsibilities of a director.  We have determined that it is in our best interest to have directors who would meet the requirements of being “independent” under the rules of the Nasdaq Stock Market.

Board Committees

Our Board of Directors has established an audit committee and a compensation committee.  The composition and responsibilities of each committee are described below.  Members serve on these committees until their resignation or until otherwise determined by our Board of Directors.  

Audit Committee

Our audit committee consists of one of independent director, Mr. Welgos.  Mr. Welgos serves as chair of the audit committee and is considered to be the financial expert on that committee.  Our Board of Directors and the Company plan to add additional independent directors to fill vacant positions on the audit committee.  Our audit committee has responsibility for, among other things:

·   selecting and hiring our independent registered public accounting firm, and approving the audit and non-audit services to be performed by and the fees to be paid to our independent registered public accounting firm;

·   evaluating the qualifications, performance and independence of our independent registered public accounting firm;

·   monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters;

·   reviewing the adequacy and effectiveness of our internal control policies and procedures;

·   discussing the scope and results of the audit with the independent registered public accounting firm and reviewing with management and the independent registered public accounting firm our interim and year-end operating results; and

·   preparing the audit committee report required by the SEC, to be included in our annual proxy statement.

As indicated above, our Board of Directors has affirmatively determined that Mr. Welgos meets the definition of “independent director” for purposes of serving on an audit committee under applicable SEC rules, and we intend to comply with these independence requirements within the time periods specified.  In addition, the Board of Directors has determined that Mr. Welgos meets the standards established by the SEC to qualify as a “financial expert” under Item 407 of Regulation S-K under the Securities Act.  Our Board of Directors has adopted a written charter for our audit committee, which is available on our corporate website at www.activecare.com.

33

Compensation Committee

Our compensation committee consists of two directors: Mr. Welgos, an independent director, and Mr. Peterson, who is also our Vice President of Finance.  Mr. Welgos serves as chair of the compensation committee.  Our Board of Directors and the Company plan to add additional independent directors to fill vacant positions on the compensation committee.  The compensation committee is responsible for, among other things:  

·   reviewing and approving compensation of our executive officers including annual base salary, annual incentive bonuses, specific goals, equity compensation, employment agreements, severance and change in control arrangements, and any other benefits, compensation or arrangements;

·   reviewing succession planning for our executive officers;

·   reviewing and recommending compensation goals, bonus and stock compensation criteria for our employees;

·   preparing the compensation committee report required by the SEC to be included in our annual proxy statement; and

·   administering, reviewing and making recommendations with respect to our equity compensation plans.

Our Board of Directors has adopted a written charter for our compensation committee, which is available on our corporate website at www.activecare.com.

Code of Business Conduct and Ethics

We have adopted a code of business conduct and ethics applicable to our principal executive, financial and accounting officers and all persons performing similar functions.  A copy of that code is available on our corporate website at www.activecare.com.  We expect that any amendments to such code, or any waivers of its requirements, will be disclosed on our website.

Meetings of the Board of Directors and Committees

The Board of Directors is elected by and is accountable to our stockholders.  The Board establishes policy and provides our strategic direction, oversight, and control.  The Board met four times during fiscal year 2014.  All directors attended 100% of the meetings of the Board and the Board committees of which they are members.  The Board performed acts by unanimous written consent in lieu of a meeting 10 times during fiscal year 2014.

Item 14.  Principal Accounting Fees and Services

Audit Related Fees, Tax Fees, Audit Related Fees, and All Other Fees

Audit services consist of the audit of our annual consolidated financial statements, and other services related to filings and registration statements filed by us and other pertinent matters.

During the years ended September 30, 2014 and 2013, Tanner LLC (“Tanner”) performed audit and audit related services including the audit of the annual consolidated financial statements of the Company and its subsidiaries for 2014 and 2013, reviews of the quarterly financial information and quarterly reports on Form 10-Q and current reports on Form 8-K.  Tanner did not perform any financial information systems design and implementation services for the Company.

Tanner incurred fees of $263,800 and $176,300 for audit services and $0 and $0 for audit-related services with respect to the years ended September 30, 2014 and 2013, respectively.

Auditor Independence

Our audit committee considered that the work done for us in fiscal year 2014 by Tanner was compatible with maintaining that firm’s independence.

Tanner has advised us that it has no direct or indirect financial interest in the Company or in any of its subsidiaries and that it has had, during the last three years, no connection with the Company or any of its subsidiaries, other than as independent auditors or in connection with certain other activities, as described above.

Report of the Audit Committee

The Audit Committee oversees the Company’s financial reporting process on behalf of the Board of Directors.  Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal control. The director who serves on the Audit Committee is independent for purposes of applicable SEC Rules.  The Audit Committee operates under a written charter that has been adopted by the Board of Directors.

34

We have reviewed and discussed with management and Tanner the audited financial statements for the year ended September 30, 2014. The Audit Committee has discussed with Tanner the matters that are required to be discussed under PCAOB standards. Tanner has provided to the Audit Committee the written disclosures and the letter required by applicable requirements of the PCAOB regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and the committee has discussed with Tanner that firm’s independence. The Audit Committee has concluded that Tanner is independent from the Company and its management.

Based on our review and discussions referred to above, we have recommended to the Board of Directors that the audited financial statements of the Company be included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2014, for filing with the Securities and Exchange Commission.

Respectfully submitted by the Audit Committee:

Robert J. Welgos, Chair

PART IV

Item 15.  Exhibits, Financial Statement Schedules

(a) The following documents are filed as part of this Form:

1. Financial Statements—all consolidated financial statements of the Company as set forth under Item 8, of this Form 10-K.

2. Financial Statement Schedules.    [N/A, because the required information is included in the Consolidated Financial Statements or Notes thereto, or is not applicable.]

3. Exhibits. The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the Commission: 

35

Exhibit No.	Title of Document
(3)(i)	Certificate of Designations of Preferences, Rights and Limitations of Series F Variable Rate Convertible Preferred Stock *
(10)(i)	Form of Securities Purchase Agreement, dated December 16, 2013 *
(10)(ii)	Form of Warrant to Purchase Common Stock *
(10)(iii)	Form of Exchange Agreement *
(10)(iv)	Form of Loan Conversion Agreement *
(10)(v)	Form of Preferred Stock Series C  and Series D Conversion Notice *
(10)(vi)	Form of Stock Purchase Warrant *
(10)(vii)	Employment Agreement with David Derrick, former Chief Executive Officer. *
(10)(viii)	Common Stock Purchase Warrant Agreement with David Derrick, former Chief Executive Officer.*
(10)(ix)	Office Lease Agreement between the Company and Countryview  Properties, LLC.*
(10)(x)	Director Jack Johnson’s resignation letter *
(10)(xi)	Form of Amendment Agreement for exhibit number (10)(viii) and (10)(ix) *
(10)(xii)	Information statement to amend articles of incorporation to increase authorized shares *
(10)(xiii)	Information statement reagarding departure and appointment of certain officers *
(10)(xiv)	Information statement reagarding departure and appointment of Chief Financial Officer *
(10)(xv)	Information statement reagarding departure of a director *
(10)(xvi)	Information statement reagarding departure and appointment of interim Chief Executive Officer *
(10)(xvii)	Form of Agreement for Purchase and Sale of Monitoring Accounts dated December 12, 2014*
(10)(xviii)	Form of Amended and Restated Certificate of Designation for exhibit number (3)(i)
(10)(xix)	Form of Dividend Agreement related to exhibit number (10)(xviii)
(31)(i)	Certifications of Interim Chief Executive (Principal Executive) Officer under Rule 13a-14(a)/15d-14(a)
(31)(ii)	Certifications of Chief Financial (Principal Financial and Accounting) Officer under Rule 13a-14(a)/15d-14(a)
(32)(i)	Certification of Interim Chief Executive Officer Pursuant to 18 U.S.C.Section 1350
(32)(ii)	Certification of Chief Financial Officer Pursuant to 18 U.S.C.Section 1350
* Previously filed.

36

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

	ActiveCare, Inc.
Date: January 13, 2015	By: /s/ Michael Z. Jones
	Michael Z. Jones, Interim Chief Executive Officer
	(Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Michael Z. Jones	Interim Chief Executive Officer	January 13, 2015
Michael Z. Jones	(Principal Executive Officer)
/s/ David G. Derrick	Director and Executive Chairman	January 13, 2015
David G. Derrick
/s/ Jeffrey Peterson
Jeffrey Peterson	Director and Vice President of Finance	January 13, 2015
/s/ Robert J. Welgos
Robert J. Welgos	Director	January 13, 2015
/s/ Marc C Bratsman	Chief Financial Officer
Marc C Bratsman	(principal financial officer)	January 13, 2015
	(principal accounting officer)

37

Index to Consolidated Financial Statements

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of September 30, 2014 and 2013	F-3
Consolidated Statements of Operations for the Years Ended September 30, 2014 and 2013	F-5
Consolidated Statements of Stockholders' Deficit for the Years Ended September 30, 2014 and 2013	F-6
Consolidated Statements of Cash Flows for the Years Ended September 30, 2014 and 2013	F-8
Notes to Consolidated Financial Statements	F-10

F - 1 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders of ActiveCare, Inc.

We have audited the accompanying consolidated balance sheets of ActiveCare, Inc. and subsidiaries (collectively, the Company) as of September 30, 2014 and 2013, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ActiveCare, Inc. and subsidiaries as of September 30, 2014 and 2013, and the results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the financial statements, the Company has recurring losses, negative cash flows from operating activities, negative working capital, negative total equity, and certain debt that is in default.  These conditions, among others, raise substantial doubt about its ability to continue as a going concern.  Management’s plans regarding these matters are also discussed in Note 1.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Tanner LLC

Salt Lake City, Utah

January 13, 2015

F - 2

ActiveCare, Inc.
Consolidated Balance Sheets
As of September 30, 2014 and 2013
	2014		2013
Assets
Current assets:
Cash	$	197,027	$	223,835
Accounts receivable, net		1,635,660		1,852,328
Inventory		1,649,320		4,677,526
Prepaid expenses and other		141,087		38,998
Assets of discontinued operations		712,403		-
Total current assets		4,335,497		6,792,687
Goodwill		825,894		825,894
Property and equipment, net		220,076		296,729
Deposits and other assets		29,594		106,950
Domain name, net		10,724		11,440
Customer contracts, net		-		57,220
Patents, net		-		-
Assets of discontinued operations		-		2,217,852
Total assets	$	5,421,785	$	10,308,772

See accompanying notes to consolidated financial statements.

F - 3

ActiveCare, Inc.
Consolidated Balance Sheets (continued)
As of September 30, 2014 and 2013
	2014			2013
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	4,549,451		$	6,621,234
Accounts payable, related-party		1,109,775			251,386
Accrued expenses		1,451,331			708,519
Notes payable, related-party		1,669,620			1,892,415
Current portion of notes payable		1,212,937			1,278,585
Dividends payable		246,738			3,471
Derivatives liability		106,444			795,151
Total current liabilities		10,346,296			11,550,761
Notes payable, net of current portion		219,048			1,055,918
Total liabilities		10,565,344			12,606,679
Stockholders’ deficit:
Preferred stock, $.00001 par value: 10,000,000 shares authorized; 0 and 480,000 shares of Series C; 45,000 and 938,218 shares of Series D; 70,070 and 61,723 shares of Series E; and 5,361 and 0 shares of Series F, respectively		1			15
Common stock, $.00001 par value: 200,000,000 shares authorized; 45,815,351 and 21,775,303 shares outstanding,  respectively		458			218
Additional paid-in capital, common and preferred		73,183,429			62,519,544
Accumulated deficit		(78,327,447	)		(64,817,684	)
Total stockholders’ deficit		(5,143,559	)		(2,297,907	)
Total liabilities and stockholders’ deficit	$	5,421,785		$	10,308,772

See accompanying notes to consolidated financial statements.

F - 4

ActiveCare, Inc.
Consolidated Statements of Operations
For the Years Ended September 30, 2014 and 2013
	2014			2013
Chronic illness monitoring revenues	$	6,107,941		$	4,245,404
Chronic illness monitoring cost of revenues		6,437,943			3,323,011
Gross profit (loss)		(330,002	)		922,393
Operating expenses:
Selling, general and administrative (including $3,585,379 and $3,446,827, respectively, of stock-based compensation)		9,800,374			8,752,277
Research and development		215,074			605,170
Total operating expenses		10,015,448			9,357,447
Loss from operations		(10,345,450	)		(8,435,054	)
Other income (expense):
Gain (loss) on derivatives liability		373,293			(333,406	)
Loss on induced conversion of debt and sale of common stock		(114,098	)		(9,355,587	)
Interest expense, net		(1,936,039	)		(5,583,932	)
Loss on disposal of property and equipment		(42,094	)		(200,149	)
Other income (expense):		55,368			(45,011	)
Total other income (expense)		(1,663,570	)		(15,518,085	)
Loss from continuing operations		(12,009,020	)		(23,953,139	)
Loss from discontinued operations		(1,452,567	)		(3,184,463	)
Net loss		(13,461,587	)		(27,137,602	)
Deemed dividends on conversion of preferred stock to common stock		(2,234,924	)		-
Dividends on preferred stock		(737,138	)		(320,868	)
Net loss attributable to common stockholders	$	(16,433,649	)	$	(27,458,470	)
Net loss per common share - basic and diluted
Continuing operations	$	(0.43	)	$	(3.30	)
Discontinued operations		(0.04	)		(0.43	)
Net loss per common share	$	(0.47	)	$	(3.73	)
Weighted average common shares outstanding – basic and diluted		35,010,000			7,369,000

See accompanying notes to consolidated financial statements.

F - 5

ActiveCare, Inc.
Consolidated Statements of Stockholders’ Deficit
For the Years Ended September 30, 2014 and 2013
	Preferred Stock																						Additional
	Series C				Series D						Series E				Series F				Common Stock				Paid-in			Accumulated
	Shares		Amount		Shares			Amount			Shares		Amount		Shares		Amount		Shares		Amount		Capital			Deficit			Total
Balance, September 30, 2012		480,000	$	5		386,103		$	4			-	$	-		-	$	-		4,636,977	$	46	$	29,643,769		$	(37,359,214	)	$	(7,715,390	)
Issuance of common stock for:
Services		-		-		-			-			-		-		-		-		1,579,632		16		475,484			-			475,500
Accrued expenses		-		-		-			-			-		-		-		-		166,200		2		225,298			-			225,300
Loan origination fees		-		-		-			-			-		-		-		-		189,345		2		334,265			-			334,267
Debt conversion		-		-		-			-			-		-		-		-		13,439,190		134		18,466,989			-			18,467,123
Cash		-		-		-			-			-		-		-		-		1,313,334		13		1,838,820			-			1,838,833
Dividends		-		-		-			-			-		-		-		-		200,625		2		251,562			-			251,564
Conversion of Series D preferred stock		-		-		(50,000	)		(1	)		-		-		-		-		250,000		3		(2	)		-			-
Issuance of Series D preferred stock for:
Services		-		-		484,185			5			-		-		-		-		-		-		1,800,526			-			1,800,531
Loan origination fees		-		-		103,843			1			-		-		-		-		-		-		817,482			-			817,483
Dividends		-		-		14,087			-			-		-		-		-		-		-		66,881			-			66,881
Issuance of Series E preferred stock for debt conversions		-		-		-			-			61,723		1		-		-		-		-		614,764			-			614,765
Stock-based compensation		-		-		-			-			-		-		-		-		-		-		1,750,274			-			1,750,274
Issuance of options for:
Loan origination fees		-		-		-			-			-		-		-		-		-		-		289,732			-			289,732
Services		-		-		-			-			-		-		-		-		-		-		202,572			-			202,572
Derivatives liability		-		-		-			-			-		-		-		-		-		-		4,417,456			-			4,417,456
Beneficial conversion features on debt		-		-		-			-			-		-		-		-		-		-		1,323,672			-			1,323,672
Net loss		-		-		-			-			-		-		-		-		-		-		-			(27,137,602	)		(27,137,602	)
Dividends on preferred stock		-		-		-			-			-		-		-		-		-		-		-			(320,868	)		(320,868	)
Balance, September 30, 2013		480,000	$	5		938,218		$	9			61,723	$	1		-	$	-		21,775,303	$	218	$	62,519,544		$	(64,817,684	)	$	(2,297,907	)

See accompanying notes to consolidated financial statements.

F - 6

ActiveCare, Inc.

Consolidated Statements of Stockholders’ Deficit (continued)

For the Years Ended September 30, 2014 and 2013

	Preferred Stock																								Additional
	Series C						Series D						Series E				Series F				Common Stock				Paid-in			Accumulated
	Shares			Amount			Shares			Amount			Shares		Amount		Shares		Amount		Shares		Amount		Capital			Deficit			Total
Balance, September 30, 2013		480,000		$	5			938,218		$	9			61,723	$	1		-	$	-		21,775,303	$	218	$	62,519,544		$	(64,817,684	)	$	(2,297,907	)
Issuance of common stock for:
Services		-			-			-			-			-		-		-		-		10,896,970		109		749,896			-			750,005
Finance fees		-			-			-			-			-		-		-		-		349,822		3		41,888			-			41,891
Loan origination fees		-			-			-			-			-		-		-		-		161,738		1		163,069			-			163,070
Debt conversions		-			-			-			-			-		-		-		-		3,712,549		37		2,447,889			-			2,447,926
Dividends and related interest		-			-			-			-			-		-		-		-		271,343		3		148,241			-			148,244
Option exercises		-			-			-			-			-		-		-		-		1,723,100		17		541,222			-			541,239
Conversion of Series C preferred stock		(480,000	)		(5	)		-			-			-		-		-		-		672,000		7		(2	)		-			-
Conversion of Series D preferred stock		-			-			(893,218	)		(9	)		-		-		-		-		6,252,526		63		(54	)		-			-
Issuance of Series E preferred stock for debt conversions		-			-			-			-			8,347		-		-		-		-		-		83,473			-			83,473
Issuance of Series F preferred stock for:
Debt conversions		-			-			-			-			-		-		858		-		-		-		574,592			-			574,592
Cash, net		-			-			-			-			-		-		4,503		-		-		-		2,175,002			1,405,769			3,580,771
Stock-based compensation		-			-			-			-			-		-		-		-		-		-		2,051,758			-			2,051,758
Issuance of options for:
Debt conversions		-			-			-			-			-		-		-		-		-		-		590,887			-			590,887
Services		-			-			-			-			-		-		-		-		-		-		263,117			-			263,117
Beneficial conversion features on debt		-			-			-			-			-		-		-		-		-		-		116,100			-			116,100
Amortization of Series F preferred stock as dividends		-			-			-			-			-		-		-		-		-		-		716,807			(716,807	)		-
Net loss		-			-			-			-			-		-		-		-		-		-		-			(13,461,587	)		(13,461,587	)
Dividends on preferred stock		-			-			-			-			-		-		-		-		-		-		-			(737,138	)		(737,138	)
Balance, September 30, 2014		-		$	-			45,000		$	-			70,070	$	1		5,361	$	-		45,815,351	$	458	$	73,183,429		$	(78,327,447	)	$	(5,143,559	)

See accompanying notes to consolidated financial statements.

F - 7

ActiveCare, Inc.
Consolidated Statements of Cash Flows
For the Years Ended September 30, 2014 and 2013
	2014			2013
Cash flows from operating activities:
Net loss	$	(13,461,587	)	$	(27,137,602	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,122,862			1,232,734
(Gain) loss on derivatives liability		(373,293	)		333,406
Stock-based compensation expense		3,378,938			2,159,828
Stock and warrants issued for services		206,441			1,286,999
Stock and warrants issued for interest expense		883,118			601,220
Amortization of debt discounts		919,032			3,097,009
Loss on induced conversion of debt and sale of common stock		114,098			9,355,587
Impairment of long-lived assets		497,792			-
Loss on disposal of property and equipment		61,239			200,149
Gain on sale of discontinued operations		-			(55,096	)
Inventory reduction for obsolescence		1,660,729			-
Changes in operating assets and liabilities:
Accounts receivable		216,668			(1,290,312	)
Inventory		1,367,477			(4,440,258	)
Prepaid expenses and other		(48,494	)		(16,822	)
Accounts payable		(1,193,106	)		5,787,603
Accrued expenses		157,652			23,174
Deposits and other assets		77,355			(82,316	)
Net cash used in operating activities		(4,413,079	)		(8,944,697	)
Cash flows from investing activities:
Purchases of property and equipment		(70,043	)		(249,771	)
Cash used to dispose of property and equipment		(29,078	)		-
Purchases of equipment leased to customers		-			(235,917	)
Proceeds from sale of discontinued operations		-			184,318
Proceeds from sale of equipment		-			4,900
Net cash used in investing activities		(99,121	)		(296,470	)
Cash flows from financing activities:
Proceeds from the sale of preferred stock, net		3,580,771			-
Proceeds from the sale of common stock, net		-			981,500
Proceeds from related-party notes payable, net		2,801,166			5,720,799
Proceeds from notes payable, net		680,000			3,790,496
Principal payments on related-party notes payable		(1,204,166	)		(198,606	)
Principal payments on notes payable		(1,036,809	)		(1,341,755	)
Payment of dividends		(335,570	)		(17,271	)
Net cash provided by financing activities		4,485,392			8,935,163
Net decrease in cash		(26,808	)		(306,004	)
Cash, beginning of the year		223,835			529,839
Cash, end of the year	$	197,027		$	223,835

See accompanying notes to consolidated financial statements.

F - 8

ActiveCare, Inc.
Consolidated Statements of Cash Flows (continued)
For the Years Ended September 30, 2014 and 2013
	2014		2013
Supplemental Cash Flow Information:
Cash paid for interest	$	219,717	$	745,423
Non-Cash Investing and Financing Activities:
Related-party notes payable converted to common stock	$	1,782,738	$	-
Dividends on preferred stock and related interest		737,138		320,868
Notes payable converted to preferred stock		633,254		-
Issuance of stock and options for loan origination fees		370,633		2,252,376
Conversion of notes payable into common stock		325,000		-
Liability to issue shares of common stock for loan origination fees		234,793		-
Issuance of stock for dividends		144,642		318,445
Reclassification of derivatives liability to equity		-		4,484,801
Conversion of notes payable to debentures		-		1,920,797
Issuance of derivatives		-		1,410,147
Issuance of common and prefered stock for settlement of liabilities		-		991,750
Issuance of stock for prepaid expenses		-		14,899

See accompanying notes to consolidated financial statements.

F - 9

ActiveCare, Inc.

Notes to Consolidated Financial Statements

September 30, 2014 and 2013

1.           Organization and Nature of Operations

ActiveCare, Inc. (“ActiveCare”) was formed March 5, 1998 as a wholly owned subsidiary of SecureAlert, Inc. dba Track Group [OTCQB: SCRA], a Utah corporation, formerly known as RemoteMDx, Inc. (“SecureAlert”).  ActiveCare was spun off from SecureAlert in February 2009 and SecureAlert retained no ownership interest in ActiveCare.  In July 2009, ActiveCare was reincorporated in Delaware.  ActiveCare (the “Company”) provides products and services to those diagnosed with chronic illnesses, provides real-time visibility to health conditions and risk, and has a unique active approach in caring for members.

Going Concern

The Company continues to incur negative cash flows from operating activities and net losses.  The Company had negative working capital and negative total equity as of September 30, 2014 and 2013 and is in default with respect to certain debt.  These factors, among others, 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 eliminate substantial doubt about its ability to continue as a going concern, it must achieve profitability, 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 consist of raising additional capital by issuing debt or equity securities and increasing the sales of the Company’s services and products.  During fiscal year 2014, the Company (1) completed the sale of Series F convertible preferred stock (“Series F preferred stock”) for net proceeds of $3,580,771, after considering $675,229 of related costs; (2) converted $2,326,801 of debt and accrued interest to common stock; (3) converted $574,592 of debt and accrued interest to Series F preferred stock; and (4) converted $83,473 of debt and accrued interest to Series E preferred stock. There can be no assurance that the Company will be able to raise sufficient additional capital or that revenues will increase rapidly enough to offset operating losses.  If the Company is unable to increase revenues or obtain additional financing, it will be unable to continue the development of its products and services and may have to cease operations.

2.           Restatement and Amendment of Previously Reported Financial Information

The Company restated its consolidated financial statements as of and for the fiscal year ended September 30, 2013 to correct the accounting related to revenue recognition for chronic illness monitoring supplies shipped to distributors, as filed in its Form 10-K/A with the Securities and Exchange Commission on November 12, 2014.  Specifically, it was determined better practice to defer revenue recognition until the products are shipped to the end users as opposed to the distributors, even though the distributors had taken title to the products and there were no significant rights of return.  The corrections deferred the recognition of revenue until later periods and did not impact cash flows related to these transactions.

The consolidated financial statements as of and for the fiscal year ended September 30, 2013 were restated to properly reflect revenue, cost of revenue, inventory and other related balance sheet accounts related to the Chronic Illness Monitoring segment. See Form 10-K/A filed on November 12, 2014 for reconciliations of the amounts as originally reported to the corresponding restated amounts.

F - 10

3.           Summary of Significant Accounting Policies

Principles of Accounting and Consolidation

These consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”).  The consolidated financial statements include the accounts of ActiveCare and its wholly owned subsidiaries.  All significant intercompany balances and transactions have been eliminated.

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 as of the balance sheet dates and the reported amounts of revenues and expenses for the reporting periods. Actual results could differ from these estimates.

In May 2013, the Company effected a 10-for-1 reverse common stock split.  The consolidated financial statements and notes for all periods presented have been retroactively adjusted to reflect the reverse common stock split.

Discontinued Operations

In December 2014, the Company sold substantially all of its customer contracts and equipment leased to customers associated with its CareServices segment to a third party.  Additional equipment in stock was sold to another third party pursuant to a written invoice.  The purchase price included a cash payment of $412,280 for the customer contracts and $66,458 for the equipment in stock. During fiscal years 2014 and 2013, the Company recognized a loss from discontinued operations related to CareServices of $1,452,567 and $3,179,151, respectively.

In June 2013, the Company sold the net assets and operations of its reagents segment to a third party for $184,318 in cash.  During fiscal years 2014 and 2013, the Company recognized a loss from discontinued operations related to its reagents segment of $0 and $5,312, respectively.

F - 11

Fair Value of Financial Instruments

The Company measured the fair values of its assets and liabilities using the US GAAP hierarchy.  The carrying amounts reported in the consolidated balance sheets for cash, accounts receivable, accounts payable, and accrued liabilities approximate fair values due to the short-term nature and liquidity of these financial instruments. Derivative financial instruments are recorded at fair value based on current market pricing models. The carrying amounts reported for notes payable approximate fair value because the underlying instruments are at interest rates which approximate current market rates.

Concentrations of Credit Risk

The Company has cash in bank accounts that, at times, may exceed federally insured limits.  The Company has not experienced any losses in these accounts.

In the normal course of business, the Company provides credit terms to its customers and requires no collateral.  The Company performs ongoing credit evaluations of its customers’ financial condition.  The Company maintains an allowance for doubtful accounts receivable based upon management’s specific review and assessment of each account at the period end.

During fiscal year 2014, the Company had revenues from two significant customers which represented 67% of total revenues.  During fiscal year 2013, the Company had revenues from one significant customer which represented 44% of total revenues.  As of September 30, 2014 and 2013, accounts receivable from significant customers represented 80% and 82% of total accounts receivable, respectively.

During the fiscal years 2014 and 2013, the Company purchased substantially all of its products and supplies from one vendor.

Accounts Receivable

Accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts.  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.  Accounts receivable are written off when management determines the likelihood of collection is remote.  A receivable is considered to be past due if any portion of the receivable balance has not been received by the contractual payment date.  Interest is not charged on accounts receivable that are past due.  The Company recorded an allowance for doubtful accounts of $115,994 and $76,544 as of September 30, 2014 and 2013, respectively.

Inventory

Inventory is recorded at the lower of cost or market, cost being determined using the first-in, first-out (“FIFO”) method. Inventory is for the Chronic Illness Monitoring segment and consists of diabetic supplies.  Inventory held by distributors is reported as inventory until the supplies are shipped to the end user by the distributor.  The Company estimates an inventory reserve for obsolescence and excessive quantities.  Due to competitive pressures and technological innovation, it is possible that estimates of net realizable values could change in the near term.  Inventory consists of the following as of September 30:

	2014			2013
Chronic Illness Monitoring
Finished goods	$	589,423		$	1,249,220
Finished goods held by distributors		2,720,626			3,428,306
Total inventory		3,310,049			4,677,526
Inventory reserve		(1,660,729	)		-
Net inventory	$	1,649,320		$	4,677,526

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, which range between 3 and 7 years.  Leasehold improvements are amortized over the shorter of the estimated useful lives of the assets or the terms of the lease.  Expenditures for maintenance and repairs are expensed as incurred.  Upon the sale or disposal of property and equipment, any gains or losses are included in operations.

F - 12

Goodwill

Goodwill is reviewed for impairment annually or more frequently when an event occurs or circumstances change that indicate that the carrying value may not be recoverable.  The annual testing date is September 30.  The identification and measurement of goodwill impairment involves the estimation of the fair value of our reporting units.  The estimates of fair value of reporting units are based on the best information available as of the date of the assessment, which primarily incorporate management assumptions about expected future cash flows.  Future cash flows can be affected by changes in industry or market conditions.  Goodwill was not impaired as of September 30, 2014 or 2013.

Impairment of Long-Lived Assets

Purchased intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets, which range from two to twenty years.  Long-lived assets, including intangible assets with finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable.  Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition.  The Company impaired its CareServices customer contracts by $89,460 and patents by $408,332 as of September 30, 2014, which were recorded as part of discontinued operations related to the CareServices segment for the fiscal year ended September 30, 2014.  The impairment of the customer contracts is due to their sales price being lower than the net book value as of the date of sale.  The patents impaired were solely related to the CareServices segment and provide no future cash flows after the CareServices customer contracts and equipment leased to customers were sold in December 2014.  The Company’s other long-lived assets were not impaired as of September 30, 2014.  No long-lived assets were impaired as of September 30, 2013.

Revenue Recognition

Historically, revenues were from three sources: (1) sales of Chronic Illness Monitoring services and supplies; (2) sales from CareServices; (3) sales of medical diagnostic stains from the Reagents segment.  The CareServices segment was sold in December 2014 and the Reagents segment was sold in June 2013.  Information regarding revenue recognition policies relating to these business segments is contained in the following paragraphs.

Chronic Illness Monitoring

Chronic Illness Monitoring revenues are recognized when persuasive evidence of an arrangement exists, delivery of the product or service to the end user has occurred, prices are fixed or determinable and collection is reasonably assured.

The Company enters into agreements with insurance companies, disease management companies, third-party administrators, and self-insured companies (collectively, the customers) to lower medical expenses by distributing diabetic testing products and supplies to employees (end users) covered by their health plans or the health plans they manage.  Cash is due from the customer or the end user’s health plan as the products and supplies are deployed to the end user.  The Company also monitors the end user’s test results in real-time with its 24x7 CareCenter.  Customers who are billed separately for monitoring are obligated to pay as the service is performed and revenue is recognized ratably over the period of the contract.  The term of these contracts is generally one year and, unless terminated by either party, automatically renew for another year.  Collection terms are net 30 days after claims are submitted.  There is no contingent revenue in these contracts.

The Company also enters into agreements with distributors who take title to products and distribute those products to end users.  Delivery is considered to occur when the supplies are delivered by the distributor to the end user.  Cash is due from the distributor, the customer or the end user’s health plan as initial products are deployed to the end user.  Subsequent sales (resupplies) are shipped directly from the Company to the end user and cash is due from the customer or the end user’s health plan. Shipping and handling fees are typically not charged to end users.  The related freight costs and supplies directly associated with shipping products to end users are included as a component of cost of revenues.  Sales of Chronic Illness Monitoring products and services contain multiple deliverables.

F - 13

Multiple-Element Arrangements

The Company evaluates each element in a multiple-element arrangement to determine whether it represents a separate unit of accounting. In order to account for elements in a multiple-element arrangement as separate units of accounting, the deliverables must have stand-alone value upon delivery.  In determining whether monitoring services have stand-alone value, the nature of the monitoring services, whether supplies are sold to new customers without monitoring services, and availability of monitoring services from the other vendors is considered. During the three months ended June 30, 2014, the Company began to provide enhanced monitoring services to a key customer, for which the Company receives a separate monthly monitoring fee.

When multiple deliverables included in an arrangement are separable into different units of accounting, the arrangement consideration is allocated to the identified separate units of accounting based on their relative selling prices. Multiple-element arrangements accounting guidance provides a hierarchy to use when determining the relative selling price for each unit of accounting. Vendor-specific objective evidence (VSOE) of selling price, based on the price at which the item is regularly sold by the vendor on a stand-alone basis, should be used if it exists. If VSOE of selling price is not available, third-party evidence (TPE) of selling price is used to establish the selling price if it exists. If VSOE of selling price and TPE of selling price are not available, then the best estimate of selling price (BESP) is to be used. During 2014, VSOE was established for monitoring services.  VSOE for supplies was previously established.  Therefore, total consideration under a multiple deliverable contract is allocated to supplies and monitoring through application of the relative fair value method.

CareServices

 “CareServices” include contracts in which the Company leases monitoring devices and provides monitoring services to end users.  The Company typically enters into contracts on a month-to-month basis with end users that use CareServices.  However, these contracts may be cancelled by either party at any time with 30-days notice.  Under a standard contract, the device and service become billable on the date the end user orders the device, and remains billable until the device is returned to the Company.  Revenue on devices is recognized at the end of each month the CareServices have been provided.  In those circumstances in which payment is received in advance, the Company records these payments as deferred revenue.

CareServices revenue is recognized when persuasive evidence of an arrangement exists, delivery of the device or service has occurred, prices are fixed or determinable and payment has occurred or 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 end users are included as a component of cost of revenues.  All CareServices sales are made with net 30-day payment terms.

Reagents

Prior to the sale of the reagent segment, the Company recognized reagents revenues when persuasive evidence of an arrangement with the customer existed, title had passed to the customer, prices were fixed or determinable, and collection was reasonably assured.  Prior to the sale of the reagent segment, shipping and handling fees billed to customers were included in revenues and the related freight costs and supplies directly associated with shipping products to customers were included as a component of cost of revenues.

Research and Development Costs

All expenditures for research and development are charged to expense as incurred. Research and development expenses for fiscal years 2014 and 2013 were $215,074 and $605,170, respectively. The expenditures for fiscal year 2014 were for ongoing software improvements for the Chronic Illness Monitoring operating system and customer portal.  The expenditures for fiscal year 2013 were for the development of the Chronic Illness Monitoring operating system.

F - 14

Advertising Costs

The Company expenses advertising costs as incurred.  Advertising expenses for fiscal years 2014 and 2013 were $48,778 and $59,330, respectively.  Advertising expenses primarily relate to the Company’s Chronic Illness Monitoring segment.

Income Taxes

The Company recognizes deferred income tax assets or liabilities for the expected future tax consequences of events that have been recognized in the financial statements or income tax returns. Deferred income tax assets or liabilities are determined based upon the difference between the financial reporting bases and tax reporting bases of assets and liabilities using enacted tax rates expected to apply when the differences are expected to be settled or realized.  Deferred income tax assets are reviewed periodically for recoverability and valuation allowances are provided as necessary.  As of September 30, 2014, management has provided a 100% allowance against deferred income tax assets as it is more likely than not these assets will not be realized.  Interest and penalties related to income tax liabilities, when incurred, are classified in interest expense and income tax provision, respectively.

Warrant Exercises and Note Conversions

The Company issues common shares in connection with warrant exercises when it has received verification that the proceeds have been deposited and when it has received an exercise letter from the warrant holder.  The Company issues common shares in connection with note conversions after it verifies the outstanding note balance and the eligibility of conversion, and has received a conversion letter from the lender.

Stock-Based Compensation

The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award.  That cost is recognized in the statements of operations over the period during which the employee is required to provide service in exchange for the award – the requisite service period.  The grant-date fair values of the equity instruments are estimated using option-pricing models adjusted for the unique characteristics of those instruments.

Net Loss Per Common Share

Basic net loss per common share (“Basic EPS”) is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the year.

Diluted net loss per common share (“Diluted EPS”) is computed by dividing net loss available to common stockholders by the sum of the weighted average number of common shares outstanding and the weighted-average dilutive common share equivalents then outstanding.  The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutive effect.

Common share equivalents consist of shares issuable upon the exercise of common stock warrants, shares issuable from restricted stock grants, and shares issuable from convertible notes and convertible Series C, Series D, Series E and Series F preferred stock.  As of September 30, 2014 and 2013, there were 17,199,080 and 13,127,396 outstanding common share equivalents, respectively, that were not included in the computation of Diluted EPS as their effect would be anti-dilutive.  The common stock equivalents outstanding consist of the following as of September 30:

F - 15

	2014		2013
Common stock options and warrants		10,991,576		3,598,554
Series C convertible preferred stock		-		480,000
Series D convertible preferred stock		225,000		4,691,090
Series E convertible preferred stock		477,830		601,585
Series F convertible preferred stock		5,361,000		-
Convertible debt		133,924		3,738,917
Restricted shares of common stock		9,750		17,250
Total common stock equivalents		17,199,080		13,127,396

Recent Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 states that only disposals representing strategic shifts in operations that have, or will have, a major effect on an entity’s operations should be reported as discontinued operations when any of the following occurs: The component of an entity or group of components of an entity is classified as held for sale, the component of an entity or group of components of an entity is disposed of by sale, or the component of an entity or group of components of an entity is disposed of other than by sale. ASU 2014-08 is effective for annual periods beginning on or after December 15, 2014.  Early adoption is not permitted.  The Company is currently assessing the impact, if any, of implementing this guidance on its consolidated financial position, results of operations and liquidity.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under US GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing US GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein. Early adoption is not permitted. The Company is currently assessing the impact, if any, of implementing this guidance on its consolidated financial position, results of operations and liquidity.

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This standard sets forth management’s responsibility to evaluate, each reporting period, whether there is substantial doubt about the Company’s ability to continue as a going concern, and if so, to provide related footnote disclosures. The standard is effective for annual reporting periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. The Company is currently assessing the impact, if any, of implementing this guidance and will incorporate it in its assessment of going concern.

In November 2014, the FASB issued ASU, 2014-16, Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity. The ASU clarifies how current guidance should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Specifically, the amendments clarify that an entity should consider all relevant terms and features, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of a host contract. The ASU is effective for fiscal years and interim periods beginning after December 15, 2015. The Company is currently assessing the impact, if any, of implementing this guidance on its consolidated financial position, results of operations and liquidity.

4.           Discontinued Operations

In December 2014, the Company sold substantially all of its customer contracts and equipment leased to customers associated with its CareServices segment.  Additional equipment in stock was sold to the buyer pursuant to a written invoice.  The purchase price included a cash payment of $412,280 for the customer contracts and $66,458 for the equipment in stock.  The sale included all segment assets that generated revenue related to the CareServices segment.  The Company no longer holds any ownership interest in these assets and has ceased incurring costs related to the operations and development of the CareServices segment.  This segment was engaged in the business of developing, distributing and marketing mobile health monitoring and concierge services to distributors and consumers.  The sale consisted solely of these CareServices assets.  The debt secured by the CareServices customer contracts was amended in January 2015 and remains an obligation of the Company (see Note 20).  There were no material liabilities of discontinued operations.  Assets of discontinued operations consist of the following as of September 30:

F - 16

	2014		2013
Customer contracts, net (Note 5)	$	569,250	$	1,377,301
Equipment leased to customers, net (Note 6)		111,435		273,631
Patents, net, (Note 7)		37,718		566,920
Total assets of discontinued operations	$	712,403	$	2,217,852

In June 2013, the Company sold its assets and liabilities related to the reagents segment.  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 consisted solely of the Company's reagents business.  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 CareServices assets and the reagents business, the Company has reflected these two segments as discontinued operations in the consolidated financial statements for fiscal years 2014 and 2013.  The following table summarizes certain operating data for discontinued operations for fiscal years 2014 and 2013:

	2014			2013
Revenues:
CareServices	$	1,003,238		$	1,660,544
Reagents		-			351,645
Total revenues		1,003,238			2,012,189
Cost of revenues:
CareServices		881,753			2,325,226
Reagents		-			300,396
Total cost of revenues		881,753			2,625,622
Gross profit (loss)		121,485			(613,433	)
Operating expenses:
Selling, general and administrative expenses:
CareServices		(1,047,629	)		(2,287,368	)
Reagents		-			(111,657	)
Research and development for CareServices		-			(227,101	)
Total operating expenses		(1,047,629	)		(2,626,126	)
Other income (expense):
Impairment of long-lived assets		(497,792	)		-
Loss on disposal of property and equipment		(18,746	)		-
Other expense		(9,885	)		-
Gain on sale of discontinued operations		-			55,096
Total other income (expense)		(526,423	)		55,096
Loss from discontinued operations	$	(1,452,567	)	$	(3,184,463	)

5.           Customer Contracts

The Company was amortizing Chronic Illness Monitoring customer contracts acquired during 2012 over their estimated useful lives (through 2014).  As of September 30, 2014 and 2013, the cost associated with these customer contracts was $214,106 and the accumulated amortization was $214,106 and $156,886, respectively.  Amortization expense related to these contracts for fiscal years 2014 and 2013 was $57,220 and $114,440, respectively.

The Company sold substantially all of the CareServices customer contracts during December 2014.  The Company impaired the CareServices customer contracts as of September 30, 2014 by $89,460, which has been included as part of discontinued operations for the fiscal year ended September 30, 2014.  As of September 30, 2014 and 2013, customer contracts totalled $2,066,316 and $2,155,776, respectively, and the related accumulated amortization was $1,497,067 and $778,475, respectively.  Amortization expense related to the CareServices segment for fiscal years 2014 and 2013 was $718,592 per year.  The future customer contract amortization for CareServices as of September 30, 2014 is $179,648 which will be recognized between October 1, 2014 and the date of sale as part of discontinued operations (see Note 4).

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6.           Property and Equipment

Property and equipment consist of the following as of September 30:

	2014			2013
Leasehold improvements	$	151,287		$	145,147
Software		100,574			87,361
Furniture		69,776			32,855
Equipment		54,732			255,339
Equipment leased to customers		-			-
Total property and equipment		376,369			520,702
Accumulated depreciation and amortization		(156,293	)		(223,973	)
Property and equipment, net	$	220,076		$	296,729

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 fiscal years 2014 and 2013, the Company recorded a loss on the disposal of assets of $61,239 and $200,149, respectively.  The Company disposed of $25,832 of assets related to the sale of the reagents segment during fiscal year 2013.  Subsequent to September 30, 2014, the Company sold all of its equipment leased to customers (see Note 4).  Depreciation expense for fiscal years 2014 and 2013 was $219,465 and $272,117, respectively.

7.           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 sales 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 600,000 shares of common stock and 480,000 shares of Series C preferred stock.  The patents were valued at $922,378, based on a valuation performed by an independent third party.  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 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.  Amortization expense for fiscal years 2014 and 2013 was $126,870.  The Company impaired the patents as of September 30, 2014 by $408,332, which has been included as part of discontinued operations for the fiscal year ended September 30, 2014 (see Note 4).  As of September 30, 2014 and 2013, the cost associated with the patents was $514,046 and $922,378, respectively, and the accumulated amortization was $482,328 and $355,458, respectively.  The Company’s future patent amortization as of September 30, 2014, is $31,718 which will be recognized between October 1, 2014 and the date of sale, December 31, 2014, as part of discontinued operations.

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8.           Accrued Expenses

Accrued expenses consist of the following as of September 30:

	2014		2013
Liability to issue common stock	$	522,087	$	-
Commissions and fees		453,744		88,490
Payroll expense		308,529		272,451
Deferred rent		89,346		55,242
Interest		59,091		211,722
Other		18,534		80,614
Total accrued expenses	$	1,451,331	$	708,519

9.           Notes Payable

The Company had the following notes payable outstanding as of September 30:

	2014		2013
Note payable secured by CareServices customer contracts, imputed interest rate of 12%, monthly installments over a 38-month term.  In March 2013, the Company issued 15,000 shares of common stock to extend the term of the note.  The $24,000 fair value of the common stock is being amortized to interest expense over the remaining term of the note.  In January 2015, the note was amended (see Note 20).	$	1,103,841	$	1,766,971
Secured borrowings from third parties that purchased a $337,600 customer receivable for $200,000.  The Company may buy back the receivable for $233,333 less any cash payments before June 2015.  The $33,333 difference between the buyback and cash  received plus $20,000 of commission, paid to a related party, is being amortized to interest expense over the buyback term.		233,333		-
Unsecured note payable with no interest, due March 2015.  In connection with the issuance of the note, the Company issued warrants to purchase 450,000 shares of common stock.  The $143,634 fair value of the common stock is being amortized to interest expense over the term of the note.  The note also requires a payment of 667,000 shares of common stock at the end of the term (fair value of $230,293), which is recorded as an accrued expense.		200,000		-
Unsecured notes with interest at 15% (18% after due date), due April 2013.  The Company issued 20,000 shares of Series D preferred stock as loan origination fees.  The $195,000 fair value of the preferred stock was amortized over the original term of the note.   Principal of $50,000 and accrued interest of $13,333 were converted to common stock in December 2013.		64,261		185,476
Notes payable with interest at 12%, secured by the Company's assets, due August 2014.  The Company issued warrants to purchase 36,667 shares of common stock (fair value of $51,452) as due diligence fees and issued 25,000 shares of common stock  (fair value of $31,250) to a related party as consideration for a personal guarantee.  The notes and accrued interest were converted to Series F preferred stock in December 2013.		-		550,000
Unsecured note with interest at 12%, due March 2013.  The note and accrued interest were converted to common stock in November 2013.		-		250,000
Series A debenture loan payable with interest at 12%, secured by customer contracts, payable in monthly installments, and due February 2016. The debenture was converted to Series E preferred stock in October 2013.		-		85,719

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		2014			2013
Unsecured note with interest at 15%, due March 2013. The note and accrued interest were converted to common stock in November 2013.	$	-		$	25,000
Total notes payable before discount		1,601,435			2,863,166
Less discount		(169,450	)		(528,663	)
Total notes payable		1,431,985			2,334,503
Less current portion		(1,212,937	)		(1,278,585	)
Notes payable, net of current portion	$	219,048		$	1,055,918

As of September 30, 2014, scheduled principal payments on notes payable are as follows:

Years Ending September 30,
2015	$	1,212,937
2016		219,048
	$	1,431,985

10.         Related-Party Notes Payable

The Company had the following related-party notes payable outstanding as of September 30:

	2014		2013
Secured borrowings from entities controlled by an officer of the Company that purchased a $2,813,175 customer receivable for $1,710,500.  The Company may buy back the receivable for $1,950,000 less cash received by the entities before March 2015.  The $239,500 difference between the buyback and cash  received plus $253,500 of loan origination fees is being amortized to interest expense over the buyback term.	$	1,639,500	$	-
Secured borrowings from the Chairman of the Board of Directors who purchased a $422,000 customer receivable for $250,000.  The Company may buy back the receivable for $291,667 less any cash payments before June 2015.  The $41,667 difference between the buyback and cash  received plus $25,000 of loan origination fees is being amortized to interest expense over the buyback term.		291,667		-
Unsecured note payable to a former officer of the Company with interest at 15%, due June 2012, currently in default.  The note included a $3,000 loan origination fee added to the principal and is convertible into common stock at $0.50 per share.		30,000		33,000
Unsecured note payable to a former officer of the Company with interest at 12%, due September 2013, currently in default, and convertible into common stock at $0.75 per share.		26,721		26,721
Unsecured note payable to an entity controlled by the Company’s Chairman, interest at 12%, due on demand, and convertible into common stock at $0.75 per share.  The Company issued 17,500 shares of common stock as loan origination fees.  The $26,250 fair value of the common stock is being amortized to interest expense over the term of the note.  In December 2013, $160,000 of the note was converted to common stock.		15,000		175,000
Unsecured note payable to an officer of the Company with interest at 12%, due on demand.		13,644		13,644

F - 20

	2014			2013
Unsecured notes payable to an entity controlled by an officer of the Company with interest at 15%, due September 2013.  The Company issued 60,000 shares of common stock (fair value of $93,000) as loan origination fees.   The notes and accrued interest were converted to common stock in December 2013.	$	-		$	600,000
Unsecured note payable to an entity controlled by an officer of the Company  with interest at 12%, due September 2013.  The Company issued 30,000 shares of common stock (fair value of $38,100) as loan origination fees.  The note and accrued interest were converted to common stock in December 2013.		-			300,000
Unsecured note payable to an entity controlled by an officer of the Company with  interest at 12%, due September 2013.  The Company issued 30,000 shares of common stock (fair value of $37,500) as loan origination fees.  The note and accrued interest were converted to common stock in December 2013.		-			300,000
Unsecured notes payable to an entity controlled by an officer of the Company with interest at 12%, due April 2013.  The note and accrued interest were converted to common stock in December 2013.		-			200,000
Unsecured note payable with no interest to an entity controlled by an officer of the Company, repaid during the three months ended December 31, 2013.		-			150,000
Unsecured note payable to an entity controlled by an officer of the Company with interest at 12% (18% after due date), due June 2013.   The Company issued 5,600 shares of Series D preferred stock (fair value of $56,252) as loan origination fees.   The note and accrued interest were converted to common stock in December 2013.		-			82,500
Unsecured notes payable with no interest to an individual related to an officer of the Company, repaid during the three months ended December 31, 2013.		-			10,000
Series B unsecured debenture to an entity controlled by an officer of the Company with interest at 12%, due December 2015.  The debenture and accrued interest were converted to common stock during the three months ended December 31, 2013.		-			5,270
Total notes payable, related-party, before discount		2,016,532			1,896,135
Less discount		(346,912	)		(3,720	)
Total notes payable, related-party	$	1,669,620		$	1,892,415

11.         Loss on Induced Conversion of Debt and Sale of Common Stock

During 2014 and 2013, the Company offered an induced conversion rate to all debt holders of $0.75 of debt per share of common stock, which was below the market price of the stock.  During the fiscal years ended September 30, 2014 and 2013, debt and accrued interest of approximately $381,000 and $10,004,000, respectively, were converted to shares of common stock.  During the fiscal year ended September 30, 2014, debt and accrued interest due to related parties of approximately $1,946,000 were converted to shares of common stock at $0.60 of debt per share of common stock, which was below the market price of the stock.  The Company also offered the private placement of common stock to existing investors at $0.75 per share, which was below the market price.  The difference between the offered price and the market price of all common stock issued was approximately $114,000 and $9,356,000 for the fiscal years ended September 30, 2014 and 2013, respectively, and is recorded as a loss on induced conversion of debt and sale of common stock.

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12.         Fair Value Measurements

The Company measured the fair values of its assets and liabilities using the US GAAP hierarchy levels as follows:

Level 1	The Company does not have any Level 1 inputs available to measure its assets.
Level 2	The Company’s embedded derivative liabilities are measured on a recurring basis using Level 2 inputs.
Level 3	The Company’s goodwill is measured using Level 3 inputs.

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

13.         Derivatives Liability

The derivatives liability as of September 30, 2014 and 2013 was $106,444 and $795,151, respectively.  The derivatives liability as of September 30, 2013 was eliminated due to the conversion of notes payable with variable conversion features.  The derivatives liability as of September 30, 2014 is related to a variable conversion price adjustment on the Series F preferred stock.  The conversion price on Series F preferred stock may be adjusted from $1.00 based on the number of subscribers as of December 31, 2014.

During the fiscal year ended September 30, 2014, the Company estimated the fair value of the embedded derivatives prior to their conversion and elimination using a binomial option-pricing model with the following assumptions, according to the instrument: exercise price of $0.35 per share; risk free interest rate of 0.060%; expected life of 0.50 years; expected dividends of 0%; a volatility factor of 104%; and a stock price of $0.24.  The expected lives of the instruments were 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.  The Company recognized a gain on derivatives liability for the fiscal year ended September 30, 2014 of $373,293 and a loss for the fiscal year ended September 30, 2013 of $333,406.

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

As of September 30, 2013, the Company had 480,000 shares of Series C convertible preferred stock issued and outstanding (“Series C preferred stock”).  In December 2013, all 480,000 shares of Series C preferred stock were converted to 672,000 shares of common stock.  The conversion rate of 1.4 shares of common stock was greater than the designated conversion rate of one share of common stock and, therefore, the fair value of the additional 192,000 shares was recorded as a deemed dividend. During fiscal year 2014, the Company accrued $11,367 of dividends on Series C preferred stock and settled the accrued dividends by issuing 11,599 shares of common stock.  The Series C preferred stock was non-voting.  During fiscal year 2013, the Company issued 9,062 shares of Series D preferred stock for accrued dividends of $53,992 associated with Series C preferred stock.

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Series D Convertible Preferred Stock

The Board of Directors has designated 1,000,000 shares of preferred stock as Series D convertible preferred stock (“Series D preferred stock”).  The Series D preferred stock is voting on an as-converted basis.  The Series D preferred stock has a dividend rate of 8%, payable quarterly.  The Company may redeem the Series D preferred shares at a redemption price equal to 120% of the original purchase price with 15 days notice. In December 2013, 893,218 shares of Series D preferred stock were converted to 6,252,526 shares of common stock.   The conversion rate of 7 shares of common stock was greater than the designated conversion rate of 5 shares of common stock and, therefore, the fair value of the additional 1,786,436 shares was recorded as a deemed dividend. During fiscal year 2014, the Company accrued $84,212 of dividends on Series D preferred stock and settled $77,961 of the accrued dividends by issuing 85,477 shares of common stock.

During fiscal year 2013, the Company accrued $232,834 of dividends on Series D preferred stock and settled the accrued dividends by issuing 5,025 shares of Series D preferred stock and 143,465 shares of common stock.

Series E Convertible Preferred Stock

During fiscal year 2013, the Board of Directors designated shares of preferred stock as Series E convertible preferred stock (“Series E preferred stock”).  Series E preferred stock is convertible into common stock at $1.00 per share, the conversion price is adjustable if there are distributions of common stock or stock splits by the Company.  The designation also provides that the Series E preferred stock is non-voting and receives a monthly dividend of 3.322% for 25 to 32 months.  In addition, the convertibility and the redemption price of the Series E preferred stock is gradually reduced by dividend payments over 25 to 32 months.  After the dividend payment term, the redemption price of Series E preferred stock is $0, the Series E preferred stock has no convertibility to common stock and the holders are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company’s gross profits payable quarterly for a two-year period.

During fiscal year 2014, $83,473 of debenture loans and accrued interest converted into 8,347 shares of Series E preferred stock.  During fiscal year 2014, the Company accrued dividends of $320,071 to Series E shareholders.  During fiscal years 2014 and 2013, the Company paid dividends of $258,284 and $17,271, respectively, to Series E shareholders.  As of September 30, 2014 and 2013, the redemption price for the Series E preferred stock was $477,829 and $601,585, respectively.

Series F Convertible Preferred Stock

During fiscal year 2014, the Board of Directors designated 7,803 shares of preferred stock as Series F convertible preferred stock (“Series F preferred stock”).  In April 2014, the Company increased the authorized shares of Series F preferred stock to 10,000.  Series F preferred stock is non-voting, has a stated value of $1,000 and is convertible into common stock at $1.00 per share subject to a milestone adjustment for the number of subscribers as of December 31, 2014 (see Note 12).  The Series F preferred stock has a dividend rate, payable quarterly, of 8% until April 30, 2015, 16% from May 1, 2015 to July 31, 2015, 20% from August 1, 2015 to October 31, 2015 and 25% thereafter.

During the fiscal year ended September 30, 2014, the Company issued 5,361 shares of Series F preferred stock for net proceeds of $3,580,771, after considering $675,229 of related costs, and the conversion of $574,592 of debt and accrued interest.  During fiscal year 2014, the Company accrued dividends of $322,730 to Series F shareholders.  The Company settled $144,030 of dividends plus $3,601 of accrued interest on Series F preferred stock by paying $73,815 in cash and issuing 184,541 shares of common stock.

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, Series D preferred stock, Series E preferred stock, and Series F 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 entitled.

F - 23

15.        Common Stock

In April 2014, the Company amended its Certificate of Incorporation increasing the total number of authorized shares of common stock from 50,000,000 shares to 200,000,000 shares.

During fiscal year 2014, the Company issued the following shares of common stock:

·   3,712,549 shares to settle notes payable and related accrued interest, the value on the date of grant was $2,447,926;

·   584,100 shares to the Chief Executive Officer for the exercise of a modified stock option agreement (the exercise price was reduced to $0), the change in value due to the modification was $134,897;

·   474,000 shares to a former Chief Executive Officer for the exercise of a modified stock option agreement (the exercise price was reduced to $0), the change in value due to the modification was $400,585;

·   650,000 shares to an entity controlled by an officer of the Company for the exercise of modified stock option agreements (the exercise prices were reduced to $0), the change in value due to the modification was $41,311 and the shares vest quarterly over two years;

·   15,000 shares to a board member for the exercise of a modified stock option agreement (the exercise price was reduced to $0), the change in value due to the modification was $5,746;

·   161,738 shares for notes payable origination fees, the value on the date of grant was $163,170;

·   342,930 shares for equity investment finders’ fees, the value on the date of grant was $342,000;

·   6,892 shares to officers of the Company as late fees for unpaid services, the value on the date of grant was $6,892;

·   6,924,526 shares in connection with the conversion of 480,000 shares of Series C preferred stock and 893,218 shares of Series D preferred stock;

·   271,343 shares to settle accrued dividends for Series C, Series D and Series F preferred stock, the value on the date of grant was $148,244;

·   409,000 shares for services provided by independent consultants, the value on the date of grant was $237,800;

·   868,136 shares for employee compensation for past services and bonuses, the value on the date of grant was $427,205;

·   100,000 shares for services provided by a board member, the value on the date of grant was $85,000;

·   5,000,000 shares to the Chief Executive Officer for future services, the value on the date of grant was $2,400,000 and the shares vest quarterly over two years;

·   447,500 shares for employee compensation for future services, the value on the date of grant was $256,800 and the shares vest quarterly over two years.  87,500 shares, with a value of $42,000 at the date of grant, were forfeited during fiscal year 2014;

·   4,072,334 shares to an entity controlled by an officer of the Company for future services, the value on the date of grant was $1,954,720 and the shares vest quarterly over two years.

The fair value of unvested common stock as of September 30, 2014 was $4,125,863.

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16.         Common Stock Options and Warrants

The fair value of each stock option or warrant 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 option 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 2014 and 2013, the Company measured the fair value of the warrants using a binomial valuation model with the following assumptions:

	2014	2013
Exercise price	$0.50 - $1.40	$0.75 - $10.00
Expected term (years)	1 - 3	1.5 - 2.5
Volatility	101% - 216%	219% - 298%
Risk-free rate	0.11% - 0.92%	0.23% - 0.88%
Dividend rate	0%	0%

During the fiscal year ended September 30, 2014, the Company granted the following common stock options and warrants:

·   Options to purchase 650,000 shares were granted to an entity controlled by an officer of the Company for notes payable and accrued interest converted into common stock, with an exercise price of $1.10 per share.  The Company recognized $590,887 of interest expense during the three months ended December 31, 2013.  During the three months ended June 30, 2014, the exercise prices were reduced to $0 per share;

·   Options to purchase 450,000 shares were granted to a note holder with an exercise price of $1.00 per share.  The options expire in October 2018.  The Company recognized $143,634 as debt discount, which is being amortized over the life of the note payable;

·   Options to purchase 856,977 shares were granted to two note holders for converting debt into common stock with an exercise price of $1.10 per share.  The options expire in December 2018;

·   Options to purchase 3,669,120 shares were granted in connection with the sale of Series F preferred stock with an exercise price of $1.10 per share.  The options expire in December 2018;

·   Options to purchase 1,424,025 shares were granted in connection with the sale of Series F preferred stock with an exercise price of $1.10 per share.  The options expire in January 2018;

·   Options to purchase 1,008,000 shares were granted in connection with the sale of Series F preferred stock with an exercise price of $1.10 per share.  The options expire in February 2019;

·   Options to purchase 1,000,000 shares were granted to a board member for services, with an exercise price of $0.50 per share.  The shares vest based on the Company obtaining new member targets, specifically 100,000 options vest for each new 5,000 members.  The options expire in June 2019.

·   Options to purchase 90,000 shares were granted to two related parties for services, with an exercise price of $1.10 per share.  The options expire in June 2019.

During the fiscal year ended September 30, 2014, the Company modified the exercise price of options and warrants previously issued to current employees and officers to $0.50 per share.  The Company recognized additional expense of $71,942 and deferred $7,960 over the remaining vesting period of the options and warrants.

The following table summarizes information about stock options and warrants outstanding as of September 30, 2014:

F - 25

Options and Warrants	Number of Options and Warrants			Weighted-Average Exercise Price
Outstanding as of October 1, 2013		3,598,554		$	1.33
Granted		9,148,122			1.03
Exercised		(1,723,100	)		0.89
Forfeited		(32,000	)		1.00
Outstanding as of September 30, 2014		10,991,576			1.05
Exercisable as of September 30, 2014		9,061,576			1.17

As of September 30, 2014, the outstanding warrants have an aggregate intrinsic value of $0, the weighted average remaining term of the warrants was 3.88 years, and the fair value of unvested stock options and warrants was $383,379.

17.         Segment Information

The Company operated two business segments during fiscal year 2014 based primarily on the nature of the Company’s products. 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 insurance companies, disease management companies, third-party administrators, and self-insured companies.  The customer contracts and equipment leased to customers of the CareServices segment were sold in December 2014.  The CareServices segment was engaged in the business of developing, distributing and marketing mobile health monitoring and concierge services to distributors and consumers. 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.

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 fiscal years 2014 and 2013:

	Corporate			Chronic Illness Monitoring			CareServices			Reagents			Total
Fiscal year ended September 30, 2014
Sales to external customers	$	-		$	6,107,941		$	1,003,238		$	-		$	7,111,179
Segment loss		(9,957,268	)		(2,051,752	)		(1,452,567	)		-			(13,461,587	)
Interest expense, net		1,936,039			-			-			-			1,936,039
Segment assets		550,370			4,134,403			737,012			-			5,421,785
Fixed assets and leased equipment purchases		70,603			-			-			-			70,603
Depreciation and amortization		92,823			57,220			972,819			-			1,122,862
Fiscal year ended September 30, 2013
Sales to external customers	$	-		$	4,245,404		$	1,660,544		$	351,645		$	6,257,593
Segment loss		(21,986,526	)		(1,966,613	)		(3,179,151	)		(5,312	)		(27,137,602	)
Interest expense, net		5,583,932			-			-			-			5,583,932
Segment assets		600,892			7,416,759			2,291,121			-			10,308,772
Fixed assets and leased equipment purchases		243,273			-			241,527			888			485,688
Depreciation and amortization		124,269			114,440			984,663			9,362			1,232,734

18.          Income Taxes

As of September 30, 2014, the Company had net operating loss carryforwards available to offset future taxable income, if any, of approximately $64,000,000, which will begin to expire in 2027.  The utilization of the net operating loss carryforwards is dependent upon the tax laws in effect at the time the net operating loss carryforwards can be utilized.  The Internal Revenue Code contains provisions that likely could reduce or limit the availability and utilization of these net operating loss carryforwards.  For example, limitations are imposed on the utilization of net operating loss carryforwards if certain ownership changes have taken place or will take place.  The Company will perform an analysis to determine whether any such limitations have occurred as the net operating losses are utilized.

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The amount and ultimate realization of the benefits from the net operating loss carryforwards are dependent, in part, upon the tax laws in effect, the Company’s future earnings, and other future events, the effects of which cannot be determined.  The Company has established a valuation allowance against all deferred income tax assets not offset by deferred income tax liabilities due to the uncertainty of their realization.  Accordingly, there is no benefit for income taxes in the accompanying statements of operations.

Deferred income taxes are determined based on the estimated future effects of differences between the consolidated financial reporting and income tax reporting bases of assets and liabilities given the provisions of currently enacted tax laws and the tax rates expected to be in place.  For fiscal years 2014 and 2013, the Company’s expected federal tax rate was 34%.

The deferred income tax assets (liabilities) were comprised of the following as of September 30:

	2014			2013
Net operating loss carryforwards	$	23,858,000		$	19,892,000
Depreciation, amortization and reserves		1,515,000			453,000
Stock-based compensation		2,007,000			1,863,000
Accrued vacation		53,000			2,000
Valuation allowance		(27,433,000	)		(22,210,000	)
Total	$	-		$	-

Reconciliations between the benefit for income taxes at the federal statutory income tax rate and the Company’s benefit for income taxes for fiscal years 2014 and 2013 were as follows:

	2014			2013
Federal income tax benefit at statutory rate	$	4,577,000		$	9,227,000
State income tax benefit, net of federal income tax effect		444,000			896,000
Non-deductible expenses		67,000			(954,000	)
Other		135,000			-
Change in valuation allowance		(5,223,000	)		(9,169,000	)
Benefit for income taxes	$	-		$	-

During fiscal years 2014 and 2013, the Company recognized no interest or penalties, and there were no changes in unrecognized tax benefits from tax positions taken or from lapsed statutes of limitations.  There were no settlements with taxing authorities.  As of September 30, 2014, the Company had no unrecognized tax benefits that, if recognized, would affect the effective tax rate, and there are no positions that are anticipated to significantly increase or decrease.  The Company had no tax examinations beginning, ending, or remaining in process as of and for the years ended September 30, 2014 and 2013.  Tax returns for fiscal years subsequent to 2010 remain subject to examination.

F - 27

19.        Commitments and Contingencies

The Company leases office space under non-cancelable operating leases.  Future minimum rental payments under non-cancelable operating leases as of September 30, 2014 were as follows:

Years Ending September 30,
2015	$	308,330
2016		317,580
2017		327,107
2018		280,077
	$	1,233,094

The Company’s rent expense for facilities held under non-cancelable operating leases for fiscal years 2014 and 2013 was approximately $279,000 and $225,000, respectively.

In May 2013, the Company entered into a settlement agreement and patent license agreement and an agreed motion was filed to dismiss all claims of a lawsuit.  The final payment required by the settlement agreement and patent license patent agreement was made in December 2013.

20.         Subsequent Events

+Subsequent to September 30, 2014 and through the release date of this report, the Company entered into the following agreements and transactions:

(1)   In October 2014, the Company issued or the Board of Directors has approved the issuance of 1,692,810 shares of common stock to employees for services with vesting ranging from immediate to two years.

(2)   In October 2014, the Company issued 18,522 shares of common stock to settle accrued dividends for Series D preferred stock.

(3)   In November 2014, the Company amended an existing agreement related to investor relations services, contingent upon the elimination of the Series F Preferred stock.  The amendment extends the agreement by two years and would require the Company to issue a total of 3,000,000 shares of its common stock over the extended term.

(4)   In November 2014, the Company amended an existing agreement with one of its customers which would require the Company to issue up 2,250,000 shares of its common stock to the customer.  The number of shares to be issued is based on the customer meeting certain milestones for the number of end users who receive Chronic Illness Monitoring products and services through January 2016.

(5)   In November 2014, the Company entered into a consulting agreement with a third party which would require the Company to issue up 750,000 shares of its common stock to the third party.  The third party will consult the Company on matters regarding sales to a specific customer.  The number of shares to be issued is based on the customer meeting certain milestones for the number of end users who receive Chronic Illness products and services through January 2016.

(6)   In November 2014, the Company sold $130,000 of future customer receipts to a third party for $100,000 in cash.  The $30,000 difference between the payment amount and cash received is being amortized to interest expense over the expected term.

(7)   In December 2014, the Company sold substantially all of its CareServices customer contracts and equipment leased to customers associated with its CareServices segment to a third party.  Additional equipment in stock was sold to the buyer pursuant to a written invoice.  The purchase price included a cash payment of $412,280 for the customer contracts and $66,458 for the equipment in stock.

(8)   In January 2015, the Company modified the note payable secured by CareServices customer contracts to reduce the outstanding principal to $375,000, interest at 9%, and payable in 15 monthly installments beginning in February 2015.  The note payable is guaranteed by the Chairman of the Board of Directors and another member of the Board of Directors.

(9)   In November 2014, the Company entered into a note payable with an entity controlled its Chairman of the Board of Directors to covert $396,667 of advances and notes payable into one promissory note, interest at 0%, and due on demand.

(10)   In October and December 2014, the Company received advances totaling $305,000 from entities controlled by a member the Board of Directors.

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EX-10.18

Exhibit 10.18

ACTIVECARE, INC.

AMENDED AND RESTATED

CERTIFICATE OF DESIGNATION OF PREFERENCES,

RIGHTS AND LIMITATIONS

OF

SERIES F VARIABLE RATE CONVERTIBLE PREFERRED STOCK

OF ACTIVECARE, INC.

PURSUANT TO SECTION 151 OF THE

DELAWARE GENERAL CORPORATION LAW

        The undersigned, Marc Bratsman, does hereby certify that:

                1. He is the CFO and Secretary, of ActiveCare, Inc., a Delaware corporation (the “Corporation”).

                2. The Corporation is authorized to issue ten million (10,000,000) shares of preferred stock, of which 45,000 shares of Series D Convertible Preferred Stock (“Series D Preferred”) are issued and outstanding, and 70,539 shares of Series E Convertible Preferred Stock (“Series E Preferred”) are issued and outstanding.

                3. The following resolutions were duly adopted by the board of directors of the Corporation (the “Board of Directors”) as of August __, 2014:

        WHEREAS, the certificate of incorporation of the Corporation provides for a class of its authorized stock known as preferred stock, consisting of ten million (10,000,000) shares, par value $0.00001 per share, issuable from time to time in one or more series;

        WHEREAS, the Board of Directors is authorized to fix the dividend rights, dividend rate, voting rights, conversion rights, rights and terms of redemption and liquidation preferences of any wholly unissued series of preferred stock and the number of shares constituting any series and the designation thereof, of any of them; and

        WHEREAS, it is the desire of the Board of Directors, pursuant to its authority as aforesaid, to fix the rights, preferences, restrictions and other matters relating to a series of the preferred stock, which shall consist of, except as otherwise set forth in the Purchase Agreement, up to Seven Thousand Eight Hundred Three (7,803) shares of the preferred stock which the Corporation has the authority to issue, as follows:

        NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide for the issuance of a series of preferred stock for cash or exchange of other securities, rights or property and does hereby fix and determine the rights, preferences, restrictions and other matters relating to such series of preferred stock as follows:

1

AMENDED AND RESTATED

TERMS OF PREFERRED STOCK

Section 1.                      Definitions. For the purposes hereof, the following terms shall have the following meanings:

“Adjusted Optional Redemption Amount” means an amount in cash equal to the greater of (a) the Optional Redemption Amount or (b) for each share of Preferred Stock, the product of (y) the VWAP on the Trading Day immediately preceding the date of (i) the applicable Optional Redemption Notice or (ii) the date the Adjustment Optional Redemption Amount is paid, whichever is greater and (z) the Stated Value, divided by the then Conversion Price, plus all accrued but unpaid dividends thereon, plus all liquidated damages and other costs, expenses or amounts due in respect of the Preferred Stock.

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 of the Securities Act.

“Alternate Consideration” shall have the meaning set forth in Section 7(e).

“Bankruptcy Event” means any of the following events: (a) the Corporation or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Corporation or any Significant Subsidiary thereof, (b) there is commenced against the Corporation or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Corporation or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Corporation or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Corporation or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Corporation or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts, or (g) the Corporation or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

“Base Conversion Price” shall have the meaning set forth in Section 7(b).

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“Beneficial Ownership Limitation” shall have the meaning set forth in Section 6(d).

“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

“Buy-In” shall have the meaning set forth in Section 6(c)(iv).

“Change of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Corporation, by contract or otherwise) of in excess of 33% of the voting securities of the Corporation (other than by means of conversion or exercise of Preferred Stock and the Securities issued together with the Preferred Stock), (b) the Corporation merges into or consolidates with any other Person, or any Person merges into or consolidates with the Corporation and, after giving effect to such transaction, the stockholders of the Corporation immediately prior to such transaction own less than 66% of the aggregate voting power of the Corporation or the successor entity of such transaction, (c) the Corporation sells or transfers all or substantially all of its assets to another Person and the stockholders of the Corporation immediately prior to such transaction own less than 66% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a one year period of more than one-half of the members of the Board of Directors elected by the holders of Common Stock (“Common Stock Directors”) which is not approved by a majority of those individuals who are Common Stock Directors on the Original Issue Date (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the Common Stock Directors who are members on the Original Issue Date), or (e) the execution by the Corporation of an agreement to which the Corporation  is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

“Closing” means the closing of the purchase and sale of the Securities pursuant to Section 2.1 of the Purchase Agreement.

“Closing Date” means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto and all conditions precedent to (i) each Holder’s obligations to pay the Subscription Amount and (ii) the Corporation’s obligations to deliver the Securities have been satisfied or waived.

“Commission” means the United States Securities and Exchange Commission.

3

“Common Stock” means the Corporation’s common stock, par value $0.00001 per share, and stock of any other class of securities into which such securities may hereafter be reclassified or changed.

“Common Stock Equivalents” means any securities of the Corporation or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants 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.

“Conversion Amount” means the sum of the Stated Value at issue.

“Conversion Date” shall have the meaning set forth in Section 6(a).

“Conversion Price” shall have the meaning set forth in Section 6(b).

“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of the shares of Preferred Stock in accordance with the terms hereof.

“Conversion Shares Registration Statement” means a registration statement that registers the resale of all Conversion Shares of the Holders, who shall be named as “selling stockholders” therein.

“Dilutive Issuance” shall have the meaning set forth in Section 7(b).

“Dilutive Issuance Notice” shall have the meaning set forth in Section 7(b).

“Dividend Conversion Rate” means the lesser of (a) the Conversion Price or (b) 85% of the lesser of (i) the average of the VWAPs for the 5 consecutive Trading Days ending on the Trading Day that is immediately prior to the applicable Dividend Payment Date or (ii) the average of the VWAPs for the 5 consecutive Trading Days ending on the Trading Day that is immediately prior to the date the applicable Dividend Conversion Shares are issued and delivered if such delivery is after the Dividend Payment Date.

“Dividend Conversion Shares” shall have the meaning set forth in Section 3(a).

“Dividend Notice Period” shall have the meaning set forth in Section 3(a).

“Dividend Payment Date” shall have the meaning set forth in Section 3(a).

“Dividend Share Amount” shall have the meaning set forth in Section 3(a).

“Dividend Payment Date” shall have the meaning set forth in Section 3(a).

4

“Equity Conditions” means, during the period in question, (a) the Corporation shall have duly honored all conversions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the applicable Holder on or prior to the dates so requested or required, if any, (b) the Corporation shall have paid all liquidated damages and other amounts owing to the applicable Holder in respect of the Preferred Stock, (c)(i) there is an effective Conversion Shares Registration Statement pursuant to which the Holders are permitted to utilize the prospectus thereunder to resell all of the shares of Common Stock issuable pursuant to the Transaction Documents (and the Corporation believes, in good faith, that such effectiveness will continue uninterrupted for the foreseeable future) or (ii) all of the Conversion Shares issuable pursuant to the Transaction Documents may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions or current public information requirements as determined by the counsel to the Corporation as set forth in a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the affected Holders, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such Trading Market (and the Corporation believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized, but unissued and otherwise unreserved, shares of Common Stock for the issuance of all of the shares then issuable pursuant to the Transaction Documents, (f) there is no existing Triggering Event and no existing event which, with the passage of time or the giving of notice, would constitute a Triggering Event, (g) the issuance of the shares in question (or, in the case of a redemption, the shares issuable upon conversion in full of the redemption amount) to the applicable Holder would not violate the limitations set forth in Section 6(d) and herein, (h) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated, (i) the applicable Holder is not in possession of any information provided by the Corporation that constitutes, or may constitute, material non-public information, and (j) for each Trading Day in a period of 20 consecutive Trading Days prior to the applicable date in question, the daily dollar trading volume for the Common Stock on the principal Trading Market exceeds $250,000 per Trading Day in the case of an Optional Redemption pursuant to Section 8 herein (trade value of the full dividend payment for the 5 Trading Days prior to the dividend date in the case of the issuance of shares of Common Stock in lieu of cash dividend payments).

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“Exchange Agreement” means the exchange agreement between the Company and the holders of certain outstanding promissory notes of the Company pursuant to which the holders shall exchange the promissory notes for Preferred Stock and Warrants.

5

“Exempt Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Corporation pursuant to any stock or option plan duly adopted by a majority of the non-employee members of the Board of Directors of the Corporation or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise or exchange of or conversion of any securities issued pursuant to the Purchase Agreement and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of the Purchase Agreement, provided that such securities have not been amended since the date of the Purchase Agreement to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of any such securities, (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Corporation, provided that any such issuance shall only be to a Person (or to the equityholders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the Corporation and shall provide to the Corporation additional benefits in addition to the investment of funds, but shall not include a transaction in which the Corporation is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities and (d) up to an amount of Preferred Stock and warrants having a cash subscription amount equal to the difference between $6,000,000 and the aggregate Subscription Amounts under the Purchase Agreement, on  the same terms and conditions and prices as hereunder, with investors executing definitive agreements for the purchase of such securities and such transactions having closed on or before January 31, 2014 and (e) the issuance of Preferred Stock and Warrants pursuant to the Exchange Agreement.

“Fundamental Transaction” shall have the meaning set forth in Section 7(e).

“GAAP” means United States generally accepted accounting principles.

“Holder” shall have the meaning given such term in Section 2.

“Indebtedness” means (a) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business), (b) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Corporation’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, and (c) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP.

“Junior Securities” means the Common Stock and all other Common Stock Equivalents of the Corporation (including, without limitation, the Series D Preferred Stock and Series E Preferred Stock), other than those securities which are explicitly senior or pari passu to the Preferred Stock in dividend rights or liquidation preference.

6

“Liens” means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

“Liquidation” shall have the meaning set forth in Section 5.

“New York Courts” shall have the meaning set forth in Section 11(d).

“Notice of Conversion” shall have the meaning set forth in Section 6(a).

“Optional Redemption” shall have the meaning set forth in Section 8.

“Optional Redemption Amount” means the sum of (a) 100% of the aggregate Stated Value then outstanding, (b) accrued but unpaid dividends and (c) all liquidated damages and other amounts due in respect of the Preferred Stock.

“Optional Redemption Date” shall have the meaning set forth in Section 8.

“Optional Redemption Notice” shall have the meaning set forth in Section 8.

“Optional Redemption Notice Date” shall have the meaning set forth in Section 8.

“Original Issue Date” means the date of the first issuance of any shares of the Preferred Stock regardless of the number of transfers of any particular shares of Preferred Stock and regardless of the number of certificates which may be issued to evidence such Preferred Stock.

“Permitted Indebtedness” means (a) the Indebtedness existing on the Original Issue Date and set forth on Schedule 3.1(aa) attached to the Purchase Agreement and (b) lease obligations and purchase money indebtedness of up to $150,000, in the aggregate, incurred in connection with the acquisition of capital assets and lease obligations with respect to newly acquired or leased assets.

“Permitted Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Corporation) have been established in accordance with GAAP, (b) Liens imposed by law which were incurred in the ordinary course of the Corporation’s business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of the Corporation’s business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Corporation and its consolidated Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien, (c) Liens incurred in connection with Permitted Indebtedness under clause (a) thereunder, and (d) Liens incurred in connection with Permitted Indebtedness under clause (b) thereunder, provided that such Liens are not secured by assets of the Corporation or its Subsidiaries other than the assets so acquired or leased.

7

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

“Preferred Stock” shall have the meaning set forth in Section 2.

“Primary Holders” means, collectively, Hillair Capital Investments L.P., Alpha Capital Anstalt, and Osher Capital Partners LLC.

“Purchase Agreement” means the Securities Purchase Agreement, dated on or about the Original Issue Date, among the Corporation and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

“Required Number of Subscribers” means 50,000 Subscribers.

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

“Securities” means the Preferred Stock, the Warrants, the Warrant Shares and the Underlying Shares.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Series D Preferred Stock” means the Series D Preferred Stock of the Corporation previously issued by the Corporation pursuant to that certain Amended and Restated Certificate of Designation of the Relative Rights and Preferences of the Series D Convertible Preferred Stock of the Corporation, as filed with the Secretary of State of Delaware on February 2, 2012 (the “Designation of Rights of the Series D Preferred”).

8

“Series E Preferred Stock” means the Series E Preferred Stock of the Corporation previously issued by the Corporation pursuant to that certain Certificate of Designation of the Relative Rights and Preferences of the Series E Convertible Preferred Stock of the Corporation as filed with the Secretary of State of Delaware on September 3, 2013 (the “Designation of Rights of the Series F Preferred”).

“Share Delivery Date” shall have the meaning set forth in Section 6(c).

“Stated Value” shall have the meaning set forth in Section 2, as the same may be increased pursuant to Section 3.

“Subscribers” means any persons who are “CareServices members” or “Chronic Illness members” being actively monitored by the Corporation, as the terms “CareServices member” and “Chronic Illness member” are customarily used by the Corporation.

“Subscription Amount” shall mean, as to each Holder, the aggregate amount to be paid for the Preferred Stock purchased pursuant to the Purchase Agreement as specified below such Holder’s name on the signature page of the Purchase Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available funds.

“Subsidiary” means any subsidiary of the Corporation as set forth on Schedule 3.1(a) of the Purchase Agreement and shall, where applicable, also include any direct or indirect subsidiary of the Corporation formed or acquired after the date of the Purchase Agreement.

“Successor Entity” shall have the meaning set forth in Section 7(e).

“Trading Day” means a day on which the principal Trading Market is open for business.

“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, the OTC Bulletin Board, or the OTCQB Segment of the OTC Pink Marketplace (or any successors to any of the foregoing).

“Transaction Documents” means this Amended and Restated Certificate of Designation, the Purchase Agreement, the Warrants, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated pursuant to the Purchase Agreement.

9

“Transfer Agent” means American Stock Transfer, the current transfer agent of the Corporation, with a mailing address of 6201 15th Avenue, Third Floor, Brooklyn, New York, 11219, c/o Denise Padilla, and a facsimile number of (718) 765 8711, and any successor transfer agent of the Corporation.

“Triggering Event” shall have the meaning set forth in Section 10(a).

“Triggering Redemption Amount” means, for each share of Preferred Stock, the sum of (a) the greater of (i) 130% of the Stated Value and (ii) the product of (y) the VWAP on the Trading Day immediately preceding the date of the Triggering Event and (z) the Stated Value divided by the then Conversion Price, (b) all accrued but unpaid dividends thereon and (c) all liquidated damages and other costs, expenses or amounts due in respect of the Preferred Stock.

“Triggering Redemption Payment Date” shall have the meaning set forth in Section 10(b).

“Underlying Shares” means the shares of Common Stock issued and issuable upon conversion or redemption of the Preferred Stock and upon exercise of the Warrants and.

“Variable Rate Transaction” shall have the meaning ascribed to such term in Section 4.13(b) of the Purchase Agreement.

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b)  if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holders of a majority in interest of the Securities then outstanding and reasonably acceptable to the Corporation, the fees and expenses of which shall be paid by the Corporation.

“Warrants” means, collectively, the Common Stock purchase warrants delivered to the Holder in accordance with Section 2.2(a) of the Purchase Agreement, and the Common Stock purchase warrants delivered to the party to the Exchange Agreement, which Warrants shall be exercisable immediately and have a term of exercise equal to five (5) years, in the form of Exhibit C attached to the Purchase Agreement.

10

“Warrant Shares” means the shares of Common Stock issuable upon exercise of the Warrants.

Section 2.                      Designation, Amount and Par Value. The series of preferred stock shall be designated as its Series F Variable Rate Convertible Preferred Stock (the “Preferred Stock”) and the number of shares so designated shall be up to 7,803 (which shall not be subject to increase without the written consent of all of the holders of the Preferred Stock (each, a “Holder” and collectively, the “Holders”)). Each share of Preferred Stock shall have a par value of $0.00001 per share and a stated value equal to $1,000, subject to increase set forth in Section 3 below (the “Stated Value”).

11

Section 3.                      Dividends.

a)Dividends in Cash. Holders shall be entitled to receive, and the Corporation shall pay, cumulative dividends at the rate per share (as a percentage of the Stated Value per share) of 8% per annum from the Original Issue Date until April 30, 2015, 16% per annum from May 1, 2015 until July 31, 2015, 20% per annum from August 1, 2015 until October 31, 2015 and, 25% per annum thereafter (subject to increase pursuant to Section 10(b)), payable quarterly on February 1, May 1, August 1 and November 1, beginning on May 1, 2014 and on each Conversion Date (with respect only to Preferred Stock being converted) and on each Optional Redemption Date (with respect only to Preferred Stock being redeemed) (each such date, a “Dividend Payment Date”) (if any Dividend Payment Date is not a Trading Day, the applicable payment shall be due on the next succeeding Trading Day), in cash, or at the Corporation’s option, in duly authorized, validly issued, fully paid and non-assessable shares of Common Stock as set forth in this Section 3(a), or a combination thereof (the dollar amount to be paid in shares of Common Stock, the “Dividend Share Amount”).  The form of dividend payments to each Holder shall be determined in the following order of priority: (i) if funds are legally available for the payment of dividends and the Equity Conditions have not been met during the 5 consecutive Trading Days immediately prior to the applicable Dividend Payment Date (the “Dividend Notice Period”), in cash only, (ii) if funds are legally available for the payment of dividends and the Equity Conditions have been met during the Dividend Notice Period, at the sole election of the Corporation, in cash or shares of Common Stock which shall be valued at the Dividend Conversion Rate, (iii) if funds are not legally available for the payment of dividends and the Equity Conditions have been met during the Dividend Notice Period, in shares of Common Stock which shall be valued at the Dividend Conversion Rate, (iv) if funds are not legally available for the payment of dividends and the Equity Condition relating to an effective Conversion Shares Registration Statement has been waived by such Holder, as to such Holder only, in unregistered shares of Common Stock which shall be valued at the Dividend Conversion Rate, (v) if funds are not legally available for the payment of dividends and the Equity Condition relating Trading Market exceeding $50,000 for the applicable 5 trading days has been waived in writing by such Holder, as to such Holder only, in shares of Common Stock which shall be valued at the Dividend Conversion Rate and (vi) if funds are not legally available for the payment of dividends and the Equity Conditions have not been met during the Dividend Notice Period, then, at the election of such Holder, such dividends shall accrue to the next Dividend Payment Date or shall be accreted to, and increase, the outstanding Stated Value.  In addition, as a condition to paying dividends in shares of Common Stock, as to such Dividend Payment Date, prior to such Dividend Notice Period (but not more than five (5) Trading Days prior to the commencement of such Dividend Notice Period), the Corporation shall have delivered to each Holder’s account with The Depository Trust Company a number of shares of Common Stock to be applied against such Dividend Share Amount equal to the quotient of (x) the applicable Dividend Share Amount divided by (y) the Dividend Conversion Rate, assuming for such purposes that the Dividend Payment Date is the Trading Day immediately prior to the commencement of the Dividend Notice Period (the “Dividend Conversion Shares”).  The Holders shall have the same rights and remedies with respect to the delivery of any such shares as if such shares were being issued pursuant to Section 6.  Notwithstanding the preceding sentence, if the Corporation has (i) duly tendered an Optional Redemption Notice with respect to all of the then outstanding Preferred Stock, (ii) deposited an amount in cash equal to the applicable Adjusted Optional Redemption Amount with respect thereto in a third party escrow account (or other segregated account satisfactory to the Holders) and delivered evidence thereof to each Holder and (iii) failed to satisfy Equity Condition (j) with respect to such Optional Redemption and requested that the Holders waive such Equity Condition (but has provided confirmation satisfactory to the Holders that the Corporation satisfies the other Equity Conditions and is otherwise legally permitted to make an Optional Redemption, and desires to effect an Optional Redemption in an amount equal to the Adjusted Optional Redemption Amount), the dividend rate on the Preferred Stock held by any such Holder that fails to waive Equity Condition (j) and accept payment of the Adjusted Optional Redemption Amount shall not be subject to increase as described in the preceding sentence (and shall remain at the dividend rate in effect at the time of such Optional Redemption Notice).  For avoidance of doubt, the failure of the Corporation to pay the Adjusted Optional Redemption Amount when due on the applicable Optional Redemption Date as contemplated in the preceding sentence shall constitute a Triggering Event hereunder.  If funds are not legally available for the payment of dividends, then, at the election of such Holder, such dividends shall accrue to the next Dividend Payment Date or shall be accreted to, and increase, the outstanding Stated Value.

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b)Corporation’s Ability to Pay Dividends in Cash or Kind.  On the Closing Date, the Corporation shall have notified the Holders whether or not it may legally pay cash dividends as of the Closing Date.  The Corporation shall promptly notify the Holders at any time the Corporation shall become able or unable, as the case may be, to legally pay cash dividends. If at any time the Corporation has the right to pay dividends in cash or shares of Common Stock, the Corporation must provide the Holders with at least 20 Trading Days’ notice of its election to pay a regularly scheduled dividend in shares of Common Stock (the Corporation may indicate in such notice that the election contained in such notice shall continue for later periods until revised by a subsequent notice).  If at any time the Corporation delivers a notice to the Holders of its election to pay the dividends in shares of Common Stock, the Corporation shall timely file a prospectus supplement pursuant to Rule 424 disclosing such election. The aggregate number of shares of Common Stock otherwise issuable to a Holder on a Dividend Payment Date shall be reduced by the number of shares of Common Stock previously issued to such Holder in connection with such Dividend Payment Date.  If any Dividend Conversion Shares are issued to a Holder in connection with a Dividend Payment Date and are not applied against a Dividend Share Amount, then such Holder shall promptly return such excess shares to the Corporation.

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c)Dividend Calculations. Dividends on the Preferred Stock shall be calculated on the basis of a 360-day year, consisting of twelve 30 calendar day periods, and shall accrue daily commencing on the Original Issue Date, and shall be deemed to accrue from such date whether or not earned or declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends.   Payment of dividends in shares of Common Stock shall otherwise occur pursuant to Section 6(c)(i) herein and, solely for purposes of the payment of dividends in shares, the Dividend Payment Date shall be deemed the Conversion Date.  Dividends shall cease to accrue with respect to any Preferred Stock converted, provided that, the Corporation actually delivers the Conversion Shares within the time period required by Section 6(c)(i) herein.  Except as otherwise provided herein, if at any time the Corporation pays dividends partially in cash and partially in shares, then such payment shall be distributed ratably among the Holders based upon the number of shares of Preferred Stock held by each Holder on such Dividend Payment Date.

d)Late Fees. Any dividends, whether paid in cash or shares of Common Stock, that are not paid within three Trading Days following a Dividend Payment Date shall continue to accrue and shall entail a late fee, which must be paid in cash, at the rate of 18% per annum or the lesser rate permitted by applicable law which shall accrue daily from the Dividend Payment Date through and including the date of actual payment in full.

e)Other Securities. So long as any Preferred Stock shall remain outstanding, neither the Corporation nor any Subsidiary thereof shall redeem, purchase or otherwise acquire directly or indirectly any Junior Securities except as expressly permitted by Section 10(a)(vi). So long as any Preferred Stock shall remain outstanding, neither the Corporation nor any Subsidiary thereof shall directly or indirectly pay or declare any dividend or make any distribution upon (other than a dividend or distribution described in Section 6 and dividends due and paid in the ordinary course on preferred stock of the Corporation outstanding on the Original Issue Date (including the Series D Preferred Stock and Series E Preferred Stock), the terms of which are as set forth on the Designation of Rights of the Series D Preferred and the Designation of Rights of the Series E Preferred, but only at such times when the Corporation is in compliance with its payment and other obligations hereunder), nor shall any distribution be made in respect of, any Junior Securities as long as any dividends due on the Preferred Stock remain unpaid, nor shall any monies be set aside for or applied to the purchase or redemption (through a sinking fund or otherwise) of any Junior Securities or shares pari passu with the Preferred Stock.

f)Special Reserves. The Corporation acknowledges and agrees that the capital of the Corporation (as such term is used in Section 151 of the Delaware General Corporation Law) in respect of the Preferred Stock and any future issuances of the Corporation’s capital stock shall be equal to the aggregate par value of such Preferred Stock or capital stock, as the case may be, and that, on or after the date of the Purchase Agreement, it shall not increase the capital of the Corporation with respect to any shares of the Corporation’s capital stock issued and outstanding on such date.  The Corporation also acknowledges and agrees that it shall not create any special reserves under Section 171 of the Delaware General Corporation Law without the prior written consent of each Holder.

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Section 4.                      Voting Rights.  Except as otherwise provided herein or as otherwise required by law, the Preferred Stock shall have no voting rights. However, as long as any shares of Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote of the Primary Holders that hold Preferred Stock (unless the Primary Holders no longer hold any Preferred Stock, in which case the Corporation shall not, without the affirmative vote of the holders of a majority of the then-outstanding Preferred Stock), (a) alter or change adversely the powers, preferences or rights given to the Preferred Stock or alter or amend this Certificate of Designation, (b) authorize or create any class of stock ranking as to dividends, redemption or distribution of assets upon a Liquidation (as defined in Section 5) senior to, or otherwise pari passu with, the Preferred Stock, (c) amend its certificate of incorporation or other charter documents in any manner that adversely affects any rights of the Holders, (d) increase the number of authorized shares of Preferred Stock, or (e) enter into any agreement with respect to any of the foregoing.

Section 5.                      Liquidation. Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), the Holders shall be entitled to receive out of the assets, whether capital or surplus, of the Corporation an amount equal to the Stated Value, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages then due and owing thereon under this Certificate of Designation, for each share of Preferred Stock before any distribution or payment shall be made to the holders of any Junior Securities, and if the assets of the Corporation shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the Holders shall be ratably distributed among the Holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. A Fundamental Transaction or Change of Control Transaction shall not be deemed a Liquidation. The Corporation shall mail written notice of any such Liquidation, not less than 45 days prior to the payment date stated therein, to each Holder.

Section 6.                      Conversion.

a)Conversions at Option of Holder. Each share of Preferred Stock shall be convertible, at any time and from time to time from and after the Original Issue Date at the option of the Holder thereof, into that number of shares of Common Stock (subject to the limitations set forth in Section 6(d)) determined by dividing the Stated Value of such share of Preferred Stock by the Conversion Price. Holders shall effect conversions by providing the Corporation with the form of conversion notice attached hereto as Annex A (a “Notice of Conversion”). Each Notice of Conversion shall specify the number of shares of Preferred Stock to be converted, the number of shares of Preferred Stock owned prior to the conversion at issue, the number of shares of Preferred Stock owned subsequent to the conversion at issue and the date on which such conversion is to be effected, which date may not be prior to the date the applicable Holder delivers by facsimile such Notice of Conversion to the Corporation (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion to the Corporation is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required.The calculations and entries set forth in the Notice of Conversion shall control in the absence of manifest or mathematical error.  To effect conversions of shares of Preferred Stock, a Holder shall not be required to surrender the certificate(s) representing the shares of Preferred Stock to the Corporation unless all of the shares of Preferred Stock represented thereby are so converted, in which case such Holder shall deliver the certificate representing such shares of Preferred Stock promptly following the Conversion Date at issue.  Shares of Preferred Stock converted into Common Stock or redeemed in accordance with the terms hereof shall be canceled and shall not be reissued.

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b)Conversion Price.  The conversion price for the Preferred Stock shall equal $1.00, subject to adjustment herein (the “Conversion Price”).

c)  Mechanics of Conversion

i.Delivery of Conversion Shares Upon Conversion. Not later than three (3) Trading Days after each Conversion Date (the “Share Delivery Date”), the Corporation shall deliver, or cause to be delivered, to the converting Holder (A) the number of Conversion Shares being acquired upon the conversion of the Preferred Stock (including, if the Corporation has given continuous notice pursuant to Section 3(b) for payment of dividends in shares of Common Stock at least 20 Trading Days prior to the date on which the Notice of Conversion is delivered to the Corporation, shares of Common Stock representing the payment of accrued dividends otherwise determined pursuant to Section 3(a) but assuming that the Dividend Notice Period is the 20 Trading Days period immediately prior to the date on which the Notice of Conversion is delivered to the Corporation and excluding for such issuance the condition that the Corporation deliver the Dividend Share Amount as to such dividend payment prior to the commencement of the Dividend Notice Period) which, on or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement), and (B) a bank check in the amount of accrued and unpaid dividends (if the Corporation has elected or is required to pay accrued dividends in cash). On or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, the Corporation shall deliver the Conversion Shares required to be delivered by the Corporation under this Section 6 electronically through the Depository Trust Company or another established clearing corporation performing similar functions.

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ii.Failure to Deliver Conversion Shares.  If, in the case of any Notice of Conversion, such Conversion Shares are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Corporation at any time on or before its receipt of such Conversion Shares, to rescind such Conversion, in which event the Corporation shall promptly return to the Holder any original Preferred Stock certificate delivered to the Corporation and the Holder shall promptly return to the Corporation the Conversion Shares issued to such Holder pursuant to the rescinded Conversion Notice.

iii.Obligation Absolute; Partial Liquidated Damages.  The Corporation’s obligation to issue and deliver the Conversion Shares upon conversion of Preferred Stock in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by a Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by such Holder or any other Person of any obligation to the Corporation or any violation or alleged violation of law by such Holder or any other person, and irrespective of any other circumstance which might otherwise limit such obligation of the Corporation to such Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Corporation of any such action that the Corporation may have against such Holder.  In the event a Holder shall elect to convert any or all of the Stated Value of its Preferred Stock, the Corporation may not refuse conversion based on any claim that such Holder or any one associated or affiliated with such Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and/or enjoining conversion of all or part of the Preferred Stock of such Holder shall have been sought and obtained, and the Corporation posts a surety bond for the benefit of such Holder in the amount of 150% of the Stated Value of Preferred Stock which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to such Holder to the extent it obtains judgment.  In the absence of such injunction, the Corporation shall issue Conversion Shares and, if applicable, cash, upon a properly noticed conversion. If the Corporation fails to deliver to a Holder such Conversion Shares pursuant to Section 6(c)(i) on the second Trading Day after the Share Delivery Date applicable to such conversion, the Corporation shall pay to such Holder, in cash, as liquidated damages and not as a penalty, for each $5,000 of Stated Value of Preferred Stock being converted, $50 per Trading Day (increasing to $100 per Trading Day on the third Trading Day and increasing to $200 per Trading Day on the sixth Trading Day after such damages begin to accrue) for each Trading Day after such second Trading Day after the Share Delivery Date until such Conversion Shares are delivered or Holder rescinds such conversion.  Nothing herein shall limit a Holder’s right to pursue actual damages or declare a Triggering Event pursuant to Section 10 hereof for the Corporation’s failure to deliver Conversion Shares within the period specified herein and such Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.  The exercise of any such rights shall not prohibit a Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

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iv.Compensation for Buy-In on Failure to Timely Deliver Conversion Shares Upon Conversion. In addition to any other rights available to the Holder, if the Corporation fails for any reason to deliver to a Holder the applicable Conversion Shares by the Share Delivery Date pursuant to Section 6(c)(i), and if after such Share Delivery Date such Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by such Holder of the Conversion Shares which such Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Corporation shall (A) pay in cash to such Holder (in addition to any other remedies available to or elected by such Holder) the amount, if any, by which (x) such Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that such Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of such Holder, either reissue (if surrendered) the shares of Preferred Stock equal to the number of shares of Preferred Stock submitted for conversion (in which case, such conversion shall be deemed rescinded) or deliver to such Holder the number of shares of Common Stock that would have been issued if the Corporation had timely complied with its delivery requirements under Section 6(c)(i). 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 shares of Preferred Stock with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Corporation shall be required to pay such Holder $1,000. The Holder shall provide the Corporation written notice indicating the amounts payable to such Holder in respect of the Buy-In and, upon request of the Corporation, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Corporation’s failure to timely deliver the Conversion Shares upon conversion of the shares of Preferred Stock as required pursuant to the terms hereof.

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v.Reservation of Shares Issuable Upon Conversion. The Corporation covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of the Preferred Stock and payment of dividends on the Preferred Stock, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Preferred Stock), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 7) upon the conversion of the then outstanding shares of Preferred Stock and payment of dividends hereunder.  The Corporation covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Conversion Shares Registration Statement is then effective under the Securities Act, shall be registered for public resale in accordance with such Conversion Shares Registration Statement.

vi.Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of the Preferred Stock.   As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Corporation shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

vii.Transfer Taxes and Expenses.  The issuance of Conversion Shares on conversion of this Preferred Stock shall be made without charge to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such Conversion Shares, provided that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holders of such shares of Preferred Stock and the Corporation shall not be required to issue or deliver such Conversion Shares unless or until the Person or Persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid.  The Corporation shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Conversion Shares.

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d)Beneficial Ownership Limitation.The Corporation shall not effect any conversion of the Preferred Stock, and a Holder shall not have the right to convert any portion of the Preferred Stock, to the extent that, after giving effect to the conversion set forth on the applicable Notice of Conversion, such Holder (together with such Holder’s Affiliates, and any Persons acting as a group together with such Holder or any of such Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by such Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of the Preferred Stock with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted Stated Value of Preferred Stock beneficially owned by such Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Corporation  subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, the Preferred Stock or the Warrants) beneficially owned by such Holder or any of its Affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 6(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.  To the extent that the limitation contained in this Section 6(d) applies, the determination of whether the Preferred Stock is convertible (in relation to other securities owned by such Holder together with any Affiliates) and of how many shares of Preferred Stock are convertible shall be in the sole discretion of such Holder, and the submission of a Notice of Conversion shall be deemed to be such Holder’s determination of whether the shares of Preferred Stock may be converted (in relation to other securities owned by such Holder together with any Affiliates) and how many shares of the Preferred Stock are convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, each Holder will be deemed to represent to the Corporation each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Corporation shall have no obligation to verify or confirm the accuracy of such determination.  In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.  For purposes of this Section 6(d), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Corporation’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Corporation or (iii) a more recent written notice by the Corporation or the Transfer Agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Corporation shall within two Trading Days confirm orally and in writing to such Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Corporation, including the Preferred Stock, by such Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of Preferred Stock held by the applicable Holder.  A Holder, upon not less than 61 days’ prior notice to the Corporation, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 6(d) applicable to its Preferred Stock provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Preferred Stock held by the Holder and the provisions of this Section 6(d) shall continue to apply.  Any such increase or decrease will not be effective until the 61st day after such notice is delivered to the Corporation and shall only apply to such Holder and no other Holder.  The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 6(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of Preferred Stock.

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Section 7.                      Certain Adjustments.

a)Stock Dividends and Stock Splits.  If the Corporation, at any time while this Preferred Stock is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any other Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation upon conversion of, or payment of a dividend on, this Preferred Stock), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Corporation, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Corporation) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event.  Any adjustment made pursuant to this Section 7(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

b)Subsequent Equity Sales.  If, at any time while this Preferred Stock is outstanding, the Corporation or any Subsidiary, as applicable sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base Conversion Price.  Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued.  Notwithstanding the foregoing, no adjustment will be made under this Section 7(b) in respect of an Exempt Issuance.  If the Corporation enters into a Variable Rate Transaction, despite the prohibition set forth in the Purchase Agreement, the Corporation shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion price at which such securities may be converted or exercised.  The Corporation shall notify the Holders in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 7(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”).  For purposes of clarification, whether or not the Corporation provides a Dilutive Issuance Notice pursuant to this Section 7(b), upon the occurrence of any Dilutive Issuance, the Holders are entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether a Holder accurately refers to the Base Conversion Price in the Notice of Conversion.
 

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c)Subsequent Rights Offerings.  In addition to any adjustments pursuant to Section 7(a) above, if at any time the Corporation grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of such Holder’s Preferred Stock (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

d)Pro Rata Distributions. During such time as this Preferred Stock is outstanding, if the Corporation declares or makes any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a "Distribution"), at any time after the issuance of this Preferred Stock, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete Conversion of this Preferred Stock (without regard to any limitations on Conversion hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

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e)Fundamental Transaction.  If, at any time while this Preferred Stock is outstanding, (i) the Corporation, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Corporation with or into another Person, (ii) the Corporation, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Corporation or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Corporation, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization 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 (v) the Corporation, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent conversion of this Preferred Stock, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 6(d) on the conversion of this Preferred Stock), the number of shares of Common Stock of the successor or acquiring corporation or of the Corporation, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Preferred Stock is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 6(d) on the conversion of this Preferred Stock).  For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Corporation shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Preferred Stock following such Fundamental Transaction.  To the extent necessary to effectuate the foregoing provisions, any successor to the Corporation or surviving entity in such Fundamental Transaction shall file a new Certificate of Designation with the same terms and conditions and issue to the Holders new preferred stock consistent with the foregoing provisions and evidencing the Holders’ right to convert such preferred stock into Alternate Consideration.  The Corporation shall cause any successor entity in a Fundamental Transaction in which the Corporation is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Corporation under this Certificate of Designation and the other Transaction Documents in accordance with the provisions of this Section 7(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the holder of this Preferred Stock, deliver to the Holder in exchange for this Preferred Stock a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Preferred Stock which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Preferred Stock (without regard to any limitations on the conversion of this Preferred Stock) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Preferred Stock immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Certificate of Designation and the other Transaction Documents referring to the “Corporation” shall refer instead to the Successor Entity), and may exercise every right and power of the Corporation and shall assume all of the obligations of the Corporation under this Certificate of Designation and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Corporation herein.

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f)Milestone-Related Adjustment.  If, as determined on December 31, 2014, the Corporation has registered a number of actual Subscribers (“Actual Subscribers”) that is less than the Required Number of Subscribers, then the Conversion Price shall be reduced, and only reduced, on January 1, 2015 to equal the then current Conversion Price multiplied by a fraction in which (i) the numerator equals the number of Actual Subscribers on December 31, 2014 and (ii) the denominator equals the Required Number of Subscribers.  By way of illustration only, if the Corporation has registered 95,000 Actual Subscribers on December 31, 2014 and the then current Conversion Price is $1.00, the then current Conversion Price shall be multiplied by the fraction of 95,000/100,000 and the Conversion Price shall be adjusted to $0.95 on January 1, 2015.  The Corporation shall file a Current Report on Form 8-K with the Commission on the first Trading Day following December 31, 2014 to publicly disclose the Corporation’s number of Actual Subscribers on December 31, 2014 (“Subscriber 8-K”), provided that, if the Corporation has previously publicly disclosed in an SEC Report that the Corporation has registered a number of Actual Subscribers that exceeds the Required Number of Subscribers, such Subscriber 8-K shall not be required hereunder.  In addition, within one Trading Day following any adjustment to the Conversion Price pursuant to this Section 7(f), the Corporation shall deliver written notice to each Holder that sets forth the adjustment hereunder and the basis therefor (“Subscriber Adjustment Notice”), provided that in no event shall the Corporation deliver the Subscriber Adjustment Notice prior to the filing of the Subscriber 8-K required hereunder.  If the Corporation has not previously publicly disclosed in an SEC Report that the Corporation has registered a number of Actual Subscribers that exceeds the Required Number of Subscribers and the Corporation shall fail to publicly disclose the number of Actual Subscribers on December 31, 2014 in the Subscriber 8-K as required hereunder, the Corporation shall be deemed to have one Actual Subscriber and the Conversion Price shall accordingly be adjusted on January 1, 2015 pursuant to this Section 7(f).   For purposes of clarification, whether or not the Corporation provides a Subscriber Adjustment Notice pursuant to this Section 7(f), the Holders are entitled to receive a number of Conversion Shares based upon the adjusted Conversion Price on or after the date of the adjustment hereunder, regardless of whether a Holder accurately refers to the adjusted Conversion Price in the Notice of Conversion.  For purposes of clarity, the Conversion Price can only be adjusted downward pursuant to this Section 7(f).

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g)Calculations.  All calculations under this Section 7 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.  For purposes of this Section 7, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Corporation) issued and outstanding.

h)Notice to the Holders.

i.Adjustment to Conversion Price.  Whenever the Conversion Price is adjusted pursuant to any provision of this Section 7, the Corporation shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.
 

ii.Notice to Allow Conversion by Holder.  If (A) the Corporation shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Corporation shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Corporation shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Corporation shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Corporation is a party, any sale or transfer of all or substantially all of the assets of the Corporation, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Corporation shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, then, in each case, the Corporation shall cause to be filed at each office or agency maintained for the purpose of conversion of this Preferred Stock, and shall cause to be delivered to each Holder at its last address as it shall appear upon the stock books of the Corporation, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice.  To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Corporation or any of the Subsidiaries, the Corporation shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.  The Holder shall remain entitled to convert the Conversion Amount of this Preferred Stock (or any part hereof) during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
 

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      Section 8.                      Optional Redemption at Election of Corporation.  Subject to the provisions of this Section 8, at any time after May 1, 2015, the Corporation may deliver a notice to the Holders (an “Optional Redemption Notice” and the date such notice is deemed delivered hereunder, the “Optional Redemption Notice Date”) of its irrevocable election to redeem some or all of the then outstanding Preferred Stock, for cash in an amount equal to the Optional Redemption Amount on the 20th Trading Day following the Optional Redemption Notice Date (such date, the “Optional Redemption Date” and such redemption, the “Optional Redemption”).  The Optional Redemption Amount (or Adjusted Optional Redemption Amount as contemplated by Section 3(a)) is payable in full on the Optional Redemption Date.  The Corporation may only effect an Optional Redemption if each of the Equity Conditions shall have been met on each Trading Day occurring during the period commencing on the Optional Redemption Notice Date through to the Optional Redemption Date and through and including the date payment of the Optional Redemption Amount is actually made.  If any of the Equity Conditions shall cease to be satisfied at any time during the 20 Trading Day period, then a Holder may elect to nullify the Optional Redemption Notice as to such Holder by notice to the Corporation within 3 Trading Days after the first day on which any such Equity Condition has not been met (provided that if, by a provision of the Transaction Documents, the Corporation is obligated to notify the Holders of the non-existence of an Equity Condition, such notice period shall be extended to the third Trading Day after proper notice from the Corporation) in which case the Optional Redemption Notice shall be null and void, abinitio.  The Corporation covenants and agrees that it will honor all Notices of Conversion tendered from the time of delivery of the Optional Redemption Notice through the date the Optional Redemption Amount (or Adjusted Optional Redemption Amount as contemplated in Section 3(a)) is paid in full.

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Section 9.                      Negative Covenants.  As long as any shares of Preferred Stock are outstanding, unless the Primary Holders that hold Preferred Stock shall have otherwise given prior written consent, the Corporation shall not, and shall not permit any of the Subsidiaries to, directly or indirectly (unless the Primary Holders no longer hold any Preferred Stock, in which case the Corporation shall not, and shall not permit any of the Subsidiaries to, directly or indirectly, without the prior written consent from the Holders of a majority of the then outstanding Preferred Stock):

a)other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

b)other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

c)amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder;

d)repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock, Common Stock Equivalents or Junior Securities, other than as to (i) the Conversion Shares or Warrant Shares as permitted or required under the Transaction Documents and (ii) repurchases of Common Stock or Common Stock Equivalents of departing officers and directors of the Corporation, provided that such repurchases shall not exceed an aggregate of $100,000 for all officers and directors for so long as the Preferred Stock is outstanding;

e)pay cash dividends or distributions on Junior Securities of the Corporation, other than regularly scheduled dividend payments on the Series D Preferred Stock and the Series E Preferred Stock, provided that the Corporation is in full compliance with its obligations, including its payment obligations, under the Preferred Stock;

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f)enter into any transaction with any Affiliate of the Corporation which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Corporation (even if less than a quorum otherwise required for board approval); or

g)enter into any agreement with respect to any of the foregoing.

Section 10.                      Redemption Upon Triggering Events.

a)“Triggering Event” means, wherever used herein any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

i.the Corporation shall fail to deliver Conversion Shares issuable upon a conversion hereunder that comply with the provisions hereof prior to the fifth Trading Day after such shares are required to be delivered hereunder, or the Corporation shall provide written notice to any Holder, including by way of public announcement, at any time, of its intention not to comply with requests for conversion of any shares of Preferred Stock in accordance with the terms hereof;

ii.the Corporation shall fail for any reason to pay in full the amount of cash due pursuant to a Buy-In within five calendar days after notice therefor is delivered hereunder;

iii.the Corporation shall fail to have available a sufficient number of authorized and unreserved shares of Common Stock to issue to such Holder upon a conversion hereunder;

iv.unless specifically addressed elsewhere in this Certificate of Designation as a Triggering Event, the Corporation shall fail to observe or perform any other covenant, agreement or warranty contained in, or otherwise commit any breach of the Transaction Documents, and such failure or breach shall not, if subject to the possibility of a cure by the Corporation, have been cured within 30 calendar days after the date on which written notice of such failure or breach shall have been delivered;

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v.any breach of the agreements delivered to the Company at the Closing pursuant to Sections 2.3(b)(vi) and 2.3(b)(vii) of the Purchase Agreement;

vi.the Corporation shall redeem more than a de minimis number of  Junior Securities other than as to repurchases of Common Stock or Common Stock Equivalents from departing officers and directors, provided that, while any of the Preferred Stock remains outstanding, such repurchases shall not exceed an aggregate of $100,000 from all officers and directors;

vii.the Corporation shall be party to a Change of Control Transaction;

viii.there shall have occurred a Bankruptcy Event;

ix.the Common Stock shall fail to be listed or quoted for trading on a Trading Market for more than five Trading Days, which need not be consecutive Trading Days;

x.the electronic transfer by the Company of shares of Common Stock through the Depository Trust Company or another established clearing corporation is no longer available or is subject to a “chill”; or

xi.any monetary judgment, writ or similar final process shall be entered or filed against the Corporation, any subsidiary or any of their respective property or other assets for more than $50,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days.

b)Upon the occurrence of a Triggering Event, each Holder shall (in addition to all other rights it may have hereunder or under applicable law) have the right, exercisable at the sole option of such Holder, to require the Corporation to, (A) with respect to the Triggering Events set forth in Sections 10(a)(i), (ii), (iv), (xi), (vii) (as to Changes of Control approved by the Board of Directors of the Corporation) and (viii) (as to voluntary filings only), redeem all of the Preferred Stock then held by such Holder for a redemption price, in cash, equal to the Triggering Redemption Amount or (B) at the option of each Holder and with respect to the Triggering Events set forth in Sections 10(a)(iii), (v), (vii) (as to Changes of Control not approved by the Board of Directors of the Corporation), (viii) (as to involuntary filings only), (iv), (x) and (xi), either (a) redeem all of the Preferred Stock then held by such Holder for a redemption price, in shares of Common Stock, equal to a number of shares of Common Stock equal to the Triggering Redemption Amount divided by 75% of the average of the 10 VWAPs immediately prior to the date of election hereunder or (b) increase the dividend rate on all of the outstanding Preferred Stock held by such Holder to 18% per annum thereafter.  The Triggering Redemption Amount, in cash or in shares, shall be due and payable or issuable, as the case may be, within five Trading Days of the date on which the notice for the payment therefor is provided by a Holder (the “Triggering Redemption Payment Date”).  If the Corporation fails to pay in full the Triggering Redemption Amount hereunder on the date such amount is due in accordance with this Section (whether in cash or shares of Common Stock), the Corporation will pay interest thereon at a rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law, accruing daily from such date until the Triggering Redemption Amount, plus all such interest thereon, is paid in full.  For purposes of this Section, a share of Preferred Stock is outstanding until such date as the applicable Holder shall have received Conversion Shares upon a conversion (or attempted conversion) thereof that meets the requirements hereof or has been paid the Triggering Redemption Amount in cash.

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Section 11.                      Miscellaneous.

a)Notices.  Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service, addressed to the Corporation, at the address set forth above Attention:David G. Derrick, Chief Executive Officer, facsimile number 801-451-5736, or such other facsimile number or address as the Corporation may specify for such purposes by notice to the Holders delivered in accordance with this Section 11.  Any and all notices or other communications or deliveries to be provided by the Corporation hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of such Holder appearing on the books of the Corporation, or if no such facsimile number or address appears on the books of the Corporation, at the principal place of business of such Holder, as set forth in the Purchase Agreement.  Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth in this Section prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth in this Section on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.

b)Absolute Obligation. Except as expressly provided herein, no provision of this Certificate of Designation shall alter or impair the obligation of the Corporation, which is absolute and unconditional, to pay liquidated damages, accrued dividends and accrued interest, as applicable, on the shares of Preferred Stock at the time, place, and rate, and in the coin or currency, herein prescribed.

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c)Lost or Mutilated Preferred Stock Certificate.  If a Holder’s Preferred Stock certificate shall be mutilated, lost, stolen or destroyed, the Corporation shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated certificate, or in lieu of or in substitution for a lost, stolen or destroyed certificate, a new certificate for the shares of Preferred Stock so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such certificate, and of the ownership hereof reasonably satisfactory to the Corporation.

d)Governing Law.  All questions concerning the construction, validity, enforcement and interpretation of this Certificate of Designation shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, without regard to the principles of conflict of laws thereof.  Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”).  Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or 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 Certificate of Designation 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 applicable 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 Certificate of Designation or the transactions contemplated hereby.  If any party shall commence an action or proceeding to enforce any provisions of this Certificate of Designation, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

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e)Waiver.  Any waiver by the Corporation or a Holder of a breach of any provision of this Certificate of Designation shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Certificate of Designation or a waiver by any other Holders.  The failure of the Corporation or a Holder to insist upon strict adherence to any term of this Certificate of Designation on one or more occasions shall not be considered a waiver or deprive that party (or any other Holder) of the right thereafter to insist upon strict adherence to that term or any other term of this Certificate of Designation on any other occasion.  Any waiver by the Corporation or a Holder must be in writing.

f)Severability.  If any provision of this Certificate of Designation is invalid, illegal or unenforceable, the balance of this Certificate of Designation shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances.  If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law.

g)Next Business Day.  Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

h)Headings.  The headings contained herein are for convenience only, do not constitute a part of this Certificate of Designation and shall not be deemed to limit or affect any of the provisions hereof.

i)Status of Converted or Redeemed Preferred Stock.  Shares of Preferred Stock may only be issued pursuant to the Purchase Agreement.  If any shares of Preferred Stock shall be converted, redeemed or reacquired by the Corporation, such shares shall resume the status of authorized but unissued shares of preferred stock and shall no longer be designated as Series F Variable Rate Convertible Preferred Stock.

*********************

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RESOLVED, FURTHER, that the Chairman, the president or any vice-president, and the secretary or any assistant secretary, of the Corporation be and they hereby are authorized and directed to prepare and file this Certificate of Designation of Preferences, Rights and Limitations in accordance with the foregoing resolution and the provisions of Delaware law.

        IN WITNESS WHEREOF, the undersigned has executed this Certificate this ___ day of August 2014.

__________________________________________

Name:  Marc Bratsman

Title: CFO and Secretary

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ANNEX A

NOTICE OF CONVERSION

(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF PREFERRED STOCK)

The undersigned hereby elects to convert the number of shares of Series F Variable Rate Convertible Preferred Stock indicated below into shares of common stock, par value $0.00001 per share (the “Common Stock”), of ActiveCare, Inc., a Delaware corporation (the “Corporation”), according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a Person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as may be required by the Corporation in accordance with the Purchase Agreement. No fee will be charged to the Holders for any conversion, except for any such transfer taxes.

Conversion calculations:

Date to Effect Conversion: _____________________________________________
Number of shares of Preferred Stock owned prior to Conversion: _______________
Number of shares of Preferred Stock to be Converted: ________________________
Stated Value of shares of Preferred Stock to be Converted: ____________________
Number of shares of Common Stock to be Issued: ___________________________
Applicable Conversion Price:____________________________________________
Number of shares of Preferred Stock subsequent to Conversion: ________________
DWAC Instructions: Broker no: _________ Account no: ___________
	[HOLDER] By:___________________________________      Name:      Title:

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EX-10.19

Exhibit 10.19

DIVIDEND AGREEMENT

THIS DIVIDEND AGREEMENT (this “Agreement”), dated as of August 15th, 2014, and effective from the date of the Purchase Agreement (as defined below), is entered into among ActiveCare, Inc., a Delaware corporation (the “Company”), and each of Hillair Capital Investments L.P., Alpha Capital Anstalt and Osher Capital Partners LLC (the “Primary Holders”). Capitalized terms used herein, but not otherwise defined, shall have the meanings ascribed to such terms in the Purchase Agreement (as defined below).

WHEREAS,the Company, the Primary Holders and certain other parties entered into a Securities Purchase Agreement, dated December 16, 2013 (as amended, the “Purchase Agreement”), and the other transaction documents entered into in connection therewith, pursuant to which the Company created and issued a new series of preferred stock designated as Series F Variable Rate Convertible Preferred Stock (the “Preferred Stock”) pursuant to a Certificate of Designation for the Preferred Stock (“Certificate of Designation”);

WHEREAS, the Company and the Primary Holders agree, subject to certain conditions hereunder, to permit the Company to issue to the Primary Holders shares of Common Stock in lieu of cash dividend payments.

NOW, THEREFORE, in consideration of the terms and conditions contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound hereby, agree as follows:

1.Consent to Amended and Restated Certificate of Designation.  Concurrently with the execution of this Agreement, each Primary Holder shall deliver or cause to be delivered to the Company a Consent in Lieu of Special Meeting of Series F Preferred Stockholders, substantially in the form of Exhibit D attached hereto, with respect to the amendment and restatement of the Certificate of Designation (the “Amended and Restated Certificate of Designation”).

2.Amendment to Certificate of Designation.  The Company shall take all necessary action to effectuate the Amended and Restated Certificate of Designation, including the filing of the Amended and Restated Certificate of Designation with the Secretary of State of Delaware on the date hereof, and shall deliver evidence of the filing and acceptance thereof to each Primary Holder.

3.Representations and Warranties of the Company.  The Company hereby makes the representations and warranties set forth below to the Primary Holders as of the date of its execution of this Agreement:

(i)Authorization; Enforcement.  The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder in accordance with the terms hereof.  The execution and delivery of this Agreement by the Company and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company's stockholders in connection therewith.  This Agreement has been duly executed by the Company and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

(ii)No Conflicts.  The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby, subject to the terms hereof and thereof, do not and will not: (i) conflict with or violate any provision of the Company's or any Subsidiary's certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, 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 a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

(iii)Holding Period.  Company acknowledges and agrees that this amendment is an accommodation to the Company by the Holders and is being made with no additional consideration.  As such, the holding period of the Preferred Stock pursuant to Rule 144 shall extend back to December 13, 2013.

(iv)Survival and Bring Down.  All of the Company's representations and warranties contained in this Agreement shall survive the execution, delivery and acceptance of this Agreement by the parties hereto.  The Company expressly reaffirms that each of the representations and warranties set forth in each of the Purchase Agreement (as supplemented or qualified by the disclosures in any disclosure schedule to any Purchase Agreement), continues to be true, accurate and complete in all material respects as of the date hereof (except as set forth in the disclosure schedules attached hereto) (the “Bring Down Disclosure Schedule”), and except for any representation and warranty made as of a certain date, in which case such representation and warranty shall be true, accurate and complete as of such date), and the Company hereby remakes and incorporates herein by reference each such representation and warranty (as qualified by the Bring Down Disclosure Schedule) as though made on the date of this Agreement.  Further, for clarity, the term “Transaction Documents” as defined under the Purchase Agreement shall expressly include this Agreement.

4.Representations and Warranties of the Primary Holders.  Each Primary Holder, severally and not jointly with the other Primary Holders, hereby represents and warrants that the representations and warranties contained in Sections 3.2(b), (c), (d), (e), (f) and (g) are true and correct as they relate to the issuance of the Additional Preferred Stock.  Additionally, each Primary Holder, severally and not jointly with the other Primary Holders, hereby makes the representations and warranties below to the Company s of the date of its execution of this Agreement: (a) the execution and delivery of this Agreement by it and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary action on its behalf and (b) this Agreement has been duly executed and delivered by such Primary Holder and constitutes the valid and binding obligation of such Primary Holder, enforceable against it in accordance with its terms except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

5.Public Disclosure.  On or before August 20, 2014, the Company shall have publicly disclosed the material terms of the transactions contemplated hereunder in a filing with the Commission.

6.Fees and Expenses.  The Company agrees to pay Ellenoff Grossman & Schole LLP the reasonable legal fees and expenses of the Primary Holders in connection herewith and certain expenses incurred with prior negotiations. Except as expressly set forth herein or in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisors, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement and any prior amendments (whether executed or not).

7.Effect on Transaction Documents.Except as expressly modified by this Agreement, as amended, or the Certificate of Designation, all of the terms and conditions of the Transaction Documents shall continue in full force and effect after the execution of this Agreement and shall not be in any way changed, modified or superseded by the terms set forth herein, including, but not limited to, any other obligations the Company may have to the Primary Holders under the Transaction Documents, as amended. 

8.Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be provided as set forth in the Purchase Agreement.

9.Governing Law.  All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed and construed and enforced in accordance with the internal laws of the State of New York in accordance with Section 5.9 of the Purchase Agreement.

10.Execution and Counterparts. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart.  In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

11.Independent Nature of Primary Holders’ Obligations and Rights.  The obligations of each Primary Holder hereunder are several and not joint with the obligations of any other Primary Holders hereunder, and no Primary Holder shall be responsible in any way for the performance of the obligations of any other Primary Holder hereunder. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Primary Holder pursuant hereto, shall be deemed to constitute the Primary Holders as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Primary Holders are in any way acting in concert with respect to such obligations or the transactions contemplated by this Agreement. Each Primary Holder shall be entitled to protect and enforce its rights, including, but not limited to, the rights arising out of this Agreement, and it shall not be necessary for any other Primary Holder to be joined as an additional party in any proceeding for such purpose.

(f)Equal Treatment of Holders.  No consideration (including any modification of any applicable transaction documents related to the Series F Preferred Stock or Series G Preferred Stock) shall be offered or paid to any Person to amend or consent to a waiver or modification of any provisions related to the issuance of the Series F Preferred Stock and Series G Warrants and the Series G Preferred Stock and related Warrants unless the same consideration is also offered to all of the holders of such securities. For clarification purposes, this provision constitutes a separate right granted to each such holder by the Company and is intended for the Company to treat such holders as a class and shall not in any way be construed as such holders acting in concert or as a group with respect to the purchase, disposition or voting of any securities held by such holders or otherwise.

12.Severability.  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.

 [SIGNATURE PAGE FOLLOWS]

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

 ACTIVECARE, INC.

 By:___________________________

       Name: Marc Bratsman

       Title: Chief Financial Officer

********************

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES FOR HOLDERS FOLLOW]

[HOLDER'S SIGNATURE PAGE TO ACAR DIVIDEND AGREEMENT]

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

Name of Primary Holder: ___HILLAIR CAPITAL INVESTMENT L.P.____________

Signature of Authorized Signatory of Primary Holder: __________________________

Name of Authorized Signatory: _________________________

Title of Authorized Signatory: __________________________

[SIGNATURE PAGES CONTINUE]

[HOLDER'S SIGNATURE PAGE TO ACAR DIVIDEND AGREEMENT]

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

Name of Primary Holder: ___ALPHA CAPITAL ANSTALT  ____________________

Signature of Authorized Signatory of Primary Holder: __________________________

Name of Authorized Signatory: _________________________

Title of Authorized Signatory: __________________________

[SIGNATURE PAGES CONTINUE]

[HOLDER'S SIGNATURE PAGE TO ACAR DIVIDEND AGREEMENT]

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

Name of Primary Holder: ___OSHER CAPITAL PARTNERS LLC _______________

Signature of Authorized Signatory of Primary Holder: __________________________

Name of Authorized Signatory: _________________________

Title of Authorized Signatory: __________________________

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Michael Z. Jones, certify that:

1.           I have reviewed this annual report on Form 10-K 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 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, including its consolidated subsidiaries, 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; and

5.           The registrant’s other certifying officer 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.

/s/ Michael Z. Jones                                                      

Name:         Michael Z. Jones

Title:           Interim Chief Executive Officer (Principal Executive Officer)

Date:           January 13, 2015

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Marc C Bratsman, certify that:

1.           I have reviewed this annual report on Form 10-K 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 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, including its consolidated subsidiaries, 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; and

5.           The registrant’s other certifying officer 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.

/s/ Marc C Bratsman

Name:         Marc C Bratsman

Title:           Chief Financial Officer (Principal Accounting and Financial Officer)

Date:           January 13, 2015

EX-32.1

Exhibit 32.1

CERTIFICATION OF PERIODIC REPORT

I, Michael Z. Jones, Interim Chief Executive Officer of ActiveCare, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

(1)           the Annual Report on Form 10-K of the Company for the year ended September 30, 2014  (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and

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

Dated: January 13, 2015

/s/ Michael Z. Jones                                                      

Michael Z. Jones

Interim Chief Executive Officer

(Principal Executive Officer)

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.

EX-32.2

Exhibit 32.2

CERTIFICATION OF PERIODIC REPORT

I, Marc C Bratsman, Chief Financial Officer of ActiveCare, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

(1)           the Annual Report on Form 10-K of the Company for the year ended September 30, 2014 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and

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

Dated: January 13, 2015

/s/ Marc C Bratsman

Marc C Bratsman

Chief Financial Officer

(Principal Financial and Accounting Officer)

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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3. Summary of Significant Accounting Policies: Research and Development Costs (Policies)

12 Months Ended

Sep. 30, 2014

Policies

Research and Development Costs

Research and Development Costs

All expenditures for research and development are charged to expense as incurred. Research and development expenses for fiscal years 2014 and 2013 were $215,074 and $605,170, respectively. The expenditures for fiscal year 2014 were for ongoing software improvements for the Chronic Illness Monitoring operating system and customer portal.  The expenditures for fiscal year 2013 were for the development of the Chronic Illness Monitoring operating system.

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

12 Months Ended

Sep. 30, 2014

Tables/Schedules

Schedule of Segment Reporting Information, by Segment

	Corporate	Chronic Illness Monitoring	CareServices	Reagents	Total
Fiscal year ended September 30, 2014
Sales to external customers	$                -	$  6,107,941	$  1,003,238	$                -	$  7,111,179
Segment loss	(9,957,268)	(2,051,752)	(1,452,567)	-	(13,461,587)
Interest expense, net	1,936,039	-	-	-	1,936,039
Segment assets	550,370	4,134,403	737,012	-	5,421,785
Fixed assets and leased equipment purchases	70,603	-	-	-	70,603
Depreciation and amortization	92,823	57,220	972,819	-	1,122,862
Fiscal year ended September 30, 2013
Sales to external customers	$               -	$  4,245,404	$  1,660,544	$     351,645	$  6,257,593
Segment loss	(21,986,526)	(1,966,613)	(3,179,151)	(5,312)	(27,137,602)
Interest expense, net	5,583,932	-	-	-	5,583,932
Segment assets	600,892	7,416,759	2,291,121	-	10,308,772
Fixed assets and leased equipment purchases	243,273	-	241,527	888	485,688
Depreciation and amortization	124,269	114,440	984,663	9,362	1,232,734

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8. Accrued Expenses: Schedule of Accrued Expenses (Tables)

12 Months Ended

Sep. 30, 2014

Tables/Schedules

Schedule of Accrued Expenses

	2014	2013
Liability to issue common stock	$            522,087	$                  -
Commissions and fees	453,744	88,490
Payroll expense	308,529	272,451
Deferred rent	89,346	55,242
Interest	59,091	211,722
Other	18,534	80,614
Total accrued expenses	$         1,451,331	$       708,519

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5. Customer Contracts (Details) (USD $)	12 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment	$ 156,293	$ 223,973
Impairment of long-lived assets	497,792	0
Customer Contracts | Chronic Illness Monitoring
Cost Associated with Intangible Assets	214,106	214,106
Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment	214,106	156,886
Amortization of Intangible Assets	57,220	114,440
Customer Contracts | CareServices
Cost Associated with Intangible Assets	2,066,316	2,155,776
Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment	1,497,067	778,475
Amortization of Intangible Assets	718,592	718,592
Impairment of long-lived assets	89,460
Future Amortization Expense, Remainder of Fiscal Year	$ 179,648

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18. Income Taxes: Schedule of Deferred Tax Assets and Liabilities (Tables)

12 Months Ended

Sep. 30, 2014

Tables/Schedules

Schedule of Deferred Tax Assets and Liabilities

	2014	2013
Net operating loss carryforwards	$      23,858,000	$    19,892,000
Depreciation, amortization and reserves	1,515,000	453,000
Stock-based compensation	2,007,000	1,863,000
Accrued vacation	53,000	2,000
Valuation allowance	(27,433,000)	(22,210,000)
Total	$                      -	$                   -

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11. Loss On Induced Conversion of Debt and Sale of Common Stock (Details) (USD $)	12 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Details
Debt and accrued interest converted to shares of common stock	$ 381,000	$ 10,004,000
Debt and accrued interest due to related parties converted to shares of common stock	1,946,000
Loss on induced conversion of debt and sale of common stock	$ 114,098	$ 9,355,587

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

12 Months Ended

Sep. 30, 2014

Tables/Schedules

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

	2014	2013
Revenues:
CareServices	$              1,003,238	$         1,660,544
Reagents	-	351,645
Total revenues	1,003,238	2,012,189
Cost of revenues:
CareServices	881,753	2,325,226
Reagents	-	300,396
Total cost of revenues	881,753	2,625,622
Gross profit (loss)	121,485	(613,433)
Operating expenses:
Selling, general and administrative expenses:
CareServices	(1,047,629)	(2,287,368)
Reagents	-	(111,657)
Research and development for CareServices	-	(227,101)
Total operating expenses	(1,047,629)	(2,626,126)
Other income (expense):
Impairment of long-lived assets	(497,792)	-
Loss on disposal of property and equipment	(18,746)	-
Other expense	(9,885)	-
Gain on sale of discontinued operations	-	55,096
Total other income (expense) for CareServices	(526,423)	55,096
Loss from discontinued operations	$            (1,452,567)	$        (3,184,463)

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3. Summary of Significant Accounting Policies: Accounts Receivable (Policies)

12 Months Ended

Sep. 30, 2014

Policies

Accounts Receivable

Accounts Receivable

Accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts.  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.  Accounts receivable are written off when management determines the likelihood of collection is remote.  A receivable is considered to be past due if any portion of the receivable balance has not been received by the contractual payment date.  Interest is not charged on accounts receivable that are past due.  The Company recorded an allowance for doubtful accounts of $115,994 and $76,544 as of September 30, 2014 and 2013, respectively.

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13. Derivatives Liability (Details) (USD $)	12 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Details
Derivatives liability	$ 106,444	$ 795,151
Gain (loss) on derivatives liability	373,293	(333,406)
Gain (loss) on derivatives liability	$ (373,293)	$ 333,406

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7. Patent License Agreement (Details) (USD $)	12 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2012
Common stock shares issued in purchase of patents			600,000
Series C stock shares issued in purchase of patents		(480,000)	480,000
Independent valuation of patents			$ 922,378
Value of the Common Stock issued			240,000
Value of the Series C Preferred Stock issued			682,378
Impairment of long-lived assets	497,792	0
Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment	156,293	223,973
Patents
Amortization of Intangible Assets	126,870	126,870
Impairment of long-lived assets	408,332
Cost Associated with Intangible Assets	514,046	922,378
Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment	482,328	355,458
Future Amortization Expense, Remainder of Fiscal Year	$ 31,718

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19. Commitments and Contingencies: Schedule of Future Minimum Rental Payments for Operating Leases (Details) (USD $)	Sep. 30, 2014
Details
Operating Leases, Future Minimum Payments Due, Next Twelve Months	$ 308,330
Operating Leases, Future Minimum Payments, Due in Two Years	317,580
Operating Leases, Future Minimum Payments, Due in Three Years	327,107
Operating Leases, Future Minimum Payments, Due in Four Years	280,077
Operating Leases, Future Minimum Payments Due	$ 1,233,094

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19. Commitments and Contingencies: Schedule of Future Minimum Rental Payments for Operating Leases (Tables)

12 Months Ended

Sep. 30, 2014

Tables/Schedules

Schedule of Future Minimum Rental Payments for Operating Leases

Years Ending September 30,
2015	$     308,330
2016	317,580
2017	327,107
2018	280,077
	$    1,233,094

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9. Notes Payable: Schedule of principal payments on notes payable (Details) (USD $)	12 Months Ended
	Sep. 30, 2014
Details
Notes payable principal payments in 2015	$ 1,212,937
Notes payable principal payments in 2016	219,048
Notes payable principal payments	$ 1,431,985

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18. Income Taxes (Details) (USD $)	Sep. 30, 2014
Details
Operating Loss Carryforwards	$ 64,000,000

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15. Common Stock (Details) (USD $)	12 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Common stock shares authorized	200,000,000	200,000,000
Issuance of common stock for debt conversion	$ 2,447,926	$ 18,467,123
Issuance of common stock for dividends and related interest	148,244	251,564
Fair Value of Unvested Common Stock	4,125,863
Option 5
Stock Granted, Value, Share-based Compensation, Net of Forfeitures	342,000
Option 6
Stock Granted, Value, Share-based Compensation, Net of Forfeitures	6,892
Option 7
Stock Granted, Value, Share-based Compensation, Net of Forfeitures	237,800
Option 8
Stock Granted, Value, Share-based Compensation, Net of Forfeitures	427,205
Option 9
Stock Granted, Value, Share-based Compensation, Net of Forfeitures	85,000
Option 10
Stock Granted, Value, Share-based Compensation, Net of Forfeitures	2,400,000
Option 11
Stock Granted, Value, Share-based Compensation, Net of Forfeitures	256,800
Option 12
Stock Granted, Value, Share-based Compensation, Net of Forfeitures	1,954,720
Common stock
Issuance of common stock for debt conversion - shares	3,712,549	13,439,190
Issuance of common stock for debt conversion	37	134
Issuance of common stock for option exercises - shares	1,723,100
Issuance of common stock for loan origination fee - shares	161,738	189,345
Issuance of common stock for finance fees - shares	349,822
Conversion of Series C preferred stock - shares	672,000
Conversion of Series D preferred stock - shares	6,252,526	250,000
Conversion of Series C preferred stock - shares	(672,000)
Conversion of Series D preferred stock - shares	(6,252,526)	(250,000)
Issuance of common stock for dividends and related interest - shares	271,343	200,625
Issuance of common stock for dividends and related interest	$ 3	$ 2
Issuance of common stock for services - shares	10,896,970	1,579,632
Common stock | Option 1
Issuance of common stock for option exercises - shares	584,100
Common stock | Option 2
Issuance of common stock for option exercises - shares	474,000
Common stock | Option 3
Issuance of common stock for option exercises - shares	650,000
Common stock | Option 4
Issuance of common stock for option exercises - shares	15,000
Common stock | Option 5
Issuance of common stock for finance fees - shares	342,930
Common stock | Option 6
Issuance of common stock for finance fees - shares	6,892
Common stock | Option 7
Issuance of common stock for services - shares	409,000
Common stock | Option 8
Issuance of common stock for services - shares	868,136
Common stock | Option 9
Issuance of common stock for services - shares	100,000
Common stock | Option 10
Issuance of common stock for services - shares	5,000,000
Common stock | Option 11
Issuance of common stock for services - shares	447,500
Common stock | Option 12
Issuance of common stock for services - shares	4,072,334
Series C Preferred Stock
Conversion of Series C preferred stock - shares	(480,000)
Conversion of Series C preferred stock - shares	480,000
Series D Preferred Stock
Conversion of Series D preferred stock - shares	(893,218)	(50,000)
Conversion of Series D preferred stock - shares	893,218	50,000

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18. Income Taxes: Schedule of Deferred Tax Assets and Liabilities (Details) (USD $)	Sep. 30, 2014	Sep. 30, 2013
Details
Deferred Tax Assets, Operating Loss Carryforwards	$ 23,858,000	$ 19,892,000
Deferred Tax Assets, Tax Deferred Expense, Reserves and Accruals	1,515,000	453,000
Deferred Tax Assets, Tax Deferred Expense, Compensation and Benefits	2,007,000	1,863,000
Deferred Tax Assets, Tax Deferred Expense, Other	53,000	2,000
Deferred Tax Assets, Valuation Allowance	$ (27,433,000)	$ (22,210,000)

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10. Related-party Notes Payable: Schedule of related party notes payable (Details) (USD $)	Sep. 30, 2014	Sep. 30, 2013
Gross notes payable related party before discount	$ 2,016,532	$ 1,896,135
Discount on notes payable related party	(346,912)	(3,720)
Notes payable related party current and noncurrent	1,669,620	1,892,415
Note1Member
Gross notes payable related party before discount	1,639,500
Note2Member
Gross notes payable related party before discount	291,667
Note3Member
Gross notes payable related party before discount	30,000	33,000
Note4Member
Gross notes payable related party before discount	26,721	26,721
Note5Member
Gross notes payable related party before discount	15,000	175,000
Note6Member
Gross notes payable related party before discount	13,644	13,644
Note7Member
Gross notes payable related party before discount		600,000
Note8Member
Gross notes payable related party before discount		300,000
Note9Member
Gross notes payable related party before discount		300,000
Note10Member
Gross notes payable related party before discount		200,000
Note11Member
Gross notes payable related party before discount		150,000
Note12Member
Gross notes payable related party before discount		82,500
Note13Member
Gross notes payable related party before discount		10,000
Note14Member
Gross notes payable related party before discount		$ 5,270

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6. Property, Plant and Equipment Disclosure: Schedule of Property and Equipment (Details) (USD $)	Sep. 30, 2014	Sep. 30, 2013
Property, Plant and Equipment, Gross	$ 376,369	$ 520,702
Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment	(156,293)	(223,973)
Property and equipment, net	220,076	296,729
Leasehold Improvements
Property, Plant and Equipment, Gross	151,287	145,147
Software and Software Development Costs
Property, Plant and Equipment, Gross	100,574	87,361
Furniture and Fixtures
Property, Plant and Equipment, Gross	69,776	32,855
Equipment
Property, Plant and Equipment, Gross	$ 54,732	$ 255,339

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18. Income Taxes

12 Months Ended

Sep. 30, 2014

Notes

18. Income Taxes

18.                Income Taxes

As of September 30, 2014, the Company had net operating loss carryforwards available to offset future taxable income, if any, of approximately $64,000,000, which will begin to expire in 2027.  The utilization of the net operating loss carryforwards is dependent upon the tax laws in effect at the time the net operating loss carryforwards can be utilized.  The Internal Revenue Code contains provisions that likely could reduce or limit the availability and utilization of these net operating loss carryforwards.  For example, limitations are imposed on the utilization of net operating loss carryforwards if certain ownership changes have taken place or will take place.  The Company will perform an analysis to determine whether any such limitations have occurred as the net operating losses are utilized.

The amount and ultimate realization of the benefits from the net operating loss carryforwards are dependent, in part, upon the tax laws in effect, the Company’s future earnings, and other future events, the effects of which cannot be determined.  The Company has established a valuation allowance against all deferred income tax assets not offset by deferred income tax liabilities due to the uncertainty of their realization.  Accordingly, there is no benefit for income taxes in the accompanying statements of operations. 

Deferred income taxes are determined based on the estimated future effects of differences between the consolidated financial reporting and income tax reporting bases of assets and liabilities given the provisions of currently enacted tax laws and the tax rates expected to be in place.  For fiscal years 2014 and 2013, the Company’s expected federal tax rate was 34%.

The deferred income tax assets (liabilities) were comprised of the following as of September 30:

	2014	2013
Net operating loss carryforwards	$      23,858,000	$    19,892,000
Depreciation, amortization and reserves	1,515,000	453,000
Stock-based compensation	2,007,000	1,863,000
Accrued vacation	53,000	2,000
Valuation allowance	(27,433,000)	(22,210,000)
Total	$                      -	$                   -

Reconciliations between the benefit for income taxes at the federal statutory income tax rate and the Company’s benefit for income taxes for fiscal years 2014 and 2013 were as follows:

	2014	2013
Federal income tax benefit at statutory rate	$         4,577,000	$      9,227,000
State income tax benefit, net of federal
income tax effect	444,000	896,000
Non-deductible expenses	67,000	(954,000)
Other	135,000	-
Change in valuation allowance	(5,223,000)	(9,169,000)
Benefit for income taxes	$                     -	$                   -

During fiscal years 2014 and 2013, the Company recognized no interest or penalties, and there were no changes in unrecognized tax benefits from tax positions taken or from lapsed statutes of limitations.  There were no settlements with taxing authorities.  As of September 30, 2014, the Company had no unrecognized tax benefits that, if recognized, would affect the effective tax rate, and there are no positions that are anticipated to significantly increase or decrease.  The Company had no tax examinations beginning, ending, or remaining in process as of and for the years ended September 30, 2014 and 2013.  Tax returns for fiscal years subsequent to 2010 remain subject to examination.

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9. Notes Payable: Schedule of principal payments on notes payable (Tables)

12 Months Ended

Sep. 30, 2014

Tables/Schedules

Schedule of principal payments on notes payable

Years Ending September 30,
2015	$    1,212,937
2016	219,048
	$    1,431,985

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3. Summary of Significant Accounting Policies: Stock-based Compensation (Policies)

12 Months Ended

Sep. 30, 2014

Policies

Stock-based Compensation

Stock-Based Compensation

The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award.  That cost is recognized in the statements of operations over the period during which the employee is required to provide service in exchange for the award – the requisite service period.  The grant-date fair values of the equity instruments are estimated using option-pricing models adjusted for the unique characteristics of those instruments.

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9. Notes Payable: Schedule of Debt (Details) (USD $)	Sep. 30, 2014	Sep. 30, 2013
Gross notes payable before discount	$ 1,601,435	$ 2,863,166
Discount on notes payable	(169,450)	(528,663)
Notes payable current and noncurrent	1,431,985	2,334,503
Notes payable current portion	(1,212,937)	(1,278,585)
Notes payable, net of current portion	219,048	1,055,918
Note1Member
Gross notes payable before discount	1,103,841	1,766,971
Note2Member
Gross notes payable before discount	233,333
Note3Member
Gross notes payable before discount	200,000
Note4Member
Gross notes payable before discount	64,261	185,476
Note5Member
Gross notes payable before discount		550,000
Note6Member
Gross notes payable before discount		250,000
Note7Member
Gross notes payable before discount		85,719
Note8Member
Gross notes payable before discount		$ 25,000

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3. Summary of Significant Accounting Policies: Impairment of Long-lived Assets (Policies)

12 Months Ended

Sep. 30, 2014

Policies

Impairment of Long-lived Assets

Impairment of Long-Lived Assets

Purchased intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets, which range from two to twenty years.  Long-lived assets, including intangible assets with finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable.  Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition.  The Company impaired its CareServices customer contracts by $89,460 and patents by $408,332 as of September 30, 2014, which were recorded as part of discontinued operations related to the CareServices segment for the fiscal year ended September 30, 2014.  The impairment of the customer contracts is due to their sales price being lower than the net book value as of the date of sale.  The patents impaired were solely related to the CareServices segment and provide no future cash flows after the CareServices customer contracts and equipment leased to customers were sold in December 2014.  The Company’s other long-lived assets were not impaired as of September 30, 2014.  No long-lived assets were impaired as of September 30, 2013. 

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

12 Months Ended

Sep. 30, 2014

Tables/Schedules

Schedule of fair value assumptions

	2014	2013
Exercise price	$0.50 - $1.40	$0.75 - 10.00
Expected term (years)	1 - 3	1.5 - 2.5
Volatility	101% - 216%	219% - 298%
Risk-free rate	0.11% - 0.92%	0.23% - 0.88%
Dividend rate	0%	0%

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3. Summary of Significant Accounting Policies: Schedule of common stock equivalents (Details)	Sep. 30, 2014	Sep. 30, 2013
Details
Common stock options and warrants	10,991,576	3,598,554
Series C convertible preferred stock		480,000
Series D convertible preferred stock	225,000	4,691,090
Series E convertible preferred stock	477,830	601,585
Series F convertible preferred stock	5,361,000
Convertible debt - Shares	133,924	3,738,917
Restricted shares of common stock	9,750	17,250
Total common stock equivalents	17,199,080	13,127,396

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3. Summary of Significant Accounting Policies: Accounts Receivable (Details) (USD $)	Sep. 30, 2014	Sep. 30, 2013
Details
Allowance for Doubtful Accounts Receivable	$ 115,994	$ 76,544

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6. Property, Plant and Equipment Disclosure: Schedule of Property and Equipment (Tables)

12 Months Ended

Sep. 30, 2014

Tables/Schedules

Schedule of Property and Equipment

	2014	2013
Leasehold improvements	$                 151,287	$            145,147
Software	100,574	87,361
Furniture	69,776	32,855
Equipment	54,732	255,339
Equipment leased to customers	-	-
Total property and equipment	376,369	520,702
Accumulated depreciation and amortization	(156,293)	(223,973)
Property and equipment, net	$                 220,076	$            296,729

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2. Restatement and Amendment of Previously Reported Financial Information

12 Months Ended

Sep. 30, 2014

Notes

2. Restatement and Amendment of Previously Reported Financial Information

2. Restatement and Amendment of Previously Reported Financial Information

The Company restated its consolidated financial statements as of and for the fiscal year ended September 30, 2013 to correct the accounting related to revenue recognition for chronic illness monitoring supplies shipped to distributors, as filed in its Form 10-K/A with the Securities and Exchange Commission on November 12, 2014.  Specifically, it was determined better practice to defer revenue recognition until the products are shipped to the end users as opposed to the distributors, even though the distributors had taken title to the products and there were no significant rights of return.  The corrections deferred the recognition of revenue until later periods, and did not impact cash flows related to these transactions.

The consolidated financial statements as of and for the fiscal year ended September 30, 2013 were restated to properly reflect revenue, cost of revenue, inventory and other related balance sheet accounts related to the Chronic Illness Monitoring segment.  See Form 10-K/A filed on November 12, 2014 for reconciliations of the amounts as originally reported to the corresponding restated amounts.

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3. Summary of Significant Accounting Policies: Inventory: Schedule of Utility Inventory (Details) (USD $)	Sep. 30, 2014	Sep. 30, 2013
Inventory	$ 1,649,320	$ 4,677,526
Chronic Illness Monitoring
Inventory, Finished Goods, Gross	589,423	1,249,220
Finished goods held by distributors	2,720,626	3,428,306
Inventory, Gross	3,310,049	4,677,526
Inventory Valuation Reserves	(1,660,729)
Inventory	$ 1,649,320	$ 4,677,526

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3. Summary of Significant Accounting Policies: Inventory: Schedule of Utility Inventory (Tables)

12 Months Ended

Sep. 30, 2014

Tables/Schedules

Schedule of Utility Inventory

	2014	2013
Chronic Illness Monitoring
Finished goods	$   589,423	$    1,249,220
Finished goods held by distributors	2,720,626	3,428,306
Total inventory	3,310,049	4,677,526
Inventory reserve	(1,660,729)	-
Net Inventory	$    1,649,320	$ 4,677,526

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3. Summary of Significant Accounting Policies: Use of Estimates in The Preparation of Financial Statements (Policies)

12 Months Ended

Sep. 30, 2014

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 as of the balance sheet dates and the reported amounts of revenues and expenses for the reporting periods. Actual results could differ from these estimates.

In May 2013, the Company effected a 10-for-1 reverse common stock split.  The consolidated financial statements and notes for all periods presented have been retroactively adjusted to reflect the reverse common stock split.

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

12 Months Ended

Sep. 30, 2014

Policies

Going Concern

                 Going Concern

The Company continues to incur negative cash flows from operating activities and net losses.  The Company had negative working capital and negative total equity as of September 30, 2014 and 2013 and is in default with respect to certain debt.  These factors, among others, 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 eliminate substantial doubt about its ability to continue as a going concern, it must achieve profitability, 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 consist of raising additional capital by issuing debt or equity securities and increasing the sales of the Company’s services and products.  During fiscal year 2014, the Company (1) completed the sale of Series F convertible preferred stock (“Series F preferred stock”) for net proceeds of $3,580,771, after considering $675,229 of related costs; (2) converted $2,326,801 of debt and accrued interest to common stock; (3) converted $574,592 of debt and accrued interest to Series F preferred stock; and (4) converted $83,473 of debt and accrued interest to Series E preferred stock. There can be no assurance that the Company will be able to raise sufficient additional capital or that revenues will increase rapidly enough to offset operating losses.  If the Company is unable to increase revenues or obtain additional financing, it will be unable to continue the development of its products and services and may have to cease operations. 

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18. Income Taxes: Schedule of Components of Income Tax Expense (Benefit) (Tables)

12 Months Ended

Sep. 30, 2014

Tables/Schedules

Schedule of Components of Income Tax Expense (Benefit)

	2014	2013
Federal income tax benefit at statutory rate	$         4,577,000	$      9,227,000
State income tax benefit, net of federal
income tax effect	444,000	896,000
Non-deductible expenses	67,000	(954,000)
Other	135,000	-
Change in valuation allowance	(5,223,000)	(9,169,000)
Benefit for income taxes	$                     -	$                   -

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3. Summary of Significant Accounting Policies: Schedule of common stock equivalents (Tables)

12 Months Ended

Sep. 30, 2014

Tables/Schedules

Schedule of common stock equivalents

	2014	2013
Common stock options and warrants	10,991,576	3,598,554
Series C convertible preferred stock	-	480,000
Series D convertible preferred stock	225,000	4,691,090
Series E convertible preferred stock	477,830	601,585
Series F convertible preferred stock	5,361,000	-
Convertible debt	133,924	3,738,917
Restricted shares of common stock	9,750	17,250
Total common stock equivalents	17,199,080	13,127,396

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3. Summary of Significant Accounting Policies: Discontinued Operations, Policy (Policies)

12 Months Ended

Sep. 30, 2014

Policies

Discontinued Operations, Policy

Discontinued Operations

In December 2014, the Company sold substantially all of its customer contracts and equipment leased to customers associated with its CareServices segment to a third party.  Additional equipment in stock was sold to another third party pursuant to a written invoice.  The purchase price included a cash payment of $412,280 for the customer contracts and $66,458 for the equipment in stock. During fiscal years 2014 and 2013, the Company recognized a loss from discontinued operations related to CareServices of $1,452,567 and $3,179,151, respectively.

In June 2013, the Company sold the net assets and operations of its reagents segment to a third party for $184,318 in cash.  During fiscal years 2014 and 2013, the Company recognized a loss from discontinued operations related to its reagents segment of $0 and $5,312, respectively.

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3. Summary of Significant Accounting Policies: Fair Value of Financial Instruments (Policies)

12 Months Ended

Sep. 30, 2014

Policies

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The Company measured the fair values of its assets and liabilities using the US GAAP hierarchy.  The carrying amounts reported in the consolidated balance sheets for cash, accounts receivable, accounts payable, and accrued liabilities approximate fair values due to the short-term nature and liquidity of these financial instruments. Derivative financial instruments are recorded at fair value based on current market pricing models. The carrying amounts reported for notes payable approximate fair value because the underlying instruments are at interest rates which approximate current market rates.

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1. Organization and Nature of Operations

12 Months Ended

Sep. 30, 2014

Notes

1. Organization and Nature of Operations

1.       Organization and Nature of Operations

ActiveCare, Inc. (“ActiveCare”) was formed March 5, 1998 as a wholly owned subsidiary of SecureAlert, Inc. dba Track Group [OTCQB: SCRA], a Utah corporation, formerly known as RemoteMDx, Inc. (“SecureAlert”).  ActiveCare was spun off from SecureAlert in February 2009 and SecureAlert retained no ownership interest in ActiveCare.  In July 2009, ActiveCare was reincorporated in Delaware.  ActiveCare (the “Company”) provides products and services to those diagnosed with chronic illnesses, provides real-time visibility to health conditions and risk, and has a unique active approach in caring for members.

                 Going Concern

The Company continues to incur negative cash flows from operating activities and net losses.  The Company had negative working capital and negative total equity as of September 30, 2014 and 2013 and is in default with respect to certain debt.  These factors, among others, 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 eliminate substantial doubt about its ability to continue as a going concern, it must achieve profitability, 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 consist of raising additional capital by issuing debt or equity securities and increasing the sales of the Company’s services and products.  During fiscal year 2014, the Company (1) completed the sale of Series F convertible preferred stock (“Series F preferred stock”) for net proceeds of $3,580,771, after considering $675,229 of related costs; (2) converted $2,326,801 of debt and accrued interest to common stock; (3) converted $574,592 of debt and accrued interest to Series F preferred stock; and (4) converted $83,473 of debt and accrued interest to Series E preferred stock. There can be no assurance that the Company will be able to raise sufficient additional capital or that revenues will increase rapidly enough to offset operating losses.  If the Company is unable to increase revenues or obtain additional financing, it will be unable to continue the development of its products and services and may have to cease operations. 

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3. Summary of Significant Accounting Policies: Concentrations of Credit Risk (Policies)

12 Months Ended

Sep. 30, 2014

Policies

Concentrations of Credit Risk

Concentrations of Credit Risk

The Company has cash in bank accounts that, at times, may exceed federally insured limits.  The Company has not experienced any losses in these accounts. 

In the normal course of business, the Company provides credit terms to its customers and requires no collateral.  The Company performs ongoing credit evaluations of its customers’ financial condition.  The Company maintains an allowance for doubtful accounts receivable based upon management’s specific review and assessment of each account at the period end.

During fiscal year 2014, the Company had revenues from two significant customers which represented 67% of total revenues.  During fiscal year 2013, the Company had revenues from one significant customer which represented 44% of total revenues.  As of September 30, 2014 and 2013, accounts receivable from significant customers represented 80% and 82% of total accounts receivable, respectively.

During the fiscal years 2014 and 2013, the Company purchased substantially all of its products and supplies from one vendor.

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16. Common Stock Options and Warrants (Details) (USD $)	12 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Additional expense recognized related to Options and Warrants	$ 71,942
Additional expense deferred over remaining vesting period of Options and Warrants	7,960
Interest expense, net	1,936,039	5,583,932
Amortization of debt discounts	(919,032)	(3,097,009)
Aggregate Intrinsic Value	0
Weighted average remaining term of the warrants	3.88
Fair Value of Unvested Stock Options and Warrants	383,379
Warrant1Member
Warrants	650,000
Exercise price	$ 1.10
Interest expense, net	590,887
Warrant2Member
Warrants	450,000
Exercise price	$ 1.00
Amortization of debt discounts	$ 143,634
Warrant3Member
Warrants	856,977
Exercise price	$ 1.10
Warrant4Member
Warrants	3,669,120
Exercise price	$ 1.10
Warrant5Member
Warrants	1,424,025
Exercise price	$ 1.10
Warrant6Member
Warrants	1,008,000
Exercise price	$ 1.10
Warrant7Member
Warrants	1,000,000
Exercise price	$ 0.50
Warrant8Member
Warrants	90,000
Exercise price	$ 1.10

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3. Summary of Significant Accounting Policies: Advertising Costs (Policies)

12 Months Ended

Sep. 30, 2014

Policies

Advertising Costs

Advertising Costs

The Company expenses advertising costs as incurred.  Advertising expenses for fiscal years 2014 and 2013 were $48,778 and $59,330, respectively.  Advertising expenses primarily relate to the Company’s Chronic Illness Monitoring segment.

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16. Common Stock Options and Warrants: Schedule of Share-based Compensation, Activity (Tables)

12 Months Ended

Sep. 30, 2014

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, 2013	3,598,554	$                  1.33
Granted	9,148,122	1.03
Exercised	(1,723,100)	0.89
Forfeited	(32,000)	1.00
Outstanding as of September 30, 2014	10,991,576	1.05
Exercisable as of September 30, 2014	9,061,576	1.17

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6. Property, Plant and Equipment Disclosure (Details) (USD $)	12 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Loss on disposal of property and equipment	$ 61,239	$ 200,149
Depreciation, Amortization and Accretion, Net	219,465	272,117
Reagents
Assets classified as discontinued operations	$ 25,832

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Consolidated Balance Sheets (USD $)	Sep. 30, 2014	Sep. 30, 2013
Consolidated Balance Sheets
Cash	$ 197,027	$ 223,835
Accounts receivable, net	1,635,660	1,852,328
Inventory	1,649,320	4,677,526
Prepaid expenses and other	141,087	38,998
Assets of discontinued operations, current	712,403	0
Total current assets	4,335,497	6,792,687
Goodwill	825,894	825,894
Property and equipment, net	220,076	296,729
Deposits and other assets	29,594	106,950
Domain name, net	10,724	11,440
Customer contracts, net	0	57,220
Patents, net
Assets of discontinued operations	0	2,217,852
Total assets	5,421,785	10,308,772
Accounts payable	4,549,451	6,621,234
Accounts payable, related-party	1,109,775	251,386
Accrued expenses	1,451,331	708,519
Notes payable, related-party	1,669,620	1,892,415
Current portion of notes payable	1,212,937	1,278,585
Dividends payable	246,738	3,471
Derivatives liability	106,444	795,151
Total current liabilities	10,346,296	11,550,761
Notes payable, net of current portion	219,048	1,055,918
Total liabilities	10,565,344	12,606,679
Preferred stock, $.00001 par value: 10,000,000 shares authorized;0 and 480,000 shares of Series C; 45,000 and 938,218 sharesof Series D; 70,070 and 61,723 shares of Series E; and 5,361and 0 shares of Series F, respectively	1	15
Common stock, $.00001 par value: 200,000,000 shares authorized;45,815,351 and 21,775,303 shares outstanding, respectively	458	218
Additional paid-in capital, common and preferred	73,183,429	62,519,544
Accumulated deficit	(78,327,447)	(64,817,684)
Total stockholders' deficit	(5,143,559)	(2,297,907)
Total liabilities and stockholders' deficit	$ 5,421,785	$ 10,308,772

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4. Discontinued Operations: Schedule of Assets Classified as Discontinued Operations (Tables)

12 Months Ended

Sep. 30, 2014

Tables/Schedules

Schedule of Assets Classified as Discontinued Operations

	2014	2013
Customer contracts, net (Note 5)	$                 569,250	$                 1,377,301
Equipment leased to customers, net (Note 6)	111,435	273,631
Patents, net, (Note 7)	31,718	566,920
Total assets of discontinued operations	$                 712,403	$                 2,217,852

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Consolidated Statements of Stockholders' Deficit (USD $)	Series C Preferred Stock USD ($)	Series D Preferred Stock USD ($)	Series E Preferred Stock USD ($)	Series F Preferred Stock	Common stock USD ($)	Additional Paid-in Capital USD ($)	Accumulated Deficit USD ($)	Total USD ($)
Balance at Sep. 30, 2012	$ 5	$ 4			$ 46	$ 29,643,769	$ (37,359,214)	$ (7,715,390)
Balance - shares at Sep. 30, 2012	480,000	386,103			4,636,977
Issuance of common stock for services					16	475,484		475,500
Issuance of common stock for services - shares					1,579,632
Issuance of common stock for accrued expenses					2	225,298		225,300
Issuance of common stock for accrued expenses - shares					166,200
Issuance of common stock for loan origination fee					2	334,265		334,267
Issuance of common stock for loan origination fee - shares					189,345
Issuance of common stock for debt conversion					134	18,466,989		18,467,123
Issuance of common stock for debt conversion - shares					13,439,190
Issuance of common stock for cash					13	1,838,820		1,838,833
Issuance of common stock for cash - shares					1,313,334
Issuance of common stock for dividends and related interest					2	251,562		251,564
Issuance of common stock for dividends and related interest - shares					200,625
Conversion of Series D preferred stock - shares		(50,000)			250,000
Issuance of Series D preferred stock for services		5				1,800,526		1,800,531
Issuance of Series D preferred stock for services - shares		484,185
Issuance of Series D preferred stock for loan origination fee		1				817,482		817,483
Issuance of Series D preferred stock for loan origination fee - shares		103,843
Issuance of Series D preferred stock for dividends						66,881		66,881
Issuance of Series D preferred stock for dividends - shares		14,087
Issuance of Series E preferred stock for debt conversions			1			614,764		614,765
Issuance of Series E preferred stock for debt conversions - shares			61,723
Stock based compensation						1,750,274		1,750,274
Issuance of options for loan origination fees						289,732		289,732
Issuance of options for services						202,572		202,572
Derivatives liabilites						4,417,456		4,417,456
Net loss							(27,137,602)	(27,137,602)
Dividends on preferred stock							(320,868)	(320,868)
Balance at Sep. 30, 2013	5	9	1		218	62,519,544	(64,817,684)	(2,297,907)
Beneficial conversion features on debt at Sep. 30, 2013						1,323,672		1,323,672
Balance - shares at Sep. 30, 2013	480,000	938,218	61,723		21,775,303
Conversion of Series D preferred stock at Sep. 30, 2013		(1)			3	(2)
Issuance of common stock for services					109	749,896		750,005
Issuance of common stock for services - shares					10,896,970
Issuance of common stock for finance fees					3	41,888		41,891
Issuance of common stock for finance fees - shares					349,822
Issuance of common stock for loan origination fee					1	163,069		163,070
Issuance of common stock for loan origination fee - shares					161,738
Issuance of common stock for debt conversion					37	2,447,889		2,447,926
Issuance of common stock for debt conversion - shares					3,712,549
Issuance of common stock for option exercises					17	541,222		541,239
Issuance of common stock for option exercises - shares					1,723,100
Issuance of common stock for dividends and related interest					3	148,241		148,244
Issuance of common stock for dividends and related interest - shares					271,343
Conversion of Series C preferred stock - shares	(480,000)				672,000
Conversion of Series D preferred stock - shares		(893,218)			6,252,526
Issuance of Series E preferred stock for debt conversions						83,473		83,473
Issuance of Series E preferred stock for debt conversions - shares			8,347
Issuance of Series F preferred stock for debt conversions						574,592		574,592
Issuance of Series F preferred stock for debt conversions - shares				858
Issuance of Series F preferred stock for cash, net						2,175,002	1,405,769	3,580,771
Issuance of Series F preferred stock for cash, net - shares				4,503
Stock based compensation						2,051,758		2,051,758
Issuance of options for Debt conversions						590,887		590,887
Issuance of options for services						263,117		263,117
Amortization of Series F preferred stock as dividends						716,807	(716,807)
Net loss							(13,461,587)	(13,461,587)
Dividends on preferred stock							(737,138)	(737,138)
Balance at Sep. 30, 2014			1		458	73,183,429	(78,327,447)	(5,143,559)
Beneficial conversion features on debt at Sep. 30, 2014						$ 116,100		$ 116,100
Balance - shares at Sep. 30, 2014		45,000	70,070	5,361	45,815,351
Conversion of Series C preferred stock at Sep. 30, 2014	(5)				7	(2)
Conversion of Series D preferred stock at Sep. 30, 2014		(9)			63	(54)

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3. Summary of Significant Accounting Policies: Discontinued Operations, Policy (Details) (USD $)	1 Months Ended	12 Months Ended
	Jun. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Loss from discontinued operations		$ 1,452,567	$ 3,184,463
CareServices
Loss from discontinued operations		1,452,567	3,179,151
Reagents
Loss from discontinued operations		0	5,312
Proceeds from Sales of Business, Affiliate and Productive Assets	$ 184,318

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3. Summary of Significant Accounting Policies: Property, Plant and Equipment, Policy (Policies)

12 Months Ended

Sep. 30, 2014

Policies

Property, Plant and Equipment, Policy

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, which range between 3 and 7 years.  Leasehold improvements are amortized over the shorter of the estimated useful lives of the assets or the terms of the lease.  Expenditures for maintenance and repairs are expensed as incurred.  Upon the sale or disposal of property and equipment, any gains or losses are included in operations.

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3. Summary of Significant Accounting Policies: Advertising Costs (Details) (USD $)	12 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Details
Advertising Expense	$ 48,778	$ 59,330

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15. Common Stock

12 Months Ended

Sep. 30, 2014

Notes

15. Common Stock

15.                Common Stock

In April 2014, the Company amended its Certificate of Incorporation increasing the total number of authorized shares of common stock from 50,000,000 shares to 200,000,000 shares.

During fiscal year 2014, the Company issued the following shares of common stock:

·         3,712,549 shares to settle notes payable and related accrued interest, the value on the date of grant was $2,447,926;

·         584,100 shares to the Chief Executive Officer for the exercise of a modified stock option agreement (the exercise price was reduced to $0), the change in value due to the modification was $134,897;

·         474,000 shares to a former Chief Executive Officer for the exercise of a modified stock option agreement (the exercise price was reduced to $0), the change in value due to the modification was $400,585;

·         650,000 shares to an entity controlled by an officer of the Company for the exercise of modified stock option agreements (the exercise prices were reduced to $0), the change in value due to the modification was $41,311 and the shares vest quarterly over two years;

·         15,000 shares to a board member for the exercise of a modified stock option agreement (the exercise price was reduced to $0), the change in value due to the modification was $5,746;

·         161,738 shares for notes payable origination fees, the value on the date of grant was $163,170;

·         342,930 shares for equity investment finders’ fees, the value on the date of grant was $342,000;

·         6,892 shares to officers of the Company as late fees for unpaid services, the value on the date of grant was $6,892;

·         6,924,526 shares in connection with the conversion of 480,000 shares of Series C preferred stock and 893,218 shares of Series D preferred stock;

·         271,343 shares to settle accrued dividends for Series C, Series D and Series F preferred stock, the value on the date of grant was $148,244;

·         409,000 shares for services provided by independent consultants, the value on the date of grant was $237,800;

·         868,136 shares for employee compensation for past services and bonuses, the value on the date of grant was $427,205;

·         100,000 shares for services provided by a board member, the value on the date of grant was $85,000;

·         5,000,000 shares to the Chief Executive Officer for future services, the value on the date of grant was $2,400,000 and the shares vest quarterly over two years;

·         447,500 shares for employee compensation for future services, the value on the date of grant was $256,800 and the shares vest quarterly over two years.  87,500 shares, with a value of $42,000 at the date of grant, were forfeited during fiscal year 2014;

·         4,072,334 shares to an entity controlled by an officer of the Company for future services, the value on the date of grant was $1,954,720 and the shares vest quarterly over two years.

The fair value of unvested common stock as of September 30, 2014 was $4,125,863.

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3. Summary of Significant Accounting Policies: Goodwill (Policies)

12 Months Ended

Sep. 30, 2014

Policies

Goodwill

Goodwill

Goodwill is reviewed for impairment annually or more frequently when an event occurs or circumstances change that indicate that the carrying value may not be recoverable.  The annual testing date is September 30.  The identification and measurement of goodwill impairment involves the estimation of the fair value of our reporting units.  The estimates of fair value of reporting units are based on the best information available as of the date of the assessment, which primarily incorporate management assumptions about expected future cash flows.  Future cash flows can be affected by changes in industry or market conditions.  Goodwill was not impaired as of September 30, 2014 or 2013. 

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17. Segment Information

12 Months Ended

Sep. 30, 2014

Notes

17. Segment Information

17.                Segment Information

The Company operated two business segments during fiscal year 2014 based primarily on the nature of the Company’s products. 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 insurance companies, disease management companies, third-party administrators, and self-insured companies.  The customer contracts and equipment leased to customers of the CareServices segment were sold in December 2014.  The CareServices segment was engaged in the business of developing, distributing and marketing mobile health monitoring and concierge services to distributors and consumers. 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.

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 fiscal years 2014 and 2013:

	Corporate	Chronic Illness Monitoring	CareServices	Reagents	Total
Fiscal year ended September 30, 2014
Sales to external customers	$                -	$  6,107,941	$  1,003,238	$                -	$  7,111,179
Segment loss	(9,957,268)	(2,051,752)	(1,452,567)	-	(13,461,587)
Interest expense, net	1,936,039	-	-	-	1,936,039
Segment assets	550,370	4,134,403	737,012	-	5,421,785
Fixed assets and leased equipment purchases	70,603	-	-	-	70,603
Depreciation and amortization	92,823	57,220	972,819	-	1,122,862
Fiscal year ended September 30, 2013
Sales to external customers	$               -	$  4,245,404	$  1,660,544	$     351,645	$  6,257,593
Segment loss	(21,986,526)	(1,966,613)	(3,179,151)	(5,312)	(27,137,602)
Interest expense, net	5,583,932	-	-	-	5,583,932
Segment assets	600,892	7,416,759	2,291,121	-	10,308,772
Fixed assets and leased equipment purchases	243,273	-	241,527	888	485,688
Depreciation and amortization	124,269	114,440	984,663	9,362	1,232,734

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4. Discontinued Operations: Schedule of Assets Classified as Discontinued Operations (Details) (USD $)	Sep. 30, 2014	Sep. 30, 2013
Assets of discontinued operations, current	$ 712,403	$ 0
Assets of discontinued operations	0	2,217,852
Equipment Leased to Other Party
Assets of discontinued operations, current	111,435
Assets of discontinued operations		273,631
Customer Contracts
Assets of discontinued operations, current	569,250
Assets of discontinued operations		1,377,301
Patents
Assets of discontinued operations, current	31,718
Assets of discontinued operations		$ 566,920

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Consolidated Statements of Cash Flows (USD $)	12 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Cash flows from operating activities:
Net loss	$ (13,461,587)	$ (27,137,602)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	1,122,862	1,232,734
(Gain) loss on derivatives liability	(373,293)	333,406
Stock-based compensation expense	3,378,938	2,159,828
Stock and warrants issued for services	206,441	1,286,999
Stock and warrants issued for interest expense	883,118	601,220
Amortization of debt discounts	919,032	3,097,009
Loss on induced conversion of debt and sale of common stock	114,098	9,355,587
Impairment of long-lived assets	497,792	0
Loss on disposal of property and equipment	61,239	200,149
Gain on sale of discontinued operations	0	(55,096)
Inventory reduction for obsolescence	1,660,729	0
Changes in operating assets and liabilities:
Change in accounts receivable	216,668	(1,290,312)
Change in inventory	1,367,477	(4,440,258)
Change in prepaid expenses and other	(48,494)	(16,822)
Change in accounts payable	(1,193,106)	5,787,603
Change in accrued expenses	157,652	23,174
Change in deposits and other assets	77,355	(82,316)
Net cash used in operating activities	(4,413,079)	(8,944,697)
Cash flows from investing activities:
Purchases of property and equipment	(70,043)	(249,771)
Cash used to dispose of property and equipment	(29,078)	0
Purchases of equipment leased to customers	0	(235,917)
Proceeds from sale of discontinued operations	0	184,318
Proceeds from sale of equipment	0	4,900
Net cash used in investing activities	(99,121)	(296,470)
Cash flows from financing activities:
Proceeds from the sale of preferred stock, net	3,580,771	0
Proceeds from the sale of common stock, net	0	981,500
Proceeds from related-party notes payable, net	2,801,166	5,720,799
Proceeds from notes payable, net	680,000	3,790,496
Principal payments on related-party notes payable	(1,204,166)	(198,606)
Principal payments on notes payable	(1,036,809)	(1,341,755)
Payment of dividends	(335,570)	(17,271)
Net cash provided by financing activities	4,485,392	8,935,163
Net decrease in cash	(26,808)	(306,004)
Cash, beginning of the year	223,835	529,839
Cash, end of the year	197,027	223,835
Supplemental Cash Flow Information:
Cash paid for interest	219,717	745,423
Non-Cash Investing and Financing Activities:
Related-party notes payable converted to common stock	1,782,738
Dividends on preferred stock and related interest	737,138	320,868
Notes payable converted to preferred stock	633,254
Issuance of stock and options for loan origination fees	370,633	2,252,376
Conversion of notes payable into common stock	325,000
Liability to issue shares of common stock for loan origination fees	234,793
Issuance of stock for dividends	144,642	318,445
Reclassification of derivatives liability to equity	0	4,484,801
Conversion of notes payable to debentures	0	1,920,797
Issuance of derivatives	0	1,410,147
Issuance of common and prefered stock for settlement of liabilities	0	991,750
Issuance of stock for prepaid expenses	$ 0	$ 14,899

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Consolidated Balance Sheets Parenthetical (USD $)	Sep. 30, 2014	Sep. 30, 2013
Consolidated Balance Sheets Parenthetical
Preferred stock par value	$ 0.00001	$ 0.00001
Preferred stock shares authorized	10,000,000	10,000,000
Preferred stock shares outstanding	120,431	1,479,941
Common stock par value	$ 0.00001	$ 0.00001
Common stock shares authorized	200,000,000	200,000,000
Common stock shares outstanding	45,815,351	21,775,303

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10. Related-party Notes Payable

12 Months Ended

Sep. 30, 2014

Notes

10. Related-party Notes Payable

10.                Related-Party Notes Payable

                  The Company had the following related-party notes payable outstanding as of September 30:

	2014	2013
Secured borrowings from entities controlled by an officer of the Company that purchased a $2,813,175 customer receivable for $1,710,500.  The Company may buy back the receivable for $1,950,000 less cash received by the entities before March 2015.  The $239,500 difference between the buyback and cash  received plus $253,500 of loan origination fees is being amortized to interest expense over the buyback term.	$      1,639,500	$                     -
Secured borrowings from the Chairman of the Board of Directors who purchased a $422,000 customer receivable for $250,000.  The Company may buy back the receivable for $291,667 less any cash payments before June 2015.  The $41,667 difference between the buyback and cash  received plus $25,000 of loan origination fees is being amortized to interest expense over the buyback term.	291,667	-
Unsecured note payable to a former officer of the Company with interest at 15%, due June 2012, currently in default.  The note included a $3,000 loan origination fee added to the principal and is convertible into common stock at $0.50 per share.	30,000	33,000
Unsecured note payable to a former officer of the Company with interest at 12%, due September 2013, currently in default, and convertible into common stock at $0.75 per share.	26,721	26,721
Unsecured note payable to an entity controlled by the Company’s Chairman, interest at 12%, due on demand, and convertible into common stock at $0.75 per share.  The Company issued 17,500 shares of common stock as loan origination fees.  The $26,250 fair value of the common stock is being amortized to interest expense over the term of the note.  In December 2013, $160,000 of the note was converted to common stock.	15,000	175,000
Unsecured note payable to an officer of the Company with interest at 12%, due on demand.	13,644	13,644
Unsecured notes payable to an entity controlled by an officer of the Company with interest at 15%, due September 2013.  The Company issued 60,000 shares of common stock (fair value of $93,000) as loan origination fees.   The notes and accrued interest were converted to common stock in December 2013.	-	600,000
Unsecured note payable to an entity controlled by an officer of the Company with interest at 12%, due September 2013.  The Company issued 30,000 shares of common stock (fair value of $38,100) as loan origination fees.  The note and accrued interest were converted to common stock in December 2013.	-	300,000
Unsecured note payable to an entity controlled by an officer of the Company with interest at 12%, due September 2013.  The Company issued 30,000 shares of common stock (fair value of $37,500) as loan origination fees.  The note and accrued interest were converted to common stock in December 2013.	-	300,000
Unsecured notes payable to an entity controlled by an officer of the Company with interest at 12%, due April 2013.  The note and accrued interest were converted to common stock in December 2013.	-	200,000
Unsecured note payable with no interest to an entity controlled by an officer of the Company, repaid during the three months ended December 31, 2013.	-	150,000
Unsecured note payable to an entity controlled by an officer of the Company with interest at 12% (18% after due date), due June 2013.   The Company issued 5,600 shares of Series D preferred stock (fair value of $56,252) as loan origination fees.   The note and accrued interest were converted to common stock in December 2013.	-	82,500
Unsecured notes payable with no interest to an individual related to an officer of the Company, repaid during the three months ended December 31, 2013.	-	10,000
Series B unsecured debenture to an entity controlled by an officer of the Company with interest at 12%, due December 2015.  The debenture and accrued interest were converted to common stock during the three months ended December 31, 2013.	-	5,270
Total notes payable, related-party, before discount	2,016,532	1,896,135
Less discount	(346,912)	(3,720)
Total notes payable, related-party	$         1,669,620	$         1,892,415

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Document and Entity Information (USD $)	12 Months Ended
	Sep. 30, 2014	Jan. 12, 2015	Mar. 31, 2014
Document and Entity Information
Entity Registrant Name	ACTIVECARE, INC.
Document Type	10-K
Document Period End Date	Sep. 30, 2014
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	2014
Document Fiscal Period Focus	FY
Entity Common Stock, Shares Outstanding		47,264,183
Entity Public Float			$ 13,000,000

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11. Loss On Induced Conversion of Debt and Sale of Common Stock

12 Months Ended

Sep. 30, 2014

Notes

11. Loss On Induced Conversion of Debt and Sale of Common Stock

11.                Loss on Induced Conversion of Debt and Sale of Common Stock

During 2014 and 2013, the Company offered an induced conversion rate to all debt holders of $0.75 of debt per share of common stock, which was below the market price of the stock.  During the fiscal years ended September 30, 2014 and 2013, debt and accrued interest of approximately $381,000 and $10,004,000, respectively, were converted to shares of common stock.  During the fiscal year ended September 30, 2014, debt and accrued interest due to related parties of approximately $1,946,000 were converted to shares of common stock at $0.60 of debt per share of common stock, which was below the market price of the stock.  The Company also offered the private placement of common stock to existing investors at $0.75 per share, which was below the market price.  The difference between the offered price and the market price of all common stock issued was approximately $114,000114,098  and $9,356,0009,355,587 for the fiscal years ended September 30, 2014 and 2013, respectively, and is recorded as a loss on induced conversion of debt and sale of common stock. 

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14. Preferred Stock (Details) (USD $)	12 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2012
Preferred stock shares authorized	10,000,000	10,000,000
Preferred stock par value	$ 0.00001	$ 0.00001
Series C stock shares issued in purchase of patents		480,000	(480,000)
Dividends payable	$ 246,738	$ 3,471
Issuance of Series E preferred stock for debt conversions	83,473	614,765
Dividends paid to Series E Shareholders	258,284	17,271
Redemption Price of Series E preferred stock	477,829	601,585
Issuance of Series F preferred stock for cash, net	3,580,771
Related Costs Considered in Conversion of Series F Preferred Stock	675,229
Issuance of Series F preferred stock for debt conversions	574,592
Cash paid to settle dividends and accrued interest on Series F preferred stock	73,815
Series C Preferred Stock
Dividends payable	11,367	53,992
Common Stock issued to settle accrued dividends	11,599
Preferred Stock issued to settle accrued dividends	9,062
Series D Preferred Stock
Dividends payable	84,212	232,834
Common Stock issued to settle accrued dividends	85,477	143,465
Preferred Stock issued to settle accrued dividends		5,025
Conversion of Series D preferred stock - shares	893,218	50,000
Conversion of Series D preferred stock - shares	(893,218)	(50,000)
Common stock
Conversion of Series D preferred stock - shares	(6,252,526)	(250,000)
Conversion of Series D preferred stock - shares	6,252,526	250,000
Series E Preferred Stock
Dividends payable	320,071
Issuance of Series E preferred stock for debt conversions		1
Issuance of Series E preferred stock for debt conversions - shares	8,347	61,723
Series F Preferred Stock
Dividends payable	$ 322,730
Common Stock issued to settle accrued dividends	184,541
Issuance of Series F preferred stock for debt conversions - shares	858
Issuance of Series F preferred stock for cash, net - shares	4,503

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19. Commitments and Contingencies (Details) (USD $)	12 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Details
Operating Leases, Rent Expense, Net	$ 279,000	$ 225,000

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Consolidated Statements of Operations (USD $)	12 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Consolidated Statements of Operations
Chronic Illness Monitoring Revenue	$ 6,107,941	$ 4,245,404
Chronic Illness Monitoring Cost of Revenue	6,437,943	3,323,011
Gross profit (loss)	(330,002)	922,393
Operating expenses:
Selling, general and administrative (including $3,585,379 and $3,446,827, respectively, of stock-based compensation)	9,800,374	8,752,277
Research and development	215,074	605,170
Total operating expenses	10,015,448	9,357,447
Loss from operations	(10,345,450)	(8,435,054)
Other income (expense):
Gain (loss) on derivatives liability	373,293	(333,406)
Loss on induced conversion of debt and sale of common stock	(114,098)	(9,355,587)
Interest expense, net	(1,936,039)	(5,583,932)
Loss on disposal of property and equipment	(42,094)	(200,149)
Other income (expense):	55,368	(45,011)
Total other income (expense)	(1,663,570)	(15,518,085)
Loss from continuing operations	(12,009,020)	(23,953,139)
Loss from discontinued operations	(1,452,567)	(3,184,463)
Net loss	(13,461,587)	(27,137,602)
Deemed dividends on conversion of preferred stock to common stock	(2,234,924)	0
Dividends on preferred stock	(737,138)	(320,868)
Net loss attributable to common stockholders	$ (16,433,649)	$ (27,458,470)
Net loss per common share - basic and diluted
Continuing operations	$ (0.43)	$ (3.30)
Discontinued operations	$ (0.04)	$ (0.43)
Net loss per common share	$ (0.47)	$ (3.73)
Weighted average common shares outstanding - basic and diluted	35,010,000	7,369,000

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5. Customer Contracts

12 Months Ended

Sep. 30, 2014

Notes

5. Customer Contracts

5.                   Customer Contracts

The Company was amortizing Chronic Illness Monitoring customer contracts acquired during 2012 over their estimated useful lives (through 2014).  As of September 30, 2014 and 2013, the cost associated with these customer contracts was $214,106 and the accumulated amortization was $214,106 and $156,886, respectively.  Amortization expense related to these contracts for fiscal years 2014 and 2013 was $57,220 and $114,440, respectively.

The Company sold substantially all of the CareServices customer contracts during December 2014.  The Company impaired the CareServices customer contracts as of September 30, 2014 by $89,460, which has been included as part of discontinued operations for the fiscal year ended September 30, 2014.  As of September 30, 2014 and 2013, customer contracts totaled $2,066,316 and $2,155,776, respectively, and the related accumulated amortization was $1,497,067 and $778,475, respectively.  Amortization expense related to the CareServices segment for fiscal years 2014 and 2013 was $718,592 per year.  The future customer contract amortization for CareServices as of September 30, 2014 is $179,648, which will be recognized between October 1, 2014 and the date of sale as part of discontinued operations (see Note 4).

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4. Discontinued Operations

12 Months Ended

Sep. 30, 2014

Notes

4. Discontinued Operations

4.                   Discontinued Operations

In December 2014, the Company sold substantially all of its customer contracts and equipment leased to customers associated with its CareServices segment.  Additional equipment in stock was sold to the buyer pursuant to a written invoice.  The purchase price included a cash payment of $412,280 for the customer contracts and $66,458 for the equipment in stock.  The sale included all segment assets that generated revenue related to the CareServices segment.  The Company no longer holds any ownership interest in these assets and has ceased incurring costs related to the operations and development of the CareServices segment.  This segment was engaged in the business of developing, distributing and marketing mobile health monitoring and concierge services to distributors and consumers.  The sale consisted solely of these CareServices assets.  The debt secured by the CareServices customer contracts was amended in January 2015 and remains an obligation of the Company (see Note 20).  There were no material liabilities of discontinued operations.  Assets of discontinued operations consist of the following as of September 30.

	2014	2013
Customer contracts, net (Note 5)	$                 569,250	$                 1,377,301
Equipment leased to customers, net (Note 6)	111,435	273,631
Patents, net, (Note 7)	31,718	566,920
Total assets of discontinued operations	$                 712,403	$                 2,217,852

In June 2013, the Company sold its assets and liabilities related to the reagents segment.  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 consisted solely of the Company's reagents business. 

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 CareServices assets and the reagents business, the Company has reflected these two segments as discontinued operations in the consolidated financial statements for fiscal years 2014 and 2013.  The following table summarizes certain operating data for discontinued operations for fiscal years 2014 and 2013:

	2014	2013
Revenues:
CareServices	$              1,003,238	$         1,660,544
Reagents	-	351,645
Total revenues	1,003,238	2,012,189
Cost of revenues:
CareServices	881,753	2,325,226
Reagents	-	300,396
Total cost of revenues	881,753	2,625,622
Gross profit (loss)	121,485	(613,433)
Operating expenses:
Selling, general and administrative expenses:
CareServices	(1,047,629)	(2,287,368)
Reagents	-	(111,657)
Research and development for CareServices	-	(227,101)
Total operating expenses	(1,047,629)	(2,626,126)
Other income (expense):
Impairment of long-lived assets	(497,792)	-
Loss on disposal of property and equipment	(18,746)	-
Other expense	(9,885)	-
Gain on sale of discontinued operations	-	55,096
Total other income (expense) for CareServices	(526,423)	55,096
Loss from discontinued operations	$            (1,452,567)	$        (3,184,463)

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16. Common Stock Options and Warrants

12 Months Ended

Sep. 30, 2014

Notes

16. Common Stock Options and Warrants

16.                Common Stock Options and Warrants

The fair value of each stock option or warrant 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 option 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 2014 and 2013, the Company measured the fair value of the warrants using a binomial valuation model with the following assumptions:

	2014	2013
Exercise price	$0.50 - $1.40	$0.75 - 10.00
Expected term (years)	1 - 3	1.5 - 2.5
Volatility	101% - 216%	219% - 298%
Risk-free rate	0.11% - 0.92%	0.23% - 0.88%
Dividend rate	0%	0%

During the fiscal year ended September 30, 2014, the Company granted the following common stock options and warrants:

·         Options to purchase 650,000 shares were granted to an entity controlled by an officer of the Company for notes payable and accrued interest converted into common stock, with an exercise price of $1.10 per share.  The Company recognized $590,887 of interest expense during the three months ended December 31, 2013.  During the three months ended June 30, 2014, the exercise prices were reduced to $0 per share;

·         Options to purchase 450,000 shares were granted to a note holder with an exercise price of $1.00 per share.  The options expire in October 2018.  The Company recognized $143,634 as debt discount, which is being amortized over the life of the note payable;

·         Options to purchase 856,977 shares were granted to two note holders for converting debt into common stock with an exercise price of $1.10 per share.  The options expire in December 2018;

·         Options to purchase 3,669,120 shares were granted in connection with the sale of Series F preferred stock with an exercise price of $1.10 per share.  The options expire in December 2018;

·         Options to purchase 1,424,025 shares were granted in connection with the sale of Series F preferred stock with an exercise price of $1.10 per share.  The options expire in January 2018;

·         Options to purchase 1,008,000 shares were granted in connection with the sale of Series F preferred stock with an exercise price of $1.10 per share.  The options expire in February 2019;

·         Options to purchase 1,000,000 shares were granted to a board member for services, with an exercise price of $0.50 per share.  The shares vest based on the Company obtaining new member targets, specifically 100,000 options vest for each new 5,000 members.  The options expire in June 2019. 

·         Options to purchase 90,000 shares were granted to two related parties for services, with an exercise price of $1.10 per share.  The options expire in June 2019.

During the fiscal year ended September 30, 2014, the Company modified the exercise price of options and warrants previously issued to current employees and officers to $0.50 per share.  The Company recognized additional expense of $71,942 and deferred $7,960 over the remaining vesting period of the options and warrants.

The following table summarizes information about stock options and warrants outstanding as of September 30, 2014:

Options and Warrants	Number of Options and Warrants	Weighted-Average Exercise Price
Outstanding as of October 1, 2013	3,598,554	$                  1.33
Granted	9,148,122	1.03
Exercised	(1,723,100)	0.89
Forfeited	(32,000)	1.00
Outstanding as of September 30, 2014	10,991,576	1.05
Exercisable as of September 30, 2014	9,061,576	1.17

As of September 30, 2014, the outstanding warrants have an aggregate intrinsic value of $0, the weighted average remaining term of the warrants was 3.88 years, and the fair value of unvested stock options and warrants was $383,379.

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12. Fair Value Measurements

12 Months Ended

Sep. 30, 2014

Notes

12. Fair Value Measurements

12.                Fair Value Measurements

The Company measured the fair values of its assets and liabilities using the US GAAP hierarchy levels as follows:

Level 1	The Company does not have any Level 1 inputs available to measure its assets.
Level 2	The Company’s embedded derivative liabilities are measured on a recurring basis using Level 2 inputs.
Level 3	The Company’s goodwill is measured using Level 3 inputs.

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

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16. Common Stock Options and Warrants: Schedule of Share-based Compensation, Activity (Details) (USD $)	12 Months Ended
	Sep. 30, 2014	Sep. 30, 2014
Details
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Beginning Balance	3,598,554	10,991,576
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Beginning Balance	$ 1.33	$ 1.05
Share-based compensation arrangement by share-based payment award, Options, Grants in period	9,148,122
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price	$ 1.03
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period	(1,723,100)
Share-based Compensation Arrangements by Share-based Payment Award, Options, Exercises in Period, Weighted Average Exercise Price	$ 0.89
Share-based Compensation Arrangement by Share-based Payment Award, Options, Expirations in Period	(32,000)
Share-based Compensation Arrangements by Share-based Payment Award, Options, Expirations in Period, Weighted Average Exercise Price	$ 1.00
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number		9,061,576
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price		$ 1.17

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8. Accrued Expenses

12 Months Ended

Sep. 30, 2014

Notes

8. Accrued Expenses

8.                   Accrued Expenses

Accrued expenses consist of the following as of September 30:

	2014	2013
Liability to issue common stock	$            522,087	$                  -
Commissions and fees	453,744	88,490
Payroll expense	308,529	272,451
Deferred rent	89,346	55,242
Interest	59,091	211,722
Other	18,534	80,614
Total accrued expenses	$         1,451,331	$       708,519

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3. Summary of Significant Accounting Policies: Concentrations of Credit Risk (Details)	12 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Details
Concentration Risk, Customer	the Company had revenues from two significant customers which represented 67% of total revenues	the Company had revenues from one significant customer which represented 44% of total revenues.
Concentration Risk, Accounts Receivable	80.00%	82.00%

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6. Property, Plant and Equipment Disclosure

12 Months Ended

Sep. 30, 2014

Notes

6. Property, Plant and Equipment Disclosure

6.                   Property and Equipment

Property and equipment consist of the following as of September 30:

	2014	2013
Leasehold improvements	$                 151,287	$            145,147
Software	100,574	87,361
Furniture	69,776	32,855
Equipment	54,732	255,339
Equipment leased to customers	-	-
Total property and equipment	376,369	520,702
Accumulated depreciation and amortization	(156,293)	(223,973)
Property and equipment, net	$                 220,076	$            296,729

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 fiscal years 2014 and 2013, the Company recorded a loss on the disposal of assets of $61,239 and $200,149, respectively.  The Company disposed of $25,832 of assets related to the sale of the reagents segment during fiscal year 2013.  Subsequent to September 30, 2014, the Company sold all of its equipment leased to customers (see Note 4).  Depreciation expense for fiscal years 2014 and 2013 was $219,465 and $272,117, respectively.

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7. Patent License Agreement

12 Months Ended

Sep. 30, 2014

Notes

7. Patent License Agreement

7.                   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 sales 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 600,000 shares of common stock and 480,000 shares of Series C preferred stock.  The patents were valued at $922,378, based on a valuation performed by an independent third party.  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 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 .  Amortization expense for fiscal years 2014 and 2013 was $126,870.  The Company impaired the patents as of September 30, 2014 by $408,332, which has been included as part of discontinued operations for the fiscal year ended September 30, 2014 (see Note 4).  As of September 30, 2014 and 2013, the cost associated with the patents was $514,046 and $922,378, respectively, and the accumulated amortization was $482,328 and $355,458, respectively.  The Company’s future patent amortization as of September 30, 2014, is $31,718 which will be recognized between October 1, 2014 and the date of sale, December 31, 2014, as part of discontinued operations.

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9. Notes Payable

12 Months Ended

Sep. 30, 2014

Notes

9. Notes Payable

9.                   Notes Payable

The Company had the following notes payable outstanding as of September 30:

	2014	2013
Note payable secured by CareServices customer contracts, imputed interest rate of 12%, monthly installments over a 38-month term.  In March 2013, the Company issued 15,000 shares of common stock to extend the term of the note.  The $24,000 fair value of the common stock is being amortized to interest expense over the remaining term of the note.  In January 2015, the note was amended (see Note 20).	$     1,103,841	$    1,766,971
Secured borrowings from third parties that purchased a $337,600 customer receivable for $200,000.  The Company may buy back the receivable for $233,333 less any cash payments before June 2015.  The $33,333 difference between the buyback and cash received plus $20,000 of commission, paid to a related party, is being amortized to interest expense over the buyback term.	233,333	-
Unsecured note payable with no interest, due March 2015.  In connection with the issuance of the note, the Company issued warrants to purchase 450,000 shares of common stock.  The $143,634 fair value of the common stock is being amortized to interest expense over the term of the note.  The note also requires a payment of 667,000 shares of common stock at the end of the term (fair value of $230,293), which is recorded as an accrued expense.	200,000	-
Unsecured notes with interest at 15% (18% after due date), due April 2013.  The Company issued 20,000 shares of Series D preferred stock as loan origination fees.  The $195,000 fair value of the preferred stock was amortized over the original term of the note.  Principal of $50,000 and accrued interest of $13,333 were converted to common stock in December 2013.	64,261	185,476
Notes payable with interest at 12%, secured by the Company's assets, due August 2014.  The Company issued warrants to purchase 36,667 shares of common stock (fair value of $51,452) as due diligence fees and issued 25,000 shares of common stock  (fair value of $31,250) to a related party as consideration for a personal guarantee.  The notes and accrued interest were converted to Series F preferred stock in December 2013.	-	550,000
Unsecured note with interest at 12%, due March 2013.  The note and accrued interest were converted to common stock in November 2013.	-	250,000
Series A debenture loan payable with interest at 12%, secured by customer contracts, payable in monthly installments, and due February 2016. The debenture was converted to Series E preferred stock in October 2013.	-	85,719
Unsecured note with interest at 15%, due March 2013. The note and accrued interest were converted to common stock in November 2013.	-	25,000
Total notes payable before discount	1,601,435	2,863,166
Less discount	(169,450)	(528,663)
Total notes payable	1,431,985	2,334,503
Less current portion	(1,212,937)	(1,278,585)
Notes payable, net of current portion	$       219,048	$     1,055,918

As of September 30, 2014, scheduled principal payments on notes payable are as follows:

Years Ending September 30,
2015	$    1,212,937
2016	219,048
	$    1,431,985

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3. Summary of Significant Accounting Policies: Research and Development Costs (Details) (USD $)	12 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Details
Research and development	$ 215,074	$ 605,170

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17. Segment Information: Schedule of Segment Reporting Information, by Segment (Details) (USD $)	12 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Net loss	$ (13,461,587)	$ (27,137,602)
Interest expense, net	1,936,039	5,583,932
Total assets	5,421,785	10,308,772
Corporate
Net loss	(9,957,268)	(21,986,526)
Interest expense, net	1,936,039	5,583,932
Total assets	550,370	600,892
Fixed assets and leased equipment purchases	70,603	243,273
Depreciation, Depletion and Amortization, Nonproduction	92,823	124,269
Chronic Illness Monitoring
Revenue, Net	6,107,941	4,245,404
Net loss	(2,051,752)	(1,966,613)
Total assets	4,134,403	7,416,759
Depreciation, Depletion and Amortization, Nonproduction	57,220	114,440
CareServices
Revenue, Net	1,003,238	1,660,544
Net loss	(1,452,567)	(3,179,151)
Total assets	737,012	2,291,121
Fixed assets and leased equipment purchases		241,527
Depreciation, Depletion and Amortization, Nonproduction	972,819	984,663
Reagents
Revenue, Net		351,645
Net loss		(5,312)
Fixed assets and leased equipment purchases		888
Depreciation, Depletion and Amortization, Nonproduction		9,362
Total
Revenue, Net	7,111,179	6,257,593
Net loss	(13,461,587)	(27,137,602)
Interest expense, net	1,936,039	5,583,932
Total assets	5,421,785	10,308,772
Fixed assets and leased equipment purchases	70,603	485,688
Depreciation, Depletion and Amortization, Nonproduction	$ 1,122,862	$ 1,232,734

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3. Summary of Significant Accounting Policies (Details)	12 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Details
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	17,199,080	13,127,396

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3. Summary of Significant Accounting Policies: Impairment of Long-lived Assets (Details) (USD $)	12 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Impairment of long-lived assets	$ 497,792	$ 0
Customer Contracts | CareServices
Impairment of long-lived assets	89,460
Patents
Impairment of long-lived assets	$ 408,332

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3. Summary of Significant Accounting Policies: Inventory (Policies)

12 Months Ended

Sep. 30, 2014

Policies

Inventory

Inventory

Inventory is recorded at the lower of cost or market, cost being determined using the first-in, first-out (“FIFO”) method. Inventory is for the Chronic Illness Monitoring segment and consists of diabetic supplies.  Inventory held by distributors is reported as inventory until the supplies are shipped to the end user by the distributor.  The Company estimates an inventory reserve for obsolescence and excessive quantities.  Due to competitive pressures and technological innovation, it is possible that estimates of net realizable values could change in the near term.  Inventory consists of the following as of September 30:

	2014	2013
Chronic Illness Monitoring
Finished goods	$   589,423	$    1,249,220
Finished goods held by distributors	2,720,626	3,428,306
Total inventory	3,310,049	4,677,526
Inventory reserve	(1,660,729)	-
Net Inventory	$    1,649,320	$ 4,677,526

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10. Related-party Notes Payable: Schedule of related party notes payable (Tables)

12 Months Ended

Sep. 30, 2014

Tables/Schedules

Schedule of related party notes payable

	2014	2013
Secured borrowings from entities controlled by an officer of the Company that purchased a $2,813,175 customer receivable for $1,710,500.  The Company may buy back the receivable for $1,950,000 less cash received by the entities before March 2015.  The $239,500 difference between the buyback and cash  received plus $253,500 of loan origination fees is being amortized to interest expense over the buyback term.	$      1,639,500	$                     -
Secured borrowings from the Chairman of the Board of Directors who purchased a $422,000 customer receivable for $250,000.  The Company may buy back the receivable for $291,667 less any cash payments before June 2015.  The $41,667 difference between the buyback and cash  received plus $25,000 of loan origination fees is being amortized to interest expense over the buyback term.	291,667	-
Unsecured note payable to a former officer of the Company with interest at 15%, due June 2012, currently in default.  The note included a $3,000 loan origination fee added to the principal and is convertible into common stock at $0.50 per share.	30,000	33,000
Unsecured note payable to a former officer of the Company with interest at 12%, due September 2013, currently in default, and convertible into common stock at $0.75 per share.	26,721	26,721
Unsecured note payable to an entity controlled by the Company’s Chairman, interest at 12%, due on demand, and convertible into common stock at $0.75 per share.  The Company issued 17,500 shares of common stock as loan origination fees.  The $26,250 fair value of the common stock is being amortized to interest expense over the term of the note.  In December 2013, $160,000 of the note was converted to common stock.	15,000	175,000
Unsecured note payable to an officer of the Company with interest at 12%, due on demand.	13,644	13,644
Unsecured notes payable to an entity controlled by an officer of the Company with interest at 15%, due September 2013.  The Company issued 60,000 shares of common stock (fair value of $93,000) as loan origination fees.   The notes and accrued interest were converted to common stock in December 2013.	-	600,000
Unsecured note payable to an entity controlled by an officer of the Company with interest at 12%, due September 2013.  The Company issued 30,000 shares of common stock (fair value of $38,100) as loan origination fees.  The note and accrued interest were converted to common stock in December 2013.	-	300,000
Unsecured note payable to an entity controlled by an officer of the Company with interest at 12%, due September 2013.  The Company issued 30,000 shares of common stock (fair value of $37,500) as loan origination fees.  The note and accrued interest were converted to common stock in December 2013.	-	300,000
Unsecured notes payable to an entity controlled by an officer of the Company with interest at 12%, due April 2013.  The note and accrued interest were converted to common stock in December 2013.	-	200,000
Unsecured note payable with no interest to an entity controlled by an officer of the Company, repaid during the three months ended December 31, 2013.	-	150,000
Unsecured note payable to an entity controlled by an officer of the Company with interest at 12% (18% after due date), due June 2013.   The Company issued 5,600 shares of Series D preferred stock (fair value of $56,252) as loan origination fees.   The note and accrued interest were converted to common stock in December 2013.	-	82,500
Unsecured notes payable with no interest to an individual related to an officer of the Company, repaid during the three months ended December 31, 2013.	-	10,000
Series B unsecured debenture to an entity controlled by an officer of the Company with interest at 12%, due December 2015.  The debenture and accrued interest were converted to common stock during the three months ended December 31, 2013.	-	5,270
Total notes payable, related-party, before discount	2,016,532	1,896,135
Less discount	(346,912)	(3,720)
Total notes payable, related-party	$         1,669,620	$         1,892,415

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14. Preferred Stock

12 Months Ended

Sep. 30, 2014

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

As of September 30, 2013, the Company had 480,000 shares of Series C convertible preferred stock issued and outstanding (“Series C preferred stock”).  In December 2013, all 480,000 shares of Series C preferred stock were converted to 672,000 shares of common stock.  The conversion rate of 1.4 shares of common stock was greater than the designated conversion rate of one share of common stock and, therefore, the fair value of the additional 192,000 shares was recorded as a deemed dividend. During fiscal year 2014, the Company accrued $11,367 of dividends on Series C preferred stock and settled the accrued dividends by issuing 11,599 shares of common stock.  The Series C preferred stock was non-voting.  During fiscal year 2013, the Company issued 9,062 shares of Series D preferred stock for accrued dividends of $53,992 associated with Series C preferred stock.

Series D Convertible Preferred Stock

The Board of Directors has designated 1,000,000 shares of preferred stock as Series D convertible preferred stock (“Series D preferred stock”).  The Series D preferred stock is voting on an as-converted basis.  The Series D preferred stock has a dividend rate of 8%, payable quarterly.  The Company may redeem the Series D preferred shares at a redemption price equal to 120% of the original purchase price with 15 days notice. In December 2013, 893,218 shares of Series D preferred stock were converted to 6,252,526 shares of common stock.  The conversion rate of 7 shares of common stock was greater than the designated conversion rate of 5 shares of common stock and, therefore, the fair value of the additional 1,786,436 shares was recorded as a deemed dividend. During fiscal year 2014, the Company accrued $84,212 of dividends on Series D preferred stock and settled $77,961 of the accrued dividends by issuing 85,477 shares of common stock.

During fiscal year 2013, the Company accrued $232,834 of dividends on Series D preferred stock and settled the accrued dividends by issuing 5,025 shares of Series D preferred stock and 143,465 shares of common stock.

Series E Convertible Preferred Stock

During fiscal year 2013, the Board of Directors designated shares of preferred stock as Series E convertible preferred stock (“Series E preferred stock”).  Series E preferred stock is convertible into common stock at $1.00 per share, the conversion price is adjustable if there are distributions of common stock or stock splits by the Company.  The designation also provides that the Series E preferred stock is non-voting and receives a monthly dividend of 3.322% for 25 to 32 months.  In addition, the convertibility and the redemption price of the Series E preferred stock is gradually reduced by dividend payments over 25 to 32 months.  After the dividend payment term, the redemption price of Series E preferred stock is $0, the Series E preferred stock has no convertibility to common stock and the holders are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company’s gross profits payable quarterly for a two-year period. 

During fiscal year 2014, $83,473 of debenture loans and accrued interest converted into 8,347 shares of Series E preferred stock.  During fiscal year 2014, the Company accrued dividends of $320,071 to Series E shareholders.  During fiscal years 2014 and 2013, the Company paid dividends of $258,284 and $17,271, respectively, to Series E shareholders.  As of September 30, 2014 and 2013, the redemption price for the Series E preferred stock was $477,829 and $601,585, respectively.    

Series F Convertible Preferred Stock

During fiscal year 2014, the Board of Directors designated 7,803 shares of preferred stock as Series F convertible preferred stock (“Series F preferred stock”).  In April 2014, the Company increased the authorized shares of Series F preferred stock to 10,000.  Series F preferred stock is non-voting, has a stated value of $1,000 and is convertible into common stock at $1.00 per share subject to a milestone adjustment for the number of subscribers as of December 31, 2014 (see Note 12).  The Series F preferred stock has a dividend rate, payable quarterly, of 8% until April 30, 2015, 16% from May 1, 2015 to July 31, 2015, 20% from August 1, 2015 to October 31, 2015 and 25% thereafter.

During the fiscal year ended September 30, 2014, the Company issued 5,361 shares of Series F preferred stock for net proceeds of $3,580,771, after considering $675,229 of related costs, and the conversion of $574,592 of debt and accrued interest.  During fiscal year 2014, the Company accrued dividends of $322,730 to Series F shareholders.  The Company settled $144,030 of dividends plus $3,601 of accrued interest on Series F preferred stock by paying $73,815 in cash and issuing 184,541 shares of common stock.

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, Series D preferred stock, Series E preferred stock, and Series F 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 entitled.

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19. Commitments and Contingencies

12 Months Ended

Sep. 30, 2014

Notes

19. Commitments and Contingencies

19.                Commitments and Contingencies

The Company leases office space under non-cancelable operating leases.  Future minimum rental payments under non-cancelable operating leases as of September 30, 2014 were as follows:

Years Ending September 30,
2015	$     308,330
2016	317,580
2017	327,107
2018	280,077
	$    1,233,094

The Company’s rent expense for facilities held under non-cancelable operating leases for fiscal years 2014 and 2013 was approximately $279,000 and $225,000, respectively.

In May 2013, the Company entered into a settlement agreement and patent license agreement and an agreed motion was filed to dismiss all claims of a lawsuit.  The final payment required by the settlement agreement and patent license patent agreement was made in December 2013.

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9. Notes Payable: Schedule of Debt (Tables)

12 Months Ended

Sep. 30, 2014

Tables/Schedules

Schedule of Debt

	2014	2013
Note payable secured by CareServices customer contracts, imputed interest rate of 12%, monthly installments over a 38-month term.  In March 2013, the Company issued 15,000 shares of common stock to extend the term of the note.  The $24,000 fair value of the common stock is being amortized to interest expense over the remaining term of the note.  In January 2015, the note was amended (see Note 20).	$     1,103,841	$    1,766,971
Secured borrowings from third parties that purchased a $337,600 customer receivable for $200,000.  The Company may buy back the receivable for $233,333 less any cash payments before June 2015.  The $33,333 difference between the buyback and cash received plus $20,000 of commission, paid to a related party, is being amortized to interest expense over the buyback term.	233,333	-
Unsecured note payable with no interest, due March 2015.  In connection with the issuance of the note, the Company issued warrants to purchase 450,000 shares of common stock.  The $143,634 fair value of the common stock is being amortized to interest expense over the term of the note.  The note also requires a payment of 667,000 shares of common stock at the end of the term (fair value of $230,293), which is recorded as an accrued expense.	200,000	-
Unsecured notes with interest at 15% (18% after due date), due April 2013.  The Company issued 20,000 shares of Series D preferred stock as loan origination fees.  The $195,000 fair value of the preferred stock was amortized over the original term of the note.  Principal of $50,000 and accrued interest of $13,333 were converted to common stock in December 2013.	64,261	185,476
Notes payable with interest at 12%, secured by the Company's assets, due August 2014.  The Company issued warrants to purchase 36,667 shares of common stock (fair value of $51,452) as due diligence fees and issued 25,000 shares of common stock  (fair value of $31,250) to a related party as consideration for a personal guarantee.  The notes and accrued interest were converted to Series F preferred stock in December 2013.	-	550,000
Unsecured note with interest at 12%, due March 2013.  The note and accrued interest were converted to common stock in November 2013.	-	250,000
Series A debenture loan payable with interest at 12%, secured by customer contracts, payable in monthly installments, and due February 2016. The debenture was converted to Series E preferred stock in October 2013.	-	85,719
Unsecured note with interest at 15%, due March 2013. The note and accrued interest were converted to common stock in November 2013.	-	25,000
Total notes payable before discount	1,601,435	2,863,166
Less discount	(169,450)	(528,663)
Total notes payable	1,431,985	2,334,503
Less current portion	(1,212,937)	(1,278,585)
Notes payable, net of current portion	$       219,048	$     1,055,918

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3. Summary of Significant Accounting Policies: Income Taxes (Policies)

12 Months Ended

Sep. 30, 2014

Policies

Income Taxes

Income Taxes

The Company recognizes deferred income tax assets or liabilities for the expected future tax consequences of events that have been recognized in the financial statements or income tax returns. Deferred income tax assets or liabilities are determined based upon the difference between the financial reporting bases and tax reporting bases of assets and liabilities using enacted tax rates expected to apply when the differences are expected to be settled or realized.  Deferred income tax assets are reviewed periodically for recoverability and valuation allowances are provided as necessary.  As of September 30, 2014, management has provided a 100% allowance against deferred income tax assets as it is more likely than not these assets will not be realized.  Interest and penalties related to income tax liabilities, when incurred, are classified in interest expense and income tax provision, respectively.

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Consolidated Statements of Operations Parenthetical (USD $)	12 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Consolidated Statements of Operations Parenthetical
Compensation expense paid in stock or amortization of stock options and warrants	$ 3,585,379	$ 3,446,827

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18. Income Taxes: Schedule of Components of Income Tax Expense (Benefit) (Details) (USD $)	12 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Details
Current Federal Tax Expense (Benefit)	$ 4,577,000	$ 9,227,000
Current State and Local Tax Expense (Benefit)	444,000	896,000
Effective Income Tax Rate Reconciliation, Nondeductible Expense, Amount	67,000	(954,000)
Other Tax Expense (Benefit)	135,000
Effective Income Tax Rate Reconciliation, Change in Deferred Tax Assets Valuation Allowance, Amount	$ (5,223,000)	$ (9,169,000)

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3. Summary of Significant Accounting Policies

12 Months Ended

Sep. 30, 2014

Notes

3. Summary of Significant Accounting Policies

3. Summary of Significant Accounting Policies

Principles of Accounting and Consolidation

These consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”).  The consolidated financial statements include the accounts of ActiveCare and its wholly owned subsidiaries.  All significant intercompany balances and transactions have been eliminated. 

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 as of the balance sheet dates and the reported amounts of revenues and expenses for the reporting periods. Actual results could differ from these estimates.

In May 2013, the Company effected a 10-for-1 reverse common stock split.  The consolidated financial statements and notes for all periods presented have been retroactively adjusted to reflect the reverse common stock split.

Discontinued Operations

In December 2014, the Company sold substantially all of its customer contracts and equipment leased to customers associated with its CareServices segment to a third party.  Additional equipment in stock was sold to another third party pursuant to a written invoice.  The purchase price included a cash payment of $412,280 for the customer contracts and $66,458 for the equipment in stock. During fiscal years 2014 and 2013, the Company recognized a loss from discontinued operations related to CareServices of $1,452,567 and $3,179,151, respectively.

In June 2013, the Company sold the net assets and operations of its reagents segment to a third party for $184,318 in cash.  During fiscal years 2014 and 2013, the Company recognized a loss from discontinued operations related to its reagents segment of $0 and $5,312, respectively.

Fair Value of Financial Instruments

The Company measured the fair values of its assets and liabilities using the US GAAP hierarchy.  The carrying amounts reported in the consolidated balance sheets for cash, accounts receivable, accounts payable, and accrued liabilities approximate fair values due to the short-term nature and liquidity of these financial instruments. Derivative financial instruments are recorded at fair value based on current market pricing models. The carrying amounts reported for notes payable approximate fair value because the underlying instruments are at interest rates which approximate current market rates.

Concentrations of Credit Risk

The Company has cash in bank accounts that, at times, may exceed federally insured limits.  The Company has not experienced any losses in these accounts. 

In the normal course of business, the Company provides credit terms to its customers and requires no collateral.  The Company performs ongoing credit evaluations of its customers’ financial condition.  The Company maintains an allowance for doubtful accounts receivable based upon management’s specific review and assessment of each account at the period end.

During fiscal year 2014, the Company had revenues from two significant customers which represented 67% of total revenues.  During fiscal year 2013, the Company had revenues from one significant customer which represented 44% of total revenues.  As of September 30, 2014 and 2013, accounts receivable from significant customers represented 80% and 82% of total accounts receivable, respectively.

During the fiscal years 2014 and 2013, the Company purchased substantially all of its products and supplies from one vendor.

Accounts Receivable

Accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts.  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.  Accounts receivable are written off when management determines the likelihood of collection is remote.  A receivable is considered to be past due if any portion of the receivable balance has not been received by the contractual payment date.  Interest is not charged on accounts receivable that are past due.  The Company recorded an allowance for doubtful accounts of $115,994 and $76,544 as of September 30, 2014 and 2013, respectively.

Inventory

Inventory is recorded at the lower of cost or market, cost being determined using the first-in, first-out (“FIFO”) method. Inventory is for the Chronic Illness Monitoring segment and consists of diabetic supplies.  Inventory held by distributors is reported as inventory until the supplies are shipped to the end user by the distributor.  The Company estimates an inventory reserve for obsolescence and excessive quantities.  Due to competitive pressures and technological innovation, it is possible that estimates of net realizable values could change in the near term.  Inventory consists of the following as of September 30:

	2014	2013
Chronic Illness Monitoring
Finished goods	$   589,423	$    1,249,220
Finished goods held by distributors	2,720,626	3,428,306
Total inventory	3,310,049	4,677,526
Inventory reserve	(1,660,729)	-
Net Inventory	$    1,649,320	$ 4,677,526

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, which range between 3 and 7 years.  Leasehold improvements are amortized over the shorter of the estimated useful lives of the assets or the terms of the lease.  Expenditures for maintenance and repairs are expensed as incurred.  Upon the sale or disposal of property and equipment, any gains or losses are included in operations.

Goodwill

Goodwill is reviewed for impairment annually or more frequently when an event occurs or circumstances change that indicate that the carrying value may not be recoverable.  The annual testing date is September 30.  The identification and measurement of goodwill impairment involves the estimation of the fair value of our reporting units.  The estimates of fair value of reporting units are based on the best information available as of the date of the assessment, which primarily incorporate management assumptions about expected future cash flows.  Future cash flows can be affected by changes in industry or market conditions.  Goodwill was not impaired as of September 30, 2014 or 2013. 

Impairment of Long-Lived Assets

Purchased intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets, which range from two to twenty years.  Long-lived assets, including intangible assets with finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable.  Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition.  The Company impaired its CareServices customer contracts by $89,460 and patents by $408,332 as of September 30, 2014, which were recorded as part of discontinued operations related to the CareServices segment for the fiscal year ended September 30, 2014.  The impairment of the customer contracts is due to their sales price being lower than the net book value as of the date of sale.  The patents impaired were solely related to the CareServices segment and provide no future cash flows after the CareServices customer contracts and equipment leased to customers were sold in December 2014.  The Company’s other long-lived assets were not impaired as of September 30, 2014.  No long-lived assets were impaired as of September 30, 2013. 

Revenue Recognition

Historically, revenues were from three sources: (1) sales of Chronic Illness Monitoring services and supplies; (2) sales from CareServices; (3) sales of medical diagnostic stains from the Reagents segment.  The CareServices segment was sold in December 2014 and the Reagents segment was sold in June 2013.  Information regarding revenue recognition policies relating to these business segments is contained in the following paragraphs.

Chronic Illness Monitoring

Chronic Illness Monitoring revenues are recognized when persuasive evidence of an arrangement exists, delivery of the product or service to the end user has occurred, prices are fixed or determinable and collection is reasonably assured.

The Company enters into agreements with insurance companies, disease management companies, third-party administrators, and self-insured companies (collectively, the customers) to lower medical expenses by distributing diabetic testing products and supplies to employees (end users) covered by their health plans or the health plans they manage.  Cash is due from the customer or the end user’s health plan as the products and supplies are deployed to the end user.  The Company also monitors the end user’s test results in real-time with its 24x7 CareCenter.  Customers who are billed separately for monitoring are obligated to pay as the service is performed and revenue is recognized ratably over the period of the contract.  The term of these contracts is generally one year and, unless terminated by either party, automatically renew for another year.  Collection terms are net 30 days after claims are submitted.  There is no contingent revenue in these contracts.

The Company also enters into agreements with distributors who take title to products and distribute those products to end users.  Delivery is considered to occur when the supplies are delivered by the distributor to the end user.  Cash is due from the distributor, the customer or the end user’s health plan as initial products are deployed to the end user.  Subsequent sales (resupplies) are shipped directly from the Company to the end user and cash is due from the customer or the end user’s health plan.  Shipping and handling fees are typically not charged to end users.  The related freight costs and supplies directly associated with shipping products to end users are included as a component of cost of revenues.  Sales of Chronic Illness Monitoring products and services contain multiple deliverables.

Multiple-Element Arrangements

The Company evaluates each element in a multiple-element arrangement to determine whether it represents a separate unit of accounting. In order to account for elements in a multiple-element arrangement as separate units of accounting, the deliverables must have stand-alone value upon delivery.  In determining whether monitoring services have stand-alone value, the nature of the monitoring services, whether supplies are sold to new customers without monitoring services, and availability of monitoring services from the other vendors is considered.  During the three months ended June 30, 2014, the Company began to provide enhanced monitoring services to a key customer, for which the Company receives a separate monthly monitoring fee.

When multiple deliverables included in an arrangement are separable into different units of accounting, the arrangement consideration is allocated to the identified separate units of accounting based on their relative selling price. Multiple-element arrangements accounting guidance provides a hierarchy to use when determining the relative selling price for each unit of accounting. Vendor-specific objective evidence (VSOE) of selling price, based on the price at which the item is regularly sold by the vendor on a stand-alone basis, should be used if it exists. If VSOE of selling price is not available, third-party evidence (TPE) of selling price is used to establish the selling price if it exists. If VSOE of selling price and TPE of selling price are not available, then the best estimate of selling price (BESP) is to be used. During 2014, VSOE was established for monitoring services.  VSOE for supplies was previously established.  Therefore, total consideration under a multiple deliverable contract is allocated to supplies and monitoring through application of the relative fair value method.

CareServices

“CareServices” include contracts in which the Company leases monitoring devices and provides monitoring services to end users.  The Company typically enters into contracts on a month-to-month basis with end users that use CareServices.  However, these contracts may be cancelled by either party at any time with 30-days notice.  Under a standard contract, the device and service become billable on the date the end user orders the device, and remains billable until the device is returned to the Company.  Revenue on devices is recognized at the end of each month the CareServices have been provided.  In those circumstances in which payment is received in advance, the Company records these payments as deferred revenue.

CareServices revenue is recognized when persuasive evidence of an arrangement exists, delivery of the device or service has occurred, prices are fixed or determinable and payment has occurred or 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 end users are included as a component of cost of revenues.  All CareServices sales are made with net 30-day payment terms.

Reagents

Prior to the sale of the reagent segment, the Company recognized reagents revenues when persuasive evidence of an arrangement with the customer existed, title had passed to the customer, prices were fixed or determinable, and collection was reasonably assured.  Prior to the sale of the reagent segment, shipping and handling fees billed to customers were included in revenues and the related freight costs and supplies directly associated with shipping products to customers were included as a component of cost of revenues.

Research and Development Costs

All expenditures for research and development are charged to expense as incurred. Research and development expenses for fiscal years 2014 and 2013 were $215,074 and $605,170, respectively. The expenditures for fiscal year 2014 were for ongoing software improvements for the Chronic Illness Monitoring operating system and customer portal.  The expenditures for fiscal year 2013 were for the development of the Chronic Illness Monitoring operating system.

Advertising Costs

The Company expenses advertising costs as incurred.  Advertising expenses for fiscal years 2014 and 2013 were $48,778 and $59,330, respectively.  Advertising expenses primarily relate to the Company’s Chronic Illness Monitoring segment.

Income Taxes

The Company recognizes deferred income tax assets or liabilities for the expected future tax consequences of events that have been recognized in the financial statements or income tax returns. Deferred income tax assets or liabilities are determined based upon the difference between the financial reporting bases and tax reporting bases of assets and liabilities using enacted tax rates expected to apply when the differences are expected to be settled or realized.  Deferred income tax assets are reviewed periodically for recoverability and valuation allowances are provided as necessary.  As of September 30, 2014, management has provided a 100% allowance against deferred income tax assets as it is more likely than not these assets will not be realized.  Interest and penalties related to income tax liabilities, when incurred, are classified in interest expense and income tax provision, respectively.

Warrant Exercises and Note Conversions

The Company issues common shares in connection with warrant exercises when it has received verification that the proceeds have been deposited and when it has received an exercise letter from the warrant holder.  The Company issues common shares in connection with note conversions after it verifies the outstanding note balance and the eligibility of conversion, and has received a conversion letter from the lender.

Stock-Based Compensation

The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award.  That cost is recognized in the statements of operations over the period during which the employee is required to provide service in exchange for the award – the requisite service period.  The grant-date fair values of the equity instruments are estimated using option-pricing models adjusted for the unique characteristics of those instruments.

Net Loss Per Common Share

Basic net loss per common share (“Basic EPS”) is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the year.

Diluted net loss per common share (“Diluted EPS”) is computed by dividing net loss available to common stockholders by the sum of the weighted average number of common shares outstanding and the weighted-average dilutive common share equivalents then outstanding.  The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutive effect.

Common share equivalents consist of shares issuable upon the exercise of common stock warrants, shares issuable from restricted stock grants, and shares issuable from convertible notes and convertible Series C, Series D, Series E and Series F preferred stock.  As of September 30, 2014 and 2013, there were 17,199,080 and 13,127,396 outstanding common share equivalents, respectively, that were not included in the computation of Diluted EPS as their effect would be anti-dilutive.  The common stock equivalents outstanding consist of the following as of September 30:

	2014	2013
Common stock options and warrants	10,991,576	3,598,554
Series C convertible preferred stock	-	480,000
Series D convertible preferred stock	225,000	4,691,090
Series E convertible preferred stock	477,830	601,585
Series F convertible preferred stock	5,361,000	-
Convertible debt	133,924	3,738,917
Restricted shares of common stock	9,750	17,250
Total common stock equivalents	17,199,080	13,127,396

Recent Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 states that only disposals representing strategic shifts in operations that have, or will have, a major effect on an entity’s operations should be reported as discontinued operations when any of the following occurs: The component of an entity or group of components of an entity is classified as held for sale, the component of an entity or group of components of an entity is disposed of by sale, or the component of an entity or group of components of an entity is disposed of other than by sale. ASU 2014-08 is effective for annual periods beginning on or after December 15, 2014.  Early adoption is not permitted.  The Company is currently assessing the impact, if any, of implementing this guidance on its consolidated financial position, results of operations and liquidity.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under US GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing US GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein. Early adoption is not permitted. The Company is currently assessing the impact, if any, of implementing this guidance on its consolidated financial position, results of operations and liquidity.

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This standard sets forth management’s responsibility to evaluate, each reporting period, whether there is substantial doubt about the Company’s ability to continue as a going concern, and if so, to provide related footnote disclosures. The standard is effective for annual reporting periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. The Company is currently assessing the impact, if any, of implementing this guidance and will incorporate it in its assessment of going concern.

In November 2014, the FASB issued ASU, 2014-16, Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity. The ASU clarifies how current guidance should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Specifically, the amendments clarify that an entity should consider all relevant terms and features, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of a host contract. The ASU is effective for fiscal years and interim periods beginning after December 15, 2015. The Company is currently assessing the impact, if any, of implementing this guidance on its consolidated financial position, results of operations and liquidity.

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1. Organization and Nature of Operations: Going Concern (Details) (USD $)	12 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Details
Issuance of Series F preferred stock for cash, net	$ 3,580,771
Related Costs Considered in Conversion of Series F Preferred Stock	675,229
Conversion of debt and accrued interest to common stock	2,326,801
Issuance of Series F preferred stock for debt conversions	574,592
Issuance of Series E preferred stock for debt conversions	$ 83,473	$ 614,765

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16. Common Stock Options and Warrants: Schedule of fair value assumptions (Details) (USD $)	12 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Minimum
Fair Value Assumptions, Exercise Price	$ 0.50	$ 0.75
Fair Value Assumptions, Expected Term	1 year	1 year 6 months
Fair Value Assumptions, Expected Volatility Rate	101.00%	219.00%
Fair Value Assumptions, Risk Free Interest Rate	0.11%	0.23%
Maximum
Fair Value Assumptions, Exercise Price	$ 1.40	$ 10.00
Fair Value Assumptions, Expected Term	3 years	2 years 6 months
Fair Value Assumptions, Expected Volatility Rate	216.00%	298.00%
Fair Value Assumptions, Risk Free Interest Rate	0.92%	0.88%

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4. Discontinued Operations: Schedule of Disposal Groups, Including Discontinued Operations, Income Statement, Balance Sheet and Additional Disclosures (Details) (USD $)	12 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Chronic Illness Monitoring Revenue	$ 6,107,941	$ 4,245,404
Chronic Illness Monitoring Cost of Revenue	6,437,943	3,323,011
Gross profit (deficit)	(330,002)	922,393
Selling, general and administrative (including $3,585,379 and $3,446,827, respectively, of stock-based compensation)	9,800,374	8,752,277
Research and development	215,074	605,170
Total operating expenses	10,015,448	9,357,447
Loss from discontinued operations	(1,452,567)	(3,184,463)
CareServices
Loss from discontinued operations	(1,452,567)	(3,179,151)
Reagents
Loss from discontinued operations	0	(5,312)
Segment, Discontinued Operations
Chronic Illness Monitoring Revenue	1,003,238	2,012,189
Chronic Illness Monitoring Cost of Revenue	881,753	2,625,622
Gross profit (deficit)	121,485	(613,433)
Total operating expenses	(1,047,629)	(2,626,126)
Impairment of Long-Lived Assets to be Disposed of	(497,792)
Gain (Loss) on Disposition of Property Plant Equipment, Excluding Oil and Gas Property and Timber Property	(18,746)
Other Expenses	(9,885)
Gain (Loss) on Disposition of Other Assets		55,096
Loss from discontinued operations	(1,452,567)	(3,184,463)
Segment, Discontinued Operations | CareServices
Chronic Illness Monitoring Revenue	1,003,238	1,660,544
Chronic Illness Monitoring Cost of Revenue	881,753	2,325,226
Selling, general and administrative (including $3,585,379 and $3,446,827, respectively, of stock-based compensation)	(1,047,629)	(2,287,368)
Research and development		(227,101)
Other Expenses	(526,423)	55,096
Segment, Discontinued Operations | Reagents
Chronic Illness Monitoring Revenue		351,645
Chronic Illness Monitoring Cost of Revenue		300,396
Selling, general and administrative (including $3,585,379 and $3,446,827, respectively, of stock-based compensation)		$ (111,657)

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20. Subsequent Events

12 Months Ended

Sep. 30, 2014

Notes

20. Subsequent Events

20.                Subsequent Events

Subsequent to September 30, 2014 and through the release date of this report, the Company entered into the following agreements and transactions:

(1)     In October 2014, the Company issued or the Board of Directors has approved the issuance of 1,692,810 shares of common stock to employees for services with vesting ranging from immediate to two years.

(2)     In October 2014, the Company issued 18,522 shares of common stock to settle accrued dividends for Series D preferred stock.

(3)     In November 2014, the Company amended an existing agreement related to investor relations services, contingent upon the elimination of the Series F Preferred stock.  The amendment extends the agreement by two years and would require the Company to issue a total of 3,000,000 shares of its common stock over the extended term.

(4)     In November 2014, the Company amended an existing agreement with one of its customers which would require the Company to issue up 2,250,000 shares of its common stock to the customer.  The number of shares to be issued is based on the customer meeting certain milestones for the number of end users who receive Chronic Illness Monitoring products and services through January 2016.

(5)     In November 2014, the Company entered into a consulting agreement with a third party which would require the Company to issue up 750,000 shares of its common stock to the third party.  The third party will consult the Company on matters regarding sales to a specific customer.  The number of shares to be issued is based on the customer meeting certain milestones for the number of end users who receive Chronic Illness products and services through January 2016.

(6)     In November 2014, the Company sold $130,000 of future customer receipts to a third party for $100,000 in cash.  The $30,000 difference between the payment amount and cash received is being amortized to interest expense over the expected term.

(7)     In December 2014, the Company sold substantially all of its CareServices customer contracts and equipment leased to customers associated with its CareServices segment to a third party.  Additional equipment in stock was sold to the buyer pursuant to a written invoice.  The purchase price included a cash payment of $412,280 for the customer contracts and $66,458 for the equipment in stock.

(8)     In January 2015, the Company modified the note payable secured by CareServices customer contracts to reduce the outstanding principal to $375,000, interest at 9%, and payable in 15 monthly installments beginning in February 2015.  The note payable is guaranteed by the Chairman of the Board of Directors and another member of the Board of Directors.

(9)     In November 2014, the Company entered into a note payable with an entity controlled its Chairman of the Board of Directors to covert $396,667 of advances and notes payable into one promissory note, interest at 0%, and due on demand.

(10) In October and December 2014, the Company received advances totaling $305,000 from entities controlled by a member the Board of Directors.

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8. Accrued Expenses: Schedule of Accrued Expenses (Details) (USD $)	Sep. 30, 2014	Sep. 30, 2013
Accrued expenses	$ 1,451,331	$ 708,519
Liability to issue common stock
Accrued expenses	522,087
Commissions and fees
Accrued expenses	453,744	88,490
Payroll Expense
Accrued expenses	308,529	272,451
Deferred Rent
Accrued expenses	89,346	55,242
Interest Expense
Accrued expenses	59,091	211,722
Other Expense
Accrued expenses	$ 18,534	$ 80,614

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3. Summary of Significant Accounting Policies: Revenue Recognition (Policies)

12 Months Ended

Sep. 30, 2014

Policies

Revenue Recognition

Revenue Recognition

Historically, revenues were from three sources: (1) sales of Chronic Illness Monitoring services and supplies; (2) sales from CareServices; (3) sales of medical diagnostic stains from the Reagents segment.  The CareServices segment was sold in December 2014 and the Reagents segment was sold in June 2013.  Information regarding revenue recognition policies relating to these business segments is contained in the following paragraphs.

Chronic Illness Monitoring

Chronic Illness Monitoring revenues are recognized when persuasive evidence of an arrangement exists, delivery of the product or service to the end user has occurred, prices are fixed or determinable and collection is reasonably assured.

The Company enters into agreements with insurance companies, disease management companies, third-party administrators, and self-insured companies (collectively, the customers) to lower medical expenses by distributing diabetic testing products and supplies to employees (end users) covered by their health plans or the health plans they manage.  Cash is due from the customer or the end user’s health plan as the products and supplies are deployed to the end user.  The Company also monitors the end user’s test results in real-time with its 24x7 CareCenter.  Customers who are billed separately for monitoring are obligated to pay as the service is performed and revenue is recognized ratably over the period of the contract.  The term of these contracts is generally one year and, unless terminated by either party, automatically renew for another year.  Collection terms are net 30 days after claims are submitted.  There is no contingent revenue in these contracts.

The Company also enters into agreements with distributors who take title to products and distribute those products to end users.  Delivery is considered to occur when the supplies are delivered by the distributor to the end user.  Cash is due from the distributor, the customer or the end user’s health plan as initial products are deployed to the end user.  Subsequent sales (resupplies) are shipped directly from the Company to the end user and cash is due from the customer or the end user’s health plan.  Shipping and handling fees are typically not charged to end users.  The related freight costs and supplies directly associated with shipping products to end users are included as a component of cost of revenues.  Sales of Chronic Illness Monitoring products and services contain multiple deliverables.

Multiple-Element Arrangements

The Company evaluates each element in a multiple-element arrangement to determine whether it represents a separate unit of accounting. In order to account for elements in a multiple-element arrangement as separate units of accounting, the deliverables must have stand-alone value upon delivery.  In determining whether monitoring services have stand-alone value, the nature of the monitoring services, whether supplies are sold to new customers without monitoring services, and availability of monitoring services from the other vendors is considered.  During the three months ended June 30, 2014, the Company began to provide enhanced monitoring services to a key customer, for which the Company receives a separate monthly monitoring fee.

When multiple deliverables included in an arrangement are separable into different units of accounting, the arrangement consideration is allocated to the identified separate units of accounting based on their relative selling price. Multiple-element arrangements accounting guidance provides a hierarchy to use when determining the relative selling price for each unit of accounting. Vendor-specific objective evidence (VSOE) of selling price, based on the price at which the item is regularly sold by the vendor on a stand-alone basis, should be used if it exists. If VSOE of selling price is not available, third-party evidence (TPE) of selling price is used to establish the selling price if it exists. If VSOE of selling price and TPE of selling price are not available, then the best estimate of selling price (BESP) is to be used. During 2014, VSOE was established for monitoring services.  VSOE for supplies was previously established.  Therefore, total consideration under a multiple deliverable contract is allocated to supplies and monitoring through application of the relative fair value method.

CareServices

“CareServices” include contracts in which the Company leases monitoring devices and provides monitoring services to end users.  The Company typically enters into contracts on a month-to-month basis with end users that use CareServices.  However, these contracts may be cancelled by either party at any time with 30-days notice.  Under a standard contract, the device and service become billable on the date the end user orders the device, and remains billable until the device is returned to the Company.  Revenue on devices is recognized at the end of each month the CareServices have been provided.  In those circumstances in which payment is received in advance, the Company records these payments as deferred revenue.

CareServices revenue is recognized when persuasive evidence of an arrangement exists, delivery of the device or service has occurred, prices are fixed or determinable and payment has occurred or 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 end users are included as a component of cost of revenues.  All CareServices sales are made with net 30-day payment terms.

Reagents

Prior to the sale of the reagent segment, the Company recognized reagents revenues when persuasive evidence of an arrangement with the customer existed, title had passed to the customer, prices were fixed or determinable, and collection was reasonably assured.  Prior to the sale of the reagent segment, shipping and handling fees billed to customers were included in revenues and the related freight costs and supplies directly associated with shipping products to customers were included as a component of cost of revenues.

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13. Derivatives Liability

12 Months Ended

Sep. 30, 2014

Notes

13. Derivatives Liability

13.                Derivatives Liability

The derivatives liability as of September 30, 2014 and 2013 was $106,444 and $795,151, respectively.  The derivatives liability as of September 30, 2013 was eliminated due to the conversion of notes payable with variable conversion features.  The derivatives liability as of September 30, 2014 is related to a variable conversion price adjustment on the Series F preferred stock.  The conversion price on Series F preferred stock may be adjusted from $1.00 based on the number of subscribers as of December 31, 2014.

During the fiscal year ended September 30, 2014, the Company estimated the fair value of the embedded derivatives prior to their conversion and elimination using a binomial option-pricing model with the following assumptions, according to the instrument: exercise price of $0.35 per share; risk free interest rate of 0.060%; expected life of 0.50 years; expected dividends of 0%; a volatility factor of 104%; and a stock price of $0.24.  The expected lives of the instruments were 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.  The Company recognized a gain on derivatives liability for the fiscal year ended September 30, 2014 of $373,293 and a loss for the fiscal year ended September 30, 2013 of $333,406.