10-Q

 UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended: December 31, 2014

or

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

For the transition period from ____________ to _____________

Commission File Number:0-53570

ActiveCare, Inc.

(Exact name of registrant as specified in its charter)

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

(877) 219-6050

(Registrant’s telephone number, including area code)

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

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

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

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

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

As of February 23, 2015, the registrant had 48,131,114 shares of common stock outstanding.

ActiveCare, Inc.

Quarterly Report on Form 10-Q

Table of Contents

	Page
PART I – FINANCIAL INFORMATION	3
Item 1.  Financial Statements	3
Condensed Consolidated Balance Sheets (Unaudited)	3
Condensed Consolidated Statements of Operations (Unaudited)	5
Condensed Consolidated Statements of Cash Flows (Unaudited)	6
Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.  Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.  Controls and Procedures	25
PART II – OTHER INFORMATION	26
Item 1.  Legal Proceedings	26
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.  Defaults Upon Senior Securities	26
Item 5.  Other Information	27
Item 6.  Exhibits	28
SIGNATURES	29

2

PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements

ActiveCare, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
	December 31,		September 30,
	2014		2014
Assets
Current assets:
Cash	$	396,388	$	197,027
Accounts receivable, net		1,089,112		1,635,660
Inventory		1,412,166		1,649,320
Prepaid expenses and other		135,801		141,087
Assets of discontinued operations		-		712,403
Total current assets		3,033,467		4,335,497
Goodwill		825,894		825,894
Property and equipment, net		204,313		220,076
Deposits and other assets		29,594		29,594
Domain name, net		10,546		10,724
Total assets	$	4,103,814	$	5,421,785
See accompanying notes to condensed consolidated financial statements.

3

ActiveCare, Inc.
Condensed Consolidated Balance Sheets (Unaudited) (continued)
	December 31,			September 30,
	2014			2014
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	4,175,364		$	4,549,451
Accounts payable, related party		1,303,414			1,109,775
Accrued expenses		1,479,371			1,451,331
Notes payable, related party		1,979,775			1,669,620
Current portion of notes payable		1,578,836			1,212,937
Dividends payable		435,674			246,738
Derivatives liability		-			106,444
Total current liabilities		10,952,434			10,346,296
Notes payable, net of current portion		-			219,048
Total liabilities		10,952,434			10,565,344
Stockholders’ deficit:
Preferred stock, $.00001 par value: 10,000,000 shares authorized; 45,000 shares of Series D; 70,070 shares of Series E; and 5,361 shares of Series F outstanding		1			1
Common stock, $.00001 par value: 200,000,000 shares authorized; 47,176,683 and 45,815,351 shares outstanding, respectively		472			458
Additional paid-in capital, common and preferred		74,424,246			73,183,429
Accumulated deficit		(81,273,339	)		(78,327,447	)
Total stockholders’ deficit		(6,848,620	)		(5,143,559	)
Total liabilities and stockholders’ deficit	$	4,103,814		$	5,421,785
See accompanying notes to condensed consolidated financial statements.

4

ActiveCare, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
	Three Months Ended
	December 31,
	2014			2013
Chronic illness monitoring revenues	$	1,508,091		$	2,009,766
Chronic illness monitoring cost of revenues		1,117,223			1,141,639
Gross profit		390,868			868,127
Operating expenses:
Selling, general and administrative (including $1,169,977 and $572,194, respectively, of stock-based compensation)		2,351,459			2,360,350
Research and development		45,198			75,291
Total operating expenses		2,396,657			2,435,641
Loss from operations		(2,005,789	)		(1,567,514	)
Other income (expense):
Gain on derivatives liability		106,444			479,737
Loss on induced conversion of debt and sale of common stock		-			(114,098	)
Interest expense, net		(350,536	)		(1,269,076	)
Other income (expense)		-			2,368
Total other income (expense)		(244,092	)		(901,069	)
Loss from continuing operations		(2,249,881	)		(2,468,583	)
Loss from discontinued operations		(272,982	)		(302,783	)
Net loss		(2,522,863	)		(2,771,366	)
Deemed dividends on conversion of preferred stock to common stock		-			(2,234,924	)
Dividends on preferred stock		(195,187	)		(153,013	)
Net loss attributable to common stockholders	$	(2,718,050	)	$	(5,159,303	)
Net loss per common share - basic and diluted
Continuing operations	$	(0.05	)	$	(0.19	)
Discontinued operations		(0.01	)		(0.01	)
Net loss per common share	$	(0.06	)	$	(0.20	)
Weighted average common shares outstanding – basic and diluted		47,162,000			25,302,000
See accompanying notes to condensed consolidated financial statements.

5

ActiveCare, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
	Three Months Ended
	December 31,
	2014			2013
Cash flows from operating activities:
Net loss	$	(2,522,863	)	$	(2,771,366	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		249,606			295,582
Gain on derivatives liability		(106,444	)		(479,737	)
Stock-based compensation expense		453,565			512,193
Stock and warrants issued for services		716,412			60,001
Stock and warrants issued for interest expense		-			785,454
Amortization of debt discounts		306,711			494,853
Loss on induced conversion of debt and sale of common stock		-			114,098
Changes in operating assets and liabilities:
Accounts receivable		546,548			382,013
Inventory		237,154			(129,936	)
Prepaid expenses and other		(26,664	)		(30,239	)
Accounts payable		(102,823	)		(1,914,788	)
Accrued expenses		(78,874	)		(46,701	)
Deposits and other assets		-			53,470
Net cash used in operating activities		(327,672	)		(2,675,103	)
Cash flows from investing activities:
Purchases of property and equipment		-			(51,648	)
Proceeds from sale of discontinued operations		478,738			-
Net cash provided by (used in) investing activities		478,738			(51,648	)
Cash flows from financing activities:
Proceeds from issuance of notes payable, net		100,000			500,000
Proceeds from sale of preferred stock, net		-			2,770,771
Proceeds from issuance of related-party notes payable, net		-			605,000
Principal payments on notes payable		(51,705	)		(307,396	)
Principal payments on related-party notes payable		-			(633,000	)
Payment of dividends		-			(78,394	)
Net cash provided by financing activities		48,295			2,856,981
Net increase in cash		199,361			130,230
Cash, beginning of the period		197,027			223,835
Cash, end of the period	$	396,388		$	354,065
See accompanying notes to condensed consolidated financial statements.

6

ActiveCare, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited) (continued)
	Three Months Ended
	December 31,
	2014		2013
Supplemental Cash Flow Information:
Cash paid for interest	$	2,605	$	67,050
Non-Cash Investing and Financing Activities:
Dividends on preferred stock and related interest	$	195,187	$	91,340
Conversion of related-party accounts payable and accrued liabilities to related-party notes payable		105,000		-
Issuance of stock for dividends		6,251		62,130
Related-party notes payable converted to common stock		-		1,782,738
Notes payable converted to preferred stock		-		633,254
Issuance of stock and options for loan origination fees		-		370,633
Liability to issue shares of common stock for loan origination fees		-		234,793
See accompanying notes to condensed consolidated financial statements.

7

ActiveCare, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1.             Basis of Presentation

The unaudited interim condensed consolidated financial statements of ActiveCare, Inc. (the “Company” or “ActiveCare”) have been prepared in accordance with Article 8 of Regulation S-X promulgated by the Securities and Exchange Commission.  Certain information and disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) have been condensed or omitted pursuant to such rules and regulations.  In the opinion of management, the accompanying interim condensed consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company’s financial position as of December 31, 2014 and September 30, 2014, and the results of its operations and its cash flows for the three months ended December 31, 2014 and 2013.  These financial statements should be read in conjunction with the annual consolidated financial statements and notes thereto that are included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2014.  The results of operations for the three months ended December 31, 2014 may not be indicative of the results for the full fiscal year ending September 30, 2015.

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 December 31, 2014 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 products and services.  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.

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.

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.

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 and its condensed consolidated financial statements as of and for the three months ended December 31, 2013 to correct the accounting related to revenue recognition for chronic illness monitoring supplies shipped to distributors, as contained in its Form 10-K/A and Form 10-Q/A filed with the Securities and Exchange Commission on November 12, 2014.  Specifically, the Company determined it was 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 and Form 10-Q/A filed on November 12, 2014 for reconciliations of the amounts as originally reported to the corresponding restated amounts.

8

3.             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.  The debt secured by the CareServices customer contracts was amended in January 2015 and remains an obligation of the Company (see Note 21).  There were no material liabilities of discontinued operations.  Assets of discontinued operations consist of the following as of:

	December 31, 2014		September 30, 2014
Customer contracts, net (Note 8)	$	-	$	569,250
Equipment leased to customers, net (Note 10)		-		111,435
Patents, net (Note 9)		-		31,718
Total assets of discontinued operations	$	-	$	712,403

As a result of the sale of the CareServices assets, the Company has reflected the segment as discontinued operations in the consolidated financial statements for three months ended December 31, 2014 and 2013.  The following table summarizes certain operating data for discontinued operations for the three months ended:

	December 31, 2014			December 31, 2013
Revenues	$	141,523		$	348,791
Cost of revenues		203,294			302,224
Gross profit (loss)		(61,771	)		46,567
Selling, general and administrative expenses		(211,211	)		(349,350	)
Loss from discontinued operations	$	(272,982	)	$	(302,783	)

4.             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 December 31, 2014 and 2013, there were 27,905,091 and 15,947,310 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:

9

	December 31, 2014		December 31, 2013
Common stock options and warrants		10,991,576		10,648,676
Series D convertible preferred stock		225,000		225,000
Series E convertible preferred stock		477,830		623,384
Series F convertible preferred stock		16,065,328		4,353,000
Convertible debt		135,607		80,000
Restricted shares of common stock		9,750		17,250
Total common stock equivalents		27,905,091		15,947,310

5.             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, 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 and results of operations.

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.

6.             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 as of December 31, 2014 and September 30, 2014.

10

7.             Inventory

Inventory is recorded at the lower of cost or market, cost being determined using the first-in, first-out (“FIFO”) method 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:

	December 31, 2014			September 30, 2014
Finished goods	$	504,079		$	589,423
Finished goods held by distributors		2,550,238			2,720,626
Total inventory		3,054,317			3,310,049
Inventory reserve		(1,642,151	)		(1,660,729	)
Net inventory	$	1,412,166		$	1,649,320

8.             Customer Contracts

The Company was amortizing Chronic Illness Monitoring customer contracts acquired during 2012 over their estimated useful lives (through 2014).  As of December 31, 2014 and September 30, 2014, the cost associated with these customer contracts was $214,106 and the accumulated amortization was $214,106.  Amortization expense related to these contracts for the three months ended December 31, 2014 and 2013 was $0 and $28,610, respectively.

The Company sold substantially all of the CareServices customer contracts during December 2014 (see Note 3).  The Company impaired the CareServices customer contracts as of September 30, 2014 by $89,460.  As of December 31, 2014 and September 30, 2014, customer contracts totaled $0 and $2,066,316, respectively, and the related accumulated amortization was $0 and $1,497,067, respectively.  Amortization expense related to the CareServices segment for each of the three months ended December 31, 2014 and 2013 was $179,648.

9.             Patents

The Company is amortizing its patents over their remaining useful lives.  Amortization expense for each of three months ended December 31, 2014 and 2013 was $31,718.  The Company impaired the patents as of September 30, 2014 by $408,332.  As of December 31, 2014 and September 30, 2014, the cost associated with the patents was $514,046 and the accumulated amortization was $514,046 and $482,328, respectively.

10.           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.  Property and equipment consist of the following as of:

	December 31, 2014			September 30, 2014
Leasehold improvements	$	151,287		$	151,287
Software		100,574			100,574
Furniture		69,776			69,776
Equipment		54,732			54,732
Total property and equipment		376,369			376,369
Accumulated depreciation and amortization		(172,056	)		(156,293	)
Property and equipment, net	$	204,313		$	220,076

Assets to be disposed of are reported at the lower of their carrying amounts or fair values, less the estimated costs to sell or dispose.  During December 2014, the Company sold all of its equipment leased to customers (see Note 3).  Depreciation expense for the three months ended December 31, 2014 and 2013 was $38,061 and $54,185, respectively.

11

11.           Accrued Expenses

Accrued expenses consist of the following as of:

	December 31, 2014		September 30, 2014
Liability to issue common stock	$	654,003	$	522,087
Commissions and fees		359,814		453,744
Payroll expense		237,388		308,529
Interest		100,312		59,091
Deferred rent		88,181		89,346
Other		39,673		18,534
Total accrued expenses	$	1,479,371	$	1,451,331

12.           Notes Payable

The Company had the following notes payable outstanding as of:  

	December 31, 2014		September 30, 2014
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 21).	$	1,103,841	$	1,103,841
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 cash received by the third parties 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		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		200,000
Secured borrowings from a third party that purchased $130,000 of customer receipts for $100,000.  The $30,000 difference between the customer receipts and cash received plus $3,000 of commission paid to a related party, is being amortized to interest expense over the term of the note.		78,296		-

12

	December 31, 2014			September 30, 2014
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		$	64,261
Total notes payable before discount		1,679,731			1,601,435
Less discount		(100,895	)		(169,450	)
Total notes payable		1,578,836			1,431,985
Less current portion		(1,578,836	)		(1,212,937	)
Notes payable, net of current portion	$	-		$	219,048

13.           Related-Party Notes Payable

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

	December 31, 2014		September 30, 2014
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	$	1,639,500
Unsecured note payable to the Executive Chairman of the Board of Directors with no interest, due on demand.		396,667		-
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		30,000
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 Executive Chairman of the Board of Directors, 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 was amortized to interest expense over the original term of the note, through September 2013.  In December 2013, $160,000 of the note was converted to common stock.		15,000		15,000

13

	December 31, 2014			September 30, 2014
Unsecured note payable to an officer of the Company with interest at 12%, due on demand.	$	13,644		$	13,644
Secured borrowings from the Executive 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 cash received by the Executive Chairman before June 2015.  The $41,667 difference between the buyback and cash received plus $25,000 of loan origination fees was to be amortized to interest expense over the buyback term.  In November 2014, the secured borrowings and other advances were converted into an unsecured note payable to the same related party and the remaining discount balance was expensed.		-			291,667
Total notes payable, related-party, before discount		2,121,532			2,016,532
Less discount		(141,757	)		(346,912	)
Total notes payable, related-party	$	1,979,775		$	1,669,620

14.           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 derivative liabilities are re-measured to fair value as of each reporting date until the contingency is resolved.  See Note 15 for more information about derivatives and the inputs used for calculating fair value.

15.           Derivatives Liability

The derivatives liability as of December 31, 2014 and September 30, 2014 was $0 and $106,444, respectively.  The derivatives liability as of September 30, 2014 is related to a variable conversion price adjustment on the Series F preferred stock.  The derivatives liability as of December 31, 2014 was eliminated due to the conversion price on Series F preferred stock being adjusted from $1.00 to $0.3337 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 three months ended December 31, 2014 and 2013 of $106,444 and $479,737, respectively.

16.           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.

14

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 the three months ended December 31, 2013, 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.

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. During the three months ended December 31, 2013, 893,218 shares of Series D preferred stock were converted to 6,252,526 shares of common stock.   The conversion rate of seven shares of common stock per preferred share was greater than the designated conversion rate of five shares of common stock per preferred share and, therefore, the fair value of the additional 1,786,436 shares was recorded as a deemed dividend. During the three months ended December 31, 2014, the Company accrued $6,251 of dividends on Series D preferred stock and settled $6,251 of accrued dividends by issuing 18,522 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 the three months ended December 31, 2014 and 2013, the Company accrued dividends of $81,716 and $83,473, respectively, to Series E shareholders.  During the three months ended December 31, 2014 and 2013, the Company paid dividends of $0 and $83,473, respectively, to Series E shareholders.  As of December 31, 2014 and September 30, 2014, the redemption price for the Series E preferred stock was $477,829.

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 was originally convertible into common stock at $1.00 per share subject to a milestone adjustment for the number of subscribers.  As of December 31, 2014, the Company had 16,686 subscribers after the CareServices customer contracts were sold (Note 3) and adjusted the conversion price from $1.00 to $0.3337 per common share, according to the milestone adjustment provision.  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 three months ended December 31, 2014, the Company accrued dividends of $107,220 to Series F shareholders.

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.

15

17.           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 the three months ended December 31, 2014, the Company issued 1,361,332 shares of common stock as follows:

●  290,000 shares to the Interim Chief Executive Officer for future services, the value on the date of grant was $69,600 and the shares vest quarterly over two years;

●  1,052,810 shares for employee compensation for past services and bonuses, the value on the date of grant was $252,674;

●  18,522 shares to settle accrued dividends for Series D preferred stock, the value on the date of grant was $6,251.

The fair value of unvested common stock as of December 31, 2014 was $3,554,482.

18.           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 the three months ended December 31, 2014, the Company did not grant any common stock options or warrants.

During the three months ended December 31, 2013, the Company measured the fair value of the warrants using a binomial valuation model with the following assumptions:

	December 31, 2013
Exercise price	$0.95 - $1.10
Expected term (years)	2 - 3
Volatility	214% - 216%
Risk-free rate	0.28% - 0.68%
Dividend rate	0%

The following table summarizes information about stock options and warrants outstanding as of December 31, 2014:

Options and Warrants	Number of Options and Warrants		Weighted-Average Exercise Price
Outstanding as of October 1, 2014		10,991,576	$	1.05
Granted		-
Exercised		-
Forfeited		-
Outstanding as of December 31, 2014		10,991,576		1.05
Exercisable as of December 31, 2014		9,061,576		1.17

As of December 31, 2014, the outstanding warrants have an aggregate intrinsic value of $0, the weighted average remaining term of the warrants was 3.63 years, and the fair value of unvested stock options and warrants was $270,298.

19.           Segment Information

The Company operated two business segments during the three months ended December 31, 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.

16

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 as of December 31, 2014 and 2013 and for the three months then ended:

	Corporate			Chronic Illness Monitoring		CareServices (Discontinued Operations)			Total
As of December 31, 2014 and for the Three Months Then Ended
Sales to external customers	$	-		$	1,508,091	$	141,523		$	1,649,614
Segment loss		(2,344,677	)		94,796		(272,982	)		(2,522,863	)
Interest expense, net		350,536			-		-			350,536
Segment assets		689,072			3,414,742		-			4,103,814
Depreciation and amortization		15,941			-		233,664			249,605
As of December 31, 2013 and for the Three Months Then Ended
Sales to external customers	$	-		$	2,009,766	$	348,791		$	2,358,557
Segment loss		(2,796,700	)		328,117		(302,783	)		(2,771,366	)
Interest expense, net		1,269,076			-		-			1,269,076
Segment assets		615,490			7,191,387		2,099,225			9,906,102
Fixed assets and leased equipment purchases		51,648			-		-			51,648
Depreciation and amortization		29,833			28,610		237,139			295,582

20.           Commitments and Contingencies

The Company leases office space under non-cancelable operating leases.  Future minimum rental payments under non-cancelable operating leases as of December 31, 2014 are as follows:

Years Ending September 30,
2015 (nine months)	$            232,573
2016	317,580
2017	327,107
2018	280,077
	$         1,157,337

The Company’s rent expense for facilities held under non-cancelable operating leases for the three months ended December 31, 2014 and 2013 was approximately $76,000 and $75,000, respectively.

21.           Subsequent Events

Subsequent to December 31, 2014 and through the release date of this report, the Company entered into the following agreements and transactions:

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

17

(2)   In January 2015, the Company sold $260,000 of future customer receipts to a third party for $200,000 in cash.  The $60,000 difference between the future customer receipts and cash received by the Company is being amortized to interest expense over the term of the note.

(3)   In January 2015, the Company’s Board of Directors granted the issuance of 586,999 fully vested shares of common stock to employees for services.

(4)   In February 2015, the Company issued 17,432 shares of common stock to settle accrued dividends for Series D preferred stock.

18

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader better understand our operations and our present business environment.  This MD&A is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements for the fiscal years ended September 30, 2014 and 2013, and the accompanying notes thereto, contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2014 and our unaudited condensed consolidated financial statements for the three months ended December 31, 2014, and the accompanying notes thereto, contained in this Quarterly Report on Form 10-Q. Unless otherwise indicated, the terms “ActiveCare,” the “Company,” “we,” and “our” refer to ActiveCare, Inc., a Delaware corporation and its subsidiaries.

Overview

ActiveCare, Inc. was formed March 5, 1998 as a wholly owned subsidiary of SecureAlert, Inc. dba Track Group [OTCQB: SCRA], a Utah corporation (“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.

In fiscal year 2012, we launched a 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.  The 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.

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.  We believe the ability to monitor chronic illness in the 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 and provide peace of mind with the knowledge that 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.

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.  We continue to incur negative cash flows from operating activities and net losses.  We had negative working capital and negative total equity as of September 30, 2014 and December 31, 2014 and are in default with respect to certain debt.  These factors, among others, raise substantial doubt about our ability to continue as a going concern. The financial statements included in this Form 10-Q 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 the necessary debt or equity funding to meet our projected capital investment requirements.  Our management’s plans with respect to this uncertainty consist of 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 services and may have to cease operations.

In 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 Chronic Illness Monitoring.

19

Our Product and Service Strategy

During the three months ended December 31, 2014, our product and service strategy fell into two segments; 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.

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.  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 three months ended December 31, 2014, we spent approximately $45,000 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.  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.

CareCenter

A 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 onboarding 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.

CareServices

We 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.  In December 2014, we sold substantially all of our customer contracts and equipment leased to customers associated with our CareServices segment.

Research and Development Program

During the three months ended December 31, 2014, we spent approximately $45,000, compared to $75,000 during the same period in 2013, on research and development related to chronic illness monitoring.  The research and development expenditures 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 the three months ended December 31, 2014. 

20

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.

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.

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.

Inventory

Inventory is recorded at the lower of cost or market, cost being determined using the first-in, first-out (“FIFO”) method 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 three and seven 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 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.

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 considered to be impaired during the three months ended December 31, 2014.

21

Revenue Recognition

Revenues have historically been from two sources: (1) sales of Chronic Illness Monitoring services and supplies; (2) sales from CareServices.  The CareServices segment was sold in December 2014.  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 are factors that are 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.

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.

22

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 December 31, 2014 and 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.

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.

Results of Operations

Three Months Ended December 31, 2014 and 2013

Revenues

Revenues for the three months ended December 31, 2014 were $1,508,000 compared to $2,010,000 for the same period in 2013, a decrease of $502,000, or 25%.  The decrease is due to additional quarterly resupply shipments made at the beginning of the three-month period ended December 31, 2013 that were originally scheduled for the end of the three-month period ended September 30, 2013.

Cost of Revenues

Cost of revenues for the three months ended December 31, 2014 was $1,117,000, compared to $1,142,000 for the same period in 2013, a decrease of $25,000, or 2%.  The decrease in cost of revenues is due to lower sales, offset, in part, by more allocation of our CareCenter costs to Chronic Illness Monitoring.

Gross Profit

Gross profit for the three months ended December 31, 2014 was $391,000, compared to $868,000 for the same period in 2013, a decrease of $477,000 for the reasons described above.  We expect gross profit to improve throughout the remainder of fiscal year 2015 as we anticipate that we will acquire more Chronic Illness Monitoring customers and retain existing customers.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended December 31, 2014 were $2,351,000, compared to $2,360,000 for the same period in 2013, a decrease of $9,000.  The decrease in expenses incurred is primarily due to a decrease in consulting fees, professional fees, payroll and insurance, and depreciation and amortization expenses offset, in part, by an increase in stock-based compensation of $598,000.

Research and Development Expenses

Research and development expenses for the three months ended December 31, 2014 were $45,000, compared to $75,000 for the same period in 2013, a decrease of $30,000.  The decrease is due to the completion of certain Chronic Illness Monitoring platforms.  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 the three months ended December 31, 2014 was $106,000, compared to $480,000 for the same period in 2013.  The derivatives liability recorded as of September 30, 2014 related to a variable conversion feature for the Series F preferred stock related to a milestone adjustment on December 31, 2014 that adjusted the conversion price on Series F Preferred stock from $1.00 to $0.3337 based on the number of subscribers we have obtained.  The derivatives liability was eliminated as of December 31, 2014 due to the milestone adjustment.  Derivatives liabilities recorded as of September 30, 2013 include convertible debt instruments with variable conversion elements which were eliminated during the three months ended December 31, 2013 due to the conversion of notes payable with variable conversion features.

23

Loss on Induced Conversion of Debt and Sale of Common Stock

During the three months ended December 31, 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 three months ended December 31, 2013, debt and accrued interest of approximately $541,000 were converted to shares of common stock.  During the three months ended December 31, 2013, 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 three months ended December 31, 2013 was approximately $114,000.  We believe this improved our balance sheet and positioned us to invest more resources in growing the Chronic Illness Monitoring business.

Interest Expense

Interest expense for the three months ended December 31, 2014 was $351,000, compared to $1,269,000 for the same period in 2013, a decrease of $918,000.  The decrease is due to the conversion of $2,985,000 of debt and accrued interest to equity during the three months ended December 31, 2013.

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.  During the three months ended December 31, 2014 and 2013, we recognized a loss from discontinued operations of $273,000 and $303,000, respectively.

Net Loss

Net loss for the three months ended December 31, 2014 was $2,523,000, compared to $2,771,000 for the same period in 2013 for the reasons described above.

Deemed Dividends on Conversion of Preferred Stock to Common Stock

During December 2013, we accounted for $2,235,000 of common stock issued for the conversion of preferred stock as a deemed dividend.   During the three months ended December 31, 2013, all 480,000 outstanding 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.  Also during December 2013, 893,218 shares of Series D preferred stock were converted to 6,252,526 shares of common stock.   The conversion rate of seven shares of common stock per preferred share was greater than the designated conversion rate of five shares of common stock per preferred share and, therefore, the fair value of the additional 1,786,436 shares was recorded as a deemed dividend.

Dividends on Preferred Stock

We accrued $195,000 of dividends on preferred stock for the three months ended December 31, 2014, compared to $153,000 for the same period in 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 December 31, 2014 was $396,000.  At that time, we had a working capital deficit of $7,919,000, compared to a working capital deficit of $6,011,000 as of September 30, 2014.  The decrease in working capital is primarily due to the sale of substantially all of our customer contracts and equipment leased to customers associated with CareServices, a decrease in accounts receivable due to customer collections, a decrease in inventory, and an increase in third-party and related-party notes and related-party accounts payable, offset by a reduction to accounts payable due to vendor payments.

Operating activities for the three months ended December 31, 2014 used cash of $328,000, compared to $2,675,000 for the same period in 2013, a decrease of $2,347,000.  The decrease in cash used in operating activities is primarily due to significant vendor payments on past due balances in the prior year.  The remaining decrease is due to better inventory management, collection of accounts receivable, the decrease in net loss, offset, in part, by the decrease in non-cash expenses.

24

Investing activities for the three months ended December 31, 2014 provided cash of $479,000, compared to cash used of $52,000 for the same period in 2013.  The increased cash provided by investing activities is primarily due to the sale of substantially all of our customer contracts and equipment leased to customers associated with CareServices during the three months ended December 31, 2014.

Financing activities for the three months ended December 31, 2014 provided cash of $48,000, compared to $2,857,000 for the same period in 2013. The decrease in cash provided from financing activities is primarily due to proceeds from the sale of preferred stock and issuance of debt during the three months ended December 31, 2013 and the decrease in principal payments on debt during the three months ended December 31, 2014.

We had an accumulated deficit as of December 31, 2014 of $81,273,000, compared to $78,327,000 as of September 30, 2014.  Our total stockholders’ deficit as of December 31, 2014 was $6,849,000 compared to $5,144,000 as of September 30, 2014.  These changes were primarily due to our net loss for the three months ended December 31, 2014.

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, 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 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.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Information about our exposure to market risk was disclosed in our Annual Report on Form 10-K for the year ended September 30, 2014, which was filed with the Securities and Exchange Commission (“SEC”) on January 13, 2015. There have been no material quantitative or qualitative changes in market risk exposure since the date of that filing.

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

25

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Exchange Act). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, as of December 31, 2014, our disclosure controls and procedures were not effective, for the reasons discussed below.  

During the audit process for the year ended September 30, 2014, management identified material weaknesses in internal control over financial reporting as follows:

Control Environment

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

●  Evaluation of distributor contracts for revenue recognition

●  Review and approval of manual journal entries

●  Segregation of access to the accounting information system

●  Inventory records

Financial Reporting Process

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.

Changes in Internal Control over Financial Reporting

During the three months ended December 31, 2014, management improved procedures related to manual journal entries and trained staff to improve internal controls over financial reporting.

PART II – OTHER INFORMATION

Item 1.  Legal Proceedings

None.

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

Recent Sales of Unregistered Securities

During the three months ended December 31, 2014, we issued the following shares of common stock without registration under the Securities Act of 1933 (the “Securities Act”):

●  290,000 shares to the Interim Chief Executive Officer for future services, the value on the date of grant was $69,600 and the shares vest quarterly over two years;

●  1,052,810 shares for employee compensation for past services and bonuses, the value on the date of grant was $252,674;

●  18,522 shares to settle accrued dividends for Series D preferred stock, the value on the date of grant was $6,251.

The securities issued in the above transactions were sold or issued in private placements to accredited investors, including existing stockholders and affiliates of the Company, and the offer and sale of those securities were not registered under the Securities Act in reliance upon exemptions from registration, including the exemptions for non-public offers and sales of securities under Section 4(a)(2) of the Securities Act and rules and regulations promulgated thereunder.

Item 3.  Defaults Upon Senior Securities

As of the date of this report, notes payable due to unrelated parties with total principal amounts of $264,000 are in default, of which $184,000 is past due and unpaid.  The Company will make payments on these notes payable as funds are available.  In addition, notes payable due to related parties with total principal amounts of $57,000 are past due, in default and unpaid.  The parties have not made a demand for payment.

26

Item 5.  Other Information

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.

As previously reported in our Form 10-K filed January 13, 2015, 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 our day-to-day operations.

27

Item 6. Exhibits

Exhibit Number	Description
(10)(i)	Form of Stock Purchase Warrant *
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 INS	XBRL Instance Document**
101 SCH	XBRL Schema Document**
101 CAL	XBRL Calculation Linkbase Document**
101 DEF	XBRL Definition Linkbase Document**
101LAB	XBRL Labels Linkbase Document**
101 PRE	XBRL Presentation Linkbase Document **
*	Previously filed
**	The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

28

SIGNATURES

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

ActiveCare, Inc.
	/s/ Michael Z. Jones
	Michael Z. Jones Interim Chief Executive Officer (Principal Executive Officer)

Date: February 23, 2015

  /s/ Marc C Bratsman

Marc C Bratsman

Chief Financial Officer (Principal Financial and Accounting Officer)

Date: February 23, 2015

29

EX-31.1

Exhibit 31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Michael Z. Jones, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: February 23, 2015	/s/ Michael Z. Jones
	Michael Z. Jones
	Interim Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Marc C Bratsman, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: February 23, 2015	/s/ Marc C Bratsman
	Marc C Bratsman
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

EX-32

Exhibit 32

EXHIBIT 32

 CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of ActiveCare, Inc. on Form 10-Q for the period ended December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Michael Z. Jones, Interim Chief Executive Officer, and Marc C Bratsman, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

 /s/ Michael Z. Jones

 Michael Z. Jones

 Interim Chief Executive Officer

 /s/ Marc C Bratsman

 Marc C Bratsman

 Chief Financial Officer

Dated: February 23, 2015

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

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

XML

18. Common Stock Options and Warrants: Schedule of Warrants Fair Value Assumptions (Tables)

3 Months Ended

Dec. 31, 2014

Tables/Schedules

Schedule of Warrants Fair Value Assumptions

	December 31, 2013
Exercise price	$0.95 - $1.10
Expected term (years)	2 - 3
Volatility	214% - 216%
Risk-free rate	0.28% - 0.68%
Dividend rate	0%

XML

12. Notes Payable: Schedule of Debt - Other (Details) (USD $)	Dec. 31, 2014	Sep. 30, 2014
Gross notes payable before discount	$ 1,679,731	$ 1,601,435
Discount on notes payable	(100,895)	(169,450)
Notes payable current and noncurrent	1,578,836	1,431,985
Current portion of notes payable	(1,578,836)	(1,212,937)
Notes payable, net of current portion	0	219,048
Note 1
Gross notes payable before discount	1,103,841	1,103,841
Note 2
Gross notes payable before discount	233,333	233,333
Note 3
Gross notes payable before discount	200,000	200,000
Note 4
Gross notes payable before discount	78,296
Note 5
Gross notes payable before discount	$ 64,261	$ 64,261

XML

7. Inventory: Schedule of Inventory (Details) (USD $)	Dec. 31, 2014	Sep. 30, 2014
Details
Inventory, Finished Goods, Gross	$ 504,079	$ 589,423
Finished goods held by distributors	2,550,238	2,720,626
Inventory, Gross	3,054,317	3,310,049
Inventory Valuation Reserves	(1,642,151)	(1,660,729)
Inventory	$ 1,412,166	$ 1,649,320

XML

13. Related-Party Notes Payable: Schedule of Related Party Transactions (Details) (USD $)	Dec. 31, 2014	Sep. 30, 2014
Gross notes payable related party before discount	$ 2,121,532	$ 2,016,532
Discount on notes payable related party	(141,757)	(346,912)
Notes payable, related party	1,979,775	1,669,620
Related Party Note 1
Gross notes payable related party before discount	1,639,500	1,639,500
Related Party Note 2
Gross notes payable related party before discount	396,667
Related Party Note 3
Gross notes payable related party before discount	30,000	30,000
Related Party Note 4
Gross notes payable related party before discount	26,721	26,721
Related Party Note 5
Gross notes payable related party before discount	15,000	15,000
Related Party Note 6
Gross notes payable related party before discount	13,644	13,644
Related Party Note 7
Gross notes payable related party before discount		$ 291,667

XML

4. Net Loss per Common Share: Schedule of Common Stock Equivalents (Details)	Dec. 31, 2014	Dec. 31, 2013
Details
Exercise of outstanding common stock options and warrants	10,991,576	10,648,676
Conversion of Series D preferred stock	225,000	225,000
Conversion of Series E preferred stock	477,830	623,384
Conversion of Series F preferred stock	16,065,328	4,353,000
Conversion of debt	135,607	80,000
Issuance of employee restricted shares	9,750	17,250
Total common stock equivalents	27,905,091	15,947,310

XML

4. Net Loss per Common Share: Schedule of Common Stock Equivalents (Tables)

3 Months Ended

Dec. 31, 2014

Tables/Schedules

Schedule of Common Stock Equivalents

	December 31, 2014	December 31, 2013
Common stock options and warrants	10,991,576	10,648,676
Series D convertible preferred stock	225,000	225,000
Series E convertible preferred stock	477,830	623,384
Series F convertible preferred stock	16,065,328	4,353,000
Convertible debt	135,607	80,000
Restricted shares of common stock	9,750	17,250
Total common stock equivalents	27,905,091	15,947,310

XML

16. Preferred Stock (Details) (USD $)	3 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Sep. 30, 2014
Dividends on preferred stock	$ (195,187)	$ (153,013)
Dividends payable	435,674		246,738
Redemption Price of Series E preferred stock	477,829	477,829
Series C Preferred Stock
Convertible Preferred Stock Shares Designated	480,000
Convertible Preferred Stock Shares Issued		480,000
Dividends on preferred stock	11,367
Stock issued to settle accrued dividends	11,599
Series D Preferred Stock
Convertible Preferred Stock Shares Designated	1,000,000
Stock issued to settle accrued dividends	18,522
Convertible Preferred Stock Shares Deemed Dividend	1,786,436
Dividends payable	6,251
Series E Preferred Stock
Convertible Preferred Stock Shares Issued		893,218
Dividends on preferred stock	0	83,473
Dividends payable	81,716	83,473
Series F Preferred Stock
Convertible Preferred Stock Shares Designated		7,803
Dividends payable	$ 107,220

XML

19. Segment Information

3 Months Ended

Dec. 31, 2014

Notes

19. Segment Information

19.          Segment Information

The Company operated two business segments during the three months ended December 31, 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.

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 as of December 31, 2014 and 2013 and for the three months then ended:

	Corporate	Chronic Illness Monitoring	CareServices (Discontinued Operations)	Total
As of December 31, 2014 and for the Three Months Then Ended
Sales to external customers	$                 -	$  1,508,091	$      141,523	$   1,649,614
Segment loss	(2,344,677)	94,796	(272,982)	(2,522,863)
Interest expense, net	350,536	-	-	350,536
Segment assets	689,072	3,414,742	-	4,103,814
Depreciation and amortization	15,941	-	233,664	249,605
As of December 31, 2013 and for the Three Months Then Ended
Sales to external customers	$                -	$ 2,009,766	$      348,791	$    2,358,557
Segment loss	(2,796,700)	328,117	(302,783)	(2,771,366)
Interest expense, net	1,269,076	-	-	1,269,076
Segment assets	615,490	7,191,387	2,099,225	9,906,102
Fixed assets and leased equipment purchases	51,648	-	-	51,648
Depreciation and amortization	29,833	28,610	237,139	295,582

XML

9. Patents (Details) (USD $)	3 Months Ended		12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Sep. 30, 2014
Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment	$ 172,056		$ 156,293
Patents
Amortization of Intangible Assets	31,718	31,718
Impairment of long-lived assets			408,332
Cost Associated with Intangible Assets			514,046
Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment	$ 514,046		$ 482,328

XML

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

3 Months Ended

Dec. 31, 2014

Tables/Schedules

Schedule of Future Minimum Rental Payments for Operating Leases

Years Ending September 30,
2015 (nine months)	$        232,573
2016	317,580
2017	327,107
2018	280,077
	$     1,157,337

XML

12. Notes Payable: Schedule of Debt - Other (Tables)

3 Months Ended

Dec. 31, 2014

Tables/Schedules

Schedule of Debt - Other

	December 31, 2014	September 30, 2014
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 21).	$     1,103,841	$     1,103,841
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 cash received by the third parties 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	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	200,000
Secured borrowings from a third party that purchased $130,000 of customer receipts for $100,000.  The $30,000 difference between the customer receipts and cash received plus $3,000 of commission paid to a related party, is being amortized to interest expense over the term of the note.	78,296	-
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	64,261
Total notes payable before discount	1,679,731	1,601,435
Less discount	(100,895)	(169,450)
Total notes payable	1,578,836	1,431,985
Less current portion	(1,578,836)	(1,212,937)
Notes payable, net of current portion	$                  -	$        219,048

XML

10. Property and Equipment (Details) (USD $)	3 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Details
Depreciation, Amortization and Accretion, Net	$ 38,061	$ 54,185

XML

18. Common Stock Options and Warrants (Details) (USD $)	Dec. 31, 2014
Details
Aggregate Intrinsic Value	$ 0
Weighted average remaining term of the warrants	3.63
Fair Value of Unvested Stock Options and Warrants	$ 270,298

XML

6. Accounts Receivable (Details) (USD $)	Dec. 31, 2014	Sep. 30, 2014
Details
Premiums Receivable, Gross	$ 115,994	$ 115,994

XML

3. Discontinued Operations

3 Months Ended

Dec. 31, 2014

Notes

3. Discontinued Operations

3.             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.  The debt secured by the CareServices customer contracts was amended in January 2015 and remains an obligation of the Company (see Note 21).  There were no material liabilities of discontinued operations.  Assets of discontinued operations consist of the following as of:

	December 31, 2014	September 30, 2014
Customer contracts, net (Note 8)	$            -	$  569,250
Equipment leased to customers, net (Note 10)	-	111,435
Patents, net (Note 9)	-	31,718
Total assets of discontinued operations	$            -	$  712,403

As a result of the sale of the CareServices assets, the Company has reflected the segment as discontinued operations in the consolidated financial statements for three months ended December 31, 2014 and 2013.  The following table summarizes certain operating data for discontinued operations for the three months ended:

	December 31, 2014	December 31, 2013
Revenues	$         141,523	$       348,791
Cost of revenues	203,294	302,224
Gross profit (loss)	(61,771)	46,567
Selling, general and administrative expenses	(211,211)	(349,350)
Loss from discontinued operations	$      (272,982)	$     (302,783)

XML

19. Segment Information: Schedule of Segment Reporting Information, by Segment (Details) (USD $)	3 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Sep. 30, 2014
Net loss	$ (2,522,863)	$ (2,771,366)
Interest expense, net	350,536	1,269,076
Total assets	4,103,814		5,421,785
Corporate1memberMember
Net loss	(2,344,677)	(2,796,700)
Interest expense, net	350,536	1,269,076
Total assets	689,072	615,490
Depreciation, Depletion and Amortization, Nonproduction	15,941	29,833
Property and equipment purchases		51,648
ChronicillnessmonitoringmemberMember
Revenue, Net	1,508,091	2,009,766
Net loss	94,796	328,117
Total assets	3,414,742	7,191,387
Depreciation, Depletion and Amortization, Nonproduction		28,610
CareservicesmemberMember
Revenue, Net	141,523	348,791
Net loss	(272,982)	(302,783)
Total assets		2,099,225
Depreciation, Depletion and Amortization, Nonproduction	233,664	237,139
TotalmemberMember
Revenue, Net	1,649,614	2,358,557
Net loss	(2,522,863)	(2,771,366)
Interest expense, net	350,536	1,269,076
Total assets	4,103,814	9,906,102
Depreciation, Depletion and Amortization, Nonproduction	249,605	295,582
Property and equipment purchases		$ 51,648

XML

3. Discontinued Operations: Schedule of Assets Classified as Discontinued Operations (Details) (USD $)	Dec. 31, 2014	Sep. 30, 2014
Assets of discontinued operations	$ 0	$ 712,403
Equipment Leased to Other Party
Assets of discontinued operations		111,435
Customer Contracts
Assets of discontinued operations		569,250
Patents
Assets of discontinued operations		$ 31,718

XML

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

3 Months Ended

Dec. 31, 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.

XML

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

3 Months Ended

Dec. 31, 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 December 31, 2014 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 products and services.  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.

XML

15. Derivatives Liability (Details) (USD $)	3 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Sep. 30, 2014
Details
Derivatives liability	$ 0		$ 106,444
Gain on derivatives liability	$ 106,444	$ 479,737

XML

3. Discontinued Operations: Schedule of Disposal Groups, Including Discontinued Operations, Income Statement, Balance Sheet and Additional Disclosures (Details) (USD $)	3 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Chronic Illness Monitoring Revenues	$ 1,508,091	$ 2,009,766
Chronic Illness Monitoring Cost of Revenues	1,117,223	1,141,639
Gross profit (deficit)	390,868	868,127
Selling, general and administrative (including $1,169,977 and $572,194, respectively, of stock-based compensation)	2,351,459	2,360,350
Segment, Discontinued Operations
Chronic Illness Monitoring Revenues	141,523	348,791
Chronic Illness Monitoring Cost of Revenues	203,294	302,224
Gross profit (deficit)	(61,771)	46,567
Selling, general and administrative (including $1,169,977 and $572,194, respectively, of stock-based compensation)	(211,211)	(349,350)
Income (Loss) before Gain or Loss on Sale of Properties, and Extraordinary Items	$ (272,982)	$ (302,783)

XML

1. Organization and Nature of Operations: Fair Value of Financial Instruments (Policies)

3 Months Ended

Dec. 31, 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.

XML

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

3 Months Ended

Dec. 31, 2014

Tables/Schedules

Schedule of Assets Classified as Discontinued Operations

	December 31, 2014	September 30, 2014
Customer contracts, net (Note 8)	$            -	$  569,250
Equipment leased to customers, net (Note 10)	-	111,435
Patents, net (Note 9)	-	31,718
Total assets of discontinued operations	$            -	$  712,403

XML

2. Restatement of Previously Reported Financial Information

3 Months Ended

Dec. 31, 2014

Notes

2. Restatement 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 and its condensed consolidated financial statements as of and for the three months ended December 31, 2013 to correct the accounting related to revenue recognition for chronic illness monitoring supplies shipped to distributors, as contained in its Form 10-K/A and Form 10-Q/A filed with the Securities and Exchange Commission on November 12, 2014.  Specifically, the Company determined it was 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 and Form 10-Q/A filed on November 12, 2014 for reconciliations of the amounts as originally reported to the corresponding restated amounts.

XML

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

3 Months Ended

Dec. 31, 2014

Tables/Schedules

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

	December 31, 2014	December 31, 2013
Revenues	$         141,523	$       348,791
Cost of revenues	203,294	302,224
Gross profit (loss)	(61,771)	46,567
Selling, general and administrative expenses	(211,211)	(349,350)
Loss from discontinued operations	$      (272,982)	$     (302,783)

XML

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

3 Months Ended

Dec. 31, 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, 2014	10,991,576	$              1.05
Granted	-
Exercised	-
Forfeited	-
Outstanding as of December 31, 2014	10,991,576	1.05
Exercisable as of December 31, 2014	9,061,576	1.17

XML

11. Accrued Expenses: 11. Schedule of Accrued Expenses (Details) (USD $)	Dec. 31, 2014	Sep. 30, 2014
Details
Liability to issue common stock	$ 654,003	$ 522,087
Accrued Sales Commission	359,814	453,744
Employee-related Liabilities	237,388	308,529
Interest Payable	100,312	59,091
Accrued Rent	88,181	89,346
Other Accrued Liabilities	39,673	18,534
Accrued Liabilities	$ 1,479,371	$ 1,451,331

XML

Consolidated Balance Sheets (USD $)	Dec. 31, 2014	Sep. 30, 2014
Current assets:
Cash	$ 396,388	$ 197,027
Accounts receivable, net	1,089,112	1,635,660
Inventory	1,412,166	1,649,320
Prepaid expenses and other	135,801	141,087
Assets of discontinued operations	0	712,403
Total current assets	3,033,467	4,335,497
Goodwill	825,894	825,894
Property and equipment, net	204,313	220,076
Deposits and other assets	29,594	29,594
Domain name, net	10,546	10,724
Total assets	4,103,814	5,421,785
Current liabilities:
Accounts payable	4,175,364	4,549,451
Accounts payable, related party	1,303,414	1,109,775
Accrued expenses	1,479,371	1,451,331
Notes payable, related party	1,979,775	1,669,620
Current portion of notes payable	1,578,836	1,212,937
Dividends payable	435,674	246,738
Derivatives liability	0	106,444
Total current liabilities	10,952,434	10,346,296
Notes payable, net of current portion	0	219,048
Total liabilities	10,952,434	10,565,344
Stockholders' deficit:
Preferred stock, $.00001 par value: 10,000,000 shares authorized;45,000 shares of Series D; 70,070 shares of Series E; and 5,361shares of Series F outstanding	1	1
Common stock, $.00001 par value: 200,000,000 shares authorized;47,176,683 and 45,815,351 shares outstanding, respectively	472	458
Additional paid-in capital, common and preferred	74,424,246	73,183,429
Accumulated deficit	(81,273,339)	(78,327,447)
Total stockholders' deficit	(6,848,620)	(5,143,559)
Total liabilities and stockholders' deficit	$ 4,103,814	$ 5,421,785

XML

4. Net Loss per Common Share (Details)	3 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Details
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	27,905,091	15,947,310

XML

Consolidated Statements of Cash Flows (USD $)	3 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Cash flows from operating activities:
Net loss	$ (2,522,863)	$ (2,771,366)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	249,606	295,582
Gain on derivatives liability	(106,444)	(479,737)
Stock-based compensation expense	453,565	512,193
Stock and warrants issued for services	716,412	60,001
Stock and warrants issued for interest expense	0	785,454
Amortization of debt discounts	306,711	494,853
Loss on induced conversion of debt and sale of common stock	0	114,098
Changes in operating assets and liabilities:
Change in accounts receivable	546,548	382,013
Change in inventory	237,154	(129,936)
Change in prepaid expenses and other	(26,664)	(30,239)
Change in accounts payable	(102,823)	(1,914,788)
Change in accrued expenses	(78,874)	(46,701)
Change in deposits and other assets	0	53,470
Net cash used in operating activities	(327,672)	(2,675,103)
Cash flows from investing activities:
Purchases of property and equipment	0	(51,648)
Proceeds from sale of discontinued operations	478,738	0
Net cash used in investing activities	478,738	(51,648)
Cash flows from financing activities:
Proceeds from issuance of notes payable, net	100,000	500,000
Proceeds from sale of preferred stock, net	0	2,770,771
Proceeds from issuance of related-party notes payable, net	0	605,000
Principal payments on notes payable	(51,705)	(307,396)
Principal payments on related-party notes payable	0	(633,000)
Payment of dividends	0	(78,394)
Net cash provided by financing activities	48,295	2,856,981
Net increase in cash	199,361	130,230
Cash, beginning of the period	197,027	223,835
Cash, end of the period	396,388	354,065
Supplemental Cash Flow Information:
Cash paid for interest	2,605	67,050
Non-Cash Investing and Financing Activities:
Dividends on preferred stock and related interest	195,187	91,340
Conversion of related-party accounts payable and accrued liabilities to related-party notes payable	105,000
Issuance of stock for dividends	6,251	62,130
Related-party notes payable converted to common stock	0	1,782,738
Notes payable converted to preferred stock	0	633,254
Issuance of stock and options for loan origination fees	0	370,633
Liability to issue shares of common stock for loan origination fees	$ 0	$ 234,793

XML

18. Common Stock Options and Warrants: Schedule of Warrants Fair Value Assumptions (Details) (USD $)	3 Months Ended
	Dec. 31, 2013
Minimum
Fair Value Assumptions, Exercise Price	$ 0.95
Fair Value Assumptions, Expected Term	2 years
Fair Value Assumptions, Expected Volatility Rate	214.00%
Fair Value Assumptions, Risk Free Interest Rate	0.28%
Maximum
Fair Value Assumptions, Exercise Price	$ 1.10
Fair Value Assumptions, Expected Term	3 years
Fair Value Assumptions, Expected Volatility Rate	216.00%
Fair Value Assumptions, Risk Free Interest Rate	0.68%

XML

10. Property and Equipment: Property, Plant and Equipment (Tables)

3 Months Ended

Dec. 31, 2014

Tables/Schedules

Property, Plant and Equipment

	December 31, 2014	September 30, 2014
Leasehold improvements	$          151,287	$       151,287
Software	100,574	100,574
Furniture	69,776	69,776
Equipment	54,732	54,732
Total property and equipment	376,369	376,369
Accumulated depreciation and amortization	(172,056)	(156,293)
Property and equipment, net	$          204,313	$        220,076

XML

16. Preferred Stock

3 Months Ended

Dec. 31, 2014

Notes

16. Preferred Stock

16.          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 the three months ended December 31, 2013, 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.

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. During the three months ended December 31, 2013, 893,218 shares of Series D preferred stock were converted to 6,252,526 shares of common stock.   The conversion rate of seven shares of common stock per preferred share was greater than the designated conversion rate of five shares of common stock per preferred share and, therefore, the fair value of the additional 1,786,436 shares was recorded as a deemed dividend. During the three months ended December 31, 2014, the Company accrued $6,251 of dividends on Series D preferred stock and settled $6,251 of accrued dividends by issuing 18,522 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 the three months ended December 31, 2014 and 2013, the Company accrued dividends of $81,716 and $83,473, respectively, to Series E shareholders.  During the three months ended December 31, 2014 and 2013, the Company paid dividends of $0 and $83,473, respectively, to Series E shareholders.  As of December 31, 2014 and September 30, 2014, the redemption price for the Series E preferred stock was $477,829.   

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 was originally convertible into common stock at $1.00 per share subject to a milestone adjustment for the number of subscribers.  As of December 31, 2014, the Company had 16,686 subscribers after the CareServices customer contracts were sold (Note 3) and adjusted the conversion price from $1.00 to $0.3337 per common share, according to the milestone adjustment provision.  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 three months ended December 31, 2014, the Company accrued dividends of $107,220 to Series F shareholders.

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.

XML

11. Accrued Expenses: 11. Schedule of Accrued Expenses (Tables)

3 Months Ended

Dec. 31, 2014

Tables/Schedules

11. Schedule of Accrued Expenses

	December 31, 2014	September 30, 2014
Liability to issue common stock	$             654,003	$        522,087
Commissions and fees	359,814	453,744
Payroll expense	237,388	308,529
Interest	100,312	59,091
Deferred rent	88,181	89,346
Other	39,673	18,534
Total accrued expenses	$          1,479,371	$     1,451,331

XML

18. Common Stock Options and Warrants

3 Months Ended

Dec. 31, 2014

Notes

18. Common Stock Options and Warrants

18.          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 the three months ended December 31, 2014, the Company did not grant any common stock options or warrants.

During the three months ended December 31, 2013, the Company measured the fair value of the warrants using a binomial valuation model with the following assumptions:

	December 31, 2013
Exercise price	$0.95 - $1.10
Expected term (years)	2 - 3
Volatility	214% - 216%
Risk-free rate	0.28% - 0.68%
Dividend rate	0%

The following table summarizes information about stock options and warrants outstanding as of December 31, 2014:

Options and Warrants	Number of Options and Warrants	Weighted-Average Exercise Price
Outstanding as of October 1, 2014	10,991,576	$              1.05
Granted	-
Exercised	-
Forfeited	-
Outstanding as of December 31, 2014	10,991,576	1.05
Exercisable as of December 31, 2014	9,061,576	1.17

As of December 31, 2014, the outstanding warrants have an aggregate intrinsic value of $0, the weighted average remaining term of the warrants was 3.63 years, and the fair value of unvested stock options and warrants was $270,298.

XML

1. Organization and Nature of Operations

3 Months Ended

Dec. 31, 2014

Notes

1. Organization and Nature of Operations

1.             Basis of Presentation

The unaudited interim condensed consolidated financial statements of ActiveCare, Inc. (the “Company” or “ActiveCare”) have been prepared in accordance with Article 8 of Regulation S-X promulgated by the Securities and Exchange Commission.  Certain information and disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) have been condensed or omitted pursuant to such rules and regulations.  In the opinion of management, the accompanying interim condensed consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company’s financial position as of December 31, 2014 and September 30, 2014, and the results of its operations and its cash flows for the three months ended December 31, 2014 and 2013.  These financial statements should be read in conjunction with the annual consolidated financial statements and notes thereto that are included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2014.  The results of operations for the three months ended December 31, 2014 may not be indicative of the results for the full fiscal year ending September 30, 2015.

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 December 31, 2014 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 products and services.  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.

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.

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.

XML

Consolidated Balance Sheets Parenthetical (USD $)	Dec. 31, 2014	Sep. 30, 2014
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	120,431
Common stock par value	$ 0.00001	$ 0.00001
Common stock shares authorized	200,000,000	200,000,000
Common stock shares outstanding	47,176,683	45,815,351

XML

11. Accrued Expenses

3 Months Ended

Dec. 31, 2014

Notes

11. Accrued Expenses

11.          Accrued Expenses

Accrued expenses consist of the following as of:

	December 31, 2014	September 30, 2014
Liability to issue common stock	$             654,003	$        522,087
Commissions and fees	359,814	453,744
Payroll expense	237,388	308,529
Interest	100,312	59,091
Deferred rent	88,181	89,346
Other	39,673	18,534
Total accrued expenses	$          1,479,371	$     1,451,331

XML

Document and Entity Information	3 Months Ended
	Dec. 31, 2014	Feb. 23, 2015
Document and Entity Information
Entity Registrant Name	ACTIVECARE, INC.
Document Type	10-Q
Document Period End Date	Dec. 31, 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	2015
Document Fiscal Period Focus	Q1
Entity Common Stock, Shares Outstanding		48,131,114

XML

12. Notes Payable

3 Months Ended

Dec. 31, 2014

Notes

12. Notes Payable

12.          Notes Payable

The Company had the following notes payable outstanding as of:    

	December 31, 2014	September 30, 2014
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 21).	$     1,103,841	$     1,103,841
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 cash received by the third parties 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	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	200,000
Secured borrowings from a third party that purchased $130,000 of customer receipts for $100,000.  The $30,000 difference between the customer receipts and cash received plus $3,000 of commission paid to a related party, is being amortized to interest expense over the term of the note.	78,296	-
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	64,261
Total notes payable before discount	1,679,731	1,601,435
Less discount	(100,895)	(169,450)
Total notes payable	1,578,836	1,431,985
Less current portion	(1,578,836)	(1,212,937)
Notes payable, net of current portion	$                  -	$        219,048

XML

Consolidated Statements of Operations (USD $)	3 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Consolidated Statements of Operations
Chronic Illness Monitoring Revenues	$ 1,508,091	$ 2,009,766
Chronic Illness Monitoring Cost of Revenues	1,117,223	1,141,639
Gross profit	390,868	868,127
Operating expenses:
Selling, general and administrative (including $1,169,977 and $572,194, respectively, of stock-based compensation)	2,351,459	2,360,350
Research and development	45,198	75,291
Total operating expenses	2,396,657	2,435,641
Loss from operations	(2,005,789)	(1,567,514)
Other income (expense):
Gain on derivatives liability	106,444	479,737
Loss on induced conversion of debt and sale of common stock	0	(114,098)
Interest expense, net	(350,536)	(1,269,076)
Other income (expense)	0	2,368
Total other income (expense)	(244,092)	(901,069)
Loss from continuing operations	(2,249,881)	(2,468,583)
Loss from discontinued operations	(272,982)	(302,783)
Net loss	(2,522,863)	(2,771,366)
Deemed dividends on conversion of preferred stock to common stock	0	(2,234,924)
Dividends on preferred stock	(195,187)	(153,013)
Net loss attributable to common stockholders	$ (2,718,050)	$ (5,159,303)
Net loss per common share - basic and diluted
Continuing operations	$ (0.05)	$ (0.19)
Discontinued operations	$ (0.01)	$ (0.01)
Net loss per common share	$ (0.06)	$ (0.20)
Weighted average common shares outstanding - basic and diluted	47,162,000	25,302,000

XML

6. Accounts Receivable

3 Months Ended

Dec. 31, 2014

Notes

6. Accounts Receivable

6.             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 as of December 31, 2014 and September 30, 2014.

XML

5. Description of New Accounting Pronouncements Not yet Adopted

3 Months Ended

Dec. 31, 2014

Notes

5. Description of New Accounting Pronouncements Not yet Adopted

5.             Description of New 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, 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 and results of operations.

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.

XML

17. Common Stock

3 Months Ended

Dec. 31, 2014

Notes

17. Common Stock

17.          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 the three months ended December 31, 2014, the Company issued 1,361,332 shares of common stock as follows:

·         290,000 shares to the Interim Chief Executive Officer for future services, the value on the date of grant was $69,600 and the shares vest quarterly over two years;

·         1,052,810 shares for employee compensation for past services and bonuses, the value on the date of grant was $252,674;

·         18,522 shares to settle accrued dividends for Series D preferred stock, the value on the date of grant was $6,251.

The fair value of unvested common stock as of December 31, 2014 was $3,554,482.

XML

13. Related-Party Notes Payable

3 Months Ended

Dec. 31, 2014

Notes

13. Related-Party Notes Payable

13.          Related-Party Notes Payable

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

	December 31, 2014	September 30, 2014
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	$         1,639,500
Unsecured note payable to the Executive Chairman of the Board of Directors with no interest, due on demand.	396,667	-
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	30,000
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 Executive Chairman of the Board of Directors, 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 was amortized to interest expense over the original term of the note, through September 2013.  In December 2013, $160,000 of the note was converted to common stock.	15,000	15,000
Unsecured note payable to an officer of the Company with interest at 12%, due on demand.	13,644	13,644
Secured borrowings from the Executive 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 cash received by the Executive Chairman before June 2015.  The $41,667 difference between the buyback and cash received plus $25,000 of loan origination fees was to be amortized to interest expense over the buyback term.  In November 2014, the secured borrowings and other advances were converted into an unsecured note payable to the same related party and the remaining discount balance was expensed.	-	291,667
Total notes payable, related-party, before discount	2,121,532	2,016,532
Less discount	(141,757)	(346,912)
Total notes payable, related-party	$         1,979,775	$         1,669,620

XML

9. Patents

3 Months Ended

Dec. 31, 2014

Notes

9. Patents

9.             Patents

The Company is amortizing its patents over their remaining useful lives.  Amortization expense for each of three months ended December 31, 2014 and 2013 was $31,718.  The Company impaired the patents as of September 30, 2014 by $408,332.  As of December 31, 2014 and September 30, 2014, the cost associated with the patents was $514,046 and the accumulated amortization was $514,046 and $482,328, respectively.

XML

18. Common Stock Options and Warrants: Schedule of Share-based Compensation, Activity (Details) (USD $)	Dec. 31, 2014	Sep. 30, 2014
Details
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Beginning Balance	10,991,576	10,991,576
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Beginning Balance	$ 1.05	$ 1.05
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance	10,991,576	10,991,576
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Ending Balance	$ 1.05	$ 1.05
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

XML

7. Inventory

3 Months Ended

Dec. 31, 2014

Notes

7. Inventory

7.             Inventory

Inventory is recorded at the lower of cost or market, cost being determined using the first-in, first-out (“FIFO”) method 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:

	December 31, 2014	September 30, 2014
Finished goods	$         504,079	$       589,423
Finished goods held by distributors	2,550,238	2,720,626
Total inventory	3,054,317	3,310,049
Inventory reserve	(1,642,151)	(1,660,729)
Net inventory	$      1,412,166	$    1,649,320

XML

8. Customer Contracts Disclosure

3 Months Ended

Dec. 31, 2014

Notes

8. Customer Contracts Disclosure

8.             Customer Contracts

The Company was amortizing Chronic Illness Monitoring customer contracts acquired during 2012 over their estimated useful lives (through 2014).  As of December 31, 2014 and September 30, 2014, the cost associated with these customer contracts was $214,106 and the accumulated amortization was $214,106.  Amortization expense related to these contracts for the three months ended December 31, 2014 and 2013 was $0 and $28,610, respectively.

The Company sold substantially all of the CareServices customer contracts during December 2014 (see Note 3).  The Company impaired the CareServices customer contracts as of September 30, 2014 by $89,460.  As of December 31, 2014 and September 30, 2014, customer contracts totaled $0 and $2,066,316, respectively, and the related accumulated amortization was $0 and $1,497,067, respectively.  Amortization expense related to the CareServices segment for each of the three months ended December 31, 2014 and 2013 was $179,648.  

XML

10. Property and Equipment

3 Months Ended

Dec. 31, 2014

Notes

10. Property and Equipment

10.          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.  Property and equipment consist of the following as of:

	December 31, 2014	September 30, 2014
Leasehold improvements	$          151,287	$       151,287
Software	100,574	100,574
Furniture	69,776	69,776
Equipment	54,732	54,732
Total property and equipment	376,369	376,369
Accumulated depreciation and amortization	(172,056)	(156,293)
Property and equipment, net	$          204,313	$        220,076

Assets to be disposed of are reported at the lower of their carrying amounts or fair values, less the estimated costs to sell or dispose.  During December 2014, the Company sold all of its equipment leased to customers (see Note 3).  Depreciation expense for the three months ended December 31, 2014 and 2013 was $38,061 and $54,185, respectively.

XML

20. Commitments and Contingencies (Details) (USD $)	3 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Details
Operating Leases, Rent Expense, Net	$ 76,000	$ 75,000

XML

20. Commitments and Contingencies: Schedule of Future Minimum Rental Payments for Operating Leases (Details) (USD $)	Dec. 31, 2014
Details
Operating Leases, Future Minimum Payments Due, Next Twelve Months	$ 232,573
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	$ 1,157,337

XML

7. Inventory: Schedule of Inventory (Tables)

3 Months Ended

Dec. 31, 2014

Tables/Schedules

Schedule of Inventory

	December 31, 2014	September 30, 2014
Finished goods	$         504,079	$       589,423
Finished goods held by distributors	2,550,238	2,720,626
Total inventory	3,054,317	3,310,049
Inventory reserve	(1,642,151)	(1,660,729)
Net inventory	$      1,412,166	$    1,649,320

XML

10. Property and Equipment: Property, Plant and Equipment (Details) (USD $)	Dec. 31, 2014	Sep. 30, 2014
Property and equipment, net	$ 204,313	$ 220,076
Property, Plant and Equipment, Gross	376,369	376,369
Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment	(172,056)	(156,293)
Equipment
Property and equipment, net	151,287	151,287
Leaseholds and Leasehold Improvements
Property and equipment, net	100,574	100,574
Computer Software, Intangible Asset
Property and equipment, net	69,776	69,776
Furniture and Fixtures
Property and equipment, net	$ 54,732	$ 54,732

XML

15. Derivatives Liability

3 Months Ended

Dec. 31, 2014

Notes

15. Derivatives Liability

15.          Derivatives Liability

The derivatives liability as of December 31, 2014 and September 30, 2014 was $0 and $106,444, respectively.  The derivatives liability as of September 30, 2014 is related to a variable conversion price adjustment on the Series F preferred stock.  The derivatives liability as of December 31, 2014 was eliminated due to the conversion price on Series F preferred stock being adjusted from $1.00 to $0.3337 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 three months ended December 31, 2014 and 2013 of $106,444 and $479,737, respectively.

XML

20. Commitments and Contingencies

3 Months Ended

Dec. 31, 2014

Notes

20. Commitments and Contingencies

20.          Commitments and Contingencies

The Company leases office space under non-cancelable operating leases.  Future minimum rental payments under non-cancelable operating leases as of December 31, 2014 are as follows:

Years Ending September 30,
2015 (nine months)	$        232,573
2016	317,580
2017	327,107
2018	280,077
	$     1,157,337

The Company’s rent expense for facilities held under non-cancelable operating leases for the three months ended December 31, 2014 and 2013 was approximately $76,000 and $75,000, respectively.

XML

8. Customer Contracts Disclosure (Details) (USD $)	3 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Sep. 30, 2014
Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment	$ 172,056		$ 156,293
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		214,106
Amortization of Intangible Assets	0	28,610
Customer Contracts | CareServices
Cost Associated with Intangible Assets	0		2,066,316
Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment	0		1,497,067
Impairment of long-lived assets	89,460
Amortization of Acquisition Costs	$ 179,648	$ 179,648

XML

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

3 Months Ended

Dec. 31, 2014

Tables/Schedules

Schedule of Segment Reporting Information, by Segment

	Corporate	Chronic Illness Monitoring	CareServices (Discontinued Operations)	Total
As of December 31, 2014 and for the Three Months Then Ended
Sales to external customers	$                 -	$  1,508,091	$      141,523	$   1,649,614
Segment loss	(2,344,677)	94,796	(272,982)	(2,522,863)
Interest expense, net	350,536	-	-	350,536
Segment assets	689,072	3,414,742	-	4,103,814
Depreciation and amortization	15,941	-	233,664	249,605
As of December 31, 2013 and for the Three Months Then Ended
Sales to external customers	$                -	$ 2,009,766	$      348,791	$    2,358,557
Segment loss	(2,796,700)	328,117	(302,783)	(2,771,366)
Interest expense, net	1,269,076	-	-	1,269,076
Segment assets	615,490	7,191,387	2,099,225	9,906,102
Fixed assets and leased equipment purchases	51,648	-	-	51,648
Depreciation and amortization	29,833	28,610	237,139	295,582

XML

Consolidated Statements of Operations Parenthetical (USD $)	3 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Consolidated Statements of Operations Parenthetical
Compensation expense paid in stock or amortization of stock options and warrants	$ 1,169,977	$ 572,194

XML

4. Net Loss per Common Share

3 Months Ended

Dec. 31, 2014

Notes

4. Net Loss per Common Share

4.             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 December 31, 2014 and 2013, there were 27,905,091 and 15,947,310 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:

	December 31, 2014	December 31, 2013
Common stock options and warrants	10,991,576	10,648,676
Series D convertible preferred stock	225,000	225,000
Series E convertible preferred stock	477,830	623,384
Series F convertible preferred stock	16,065,328	4,353,000
Convertible debt	135,607	80,000
Restricted shares of common stock	9,750	17,250
Total common stock equivalents	27,905,091	15,947,310

XML

17. Common Stock (Details) (USD $)	3 Months Ended
	Dec. 31, 2014	Sep. 30, 2014
Common stock shares authorized	200,000,000	200,000,000
Fair Value of Unvested Common Stock	$ 3,554,482
Option 1
Stock Granted, Value, Share-based Compensation, Net of Forfeitures	69,600
Option 2
Stock Granted, Value, Share-based Compensation, Net of Forfeitures	252,674
Option 3
Stock Granted, Value, Share-based Compensation, Net of Forfeitures	$ 6,251
Common stock | Option 1
Issuance of common stock for services - shares	290,000
Common stock | Option 2
Issuance of common stock for services - shares	1,052,810
Common stock | Option 3
Issuance of common stock for services - shares	18,522

XML

21. Subsequent Events

3 Months Ended

Dec. 31, 2014

Notes

21. Subsequent Events

21.          Subsequent Events

Subsequent to December 31, 2014 and through the release date of this report, the Company entered into the following agreements and transactions:

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

(2)     In January 2015, the Company sold $260,000 of future customer receipts to a third party for $200,000 in cash.  The $60,000 difference between the future customer receipts and cash received by the Company is being amortized to interest expense over the term of the note.

(3)     In January 2015, the Company’s Board of Directors granted the issuance of 586,999 fully vested shares of common stock to employees for services.

(4)     In February 2015, the Company issued 17,432 shares of common stock to settle accrued dividends for Series D preferred stock.

XML

13. Related-Party Notes Payable: Schedule of Related Party Transactions (Tables)

3 Months Ended

Dec. 31, 2014

Tables/Schedules

Schedule of Related Party Transactions

	December 31, 2014	September 30, 2014
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	$         1,639,500
Unsecured note payable to the Executive Chairman of the Board of Directors with no interest, due on demand.	396,667	-
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	30,000
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 Executive Chairman of the Board of Directors, 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 was amortized to interest expense over the original term of the note, through September 2013.  In December 2013, $160,000 of the note was converted to common stock.	15,000	15,000
Unsecured note payable to an officer of the Company with interest at 12%, due on demand.	13,644	13,644
Secured borrowings from the Executive 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 cash received by the Executive Chairman before June 2015.  The $41,667 difference between the buyback and cash received plus $25,000 of loan origination fees was to be amortized to interest expense over the buyback term.  In November 2014, the secured borrowings and other advances were converted into an unsecured note payable to the same related party and the remaining discount balance was expensed.	-	291,667
Total notes payable, related-party, before discount	2,121,532	2,016,532
Less discount	(141,757)	(346,912)
Total notes payable, related-party	$         1,979,775	$         1,669,620

XML

14. Fair Value Measurements

3 Months Ended

Dec. 31, 2014

Notes

14. Fair Value Measurements

14.          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 derivative liabilities are re-measured to fair value as of each reporting date until the contingency is resolved.  See Note 15 for more information about derivatives and the inputs used for calculating fair value.