0001096906-16-001416.txt : 20160225 0001096906-16-001416.hdr.sgml : 20160225 20160224174540 ACCESSION NUMBER: 0001096906-16-001416 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 92 CONFORMED PERIOD OF REPORT: 20151231 FILED AS OF DATE: 20160225 DATE AS OF CHANGE: 20160224 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACTIVECARE, INC. CENTRAL INDEX KEY: 0001429896 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 870578125 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-53570 FILM NUMBER: 161453192 BUSINESS ADDRESS: STREET 1: 1365 WEST BUSINESS PARK DRIVE, SUITE 100 CITY: OREM STATE: UT ZIP: 84058 BUSINESS PHONE: 877-219-6050 MAIL ADDRESS: STREET 1: 1365 WEST BUSINESS PARK DRIVE, SUITE 100 CITY: OREM STATE: UT ZIP: 84058 FORMER COMPANY: FORMER CONFORMED NAME: Volu-Sol Reagents CORP DATE OF NAME CHANGE: 20080317 10-Q 1 10q.htm ACTIVECARE, INC. 10Q 2015-12-31
  UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
 
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended: December 31, 2015

or
 
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ____________ to _____________
 
Commission File Number: 0-53570

ActiveCare, Inc.
(Exact name of registrant as specified in its charter)

Delaware
87-0578125
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
1365 West Business Park Drive
Orem, 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 ☒    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 ☒   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 ☐
Accelerated filer ☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company)
Smaller reporting company ☒
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)  Yes ☐   No  ☒
 
As of February 24, 2016, the registrant had 78,445,171 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
22
   
Item 3.  Quantitative and Qualitative Disclosures About Market Risk
29
   
Item 4.  Controls and Procedures
29
   
PART II – OTHER INFORMATION
30
   
Item 1.  Legal Proceedings
30
   
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
30
   
Item 3.  Defaults Upon Senior Securities
30
   
Item 5.  Other Information
30
   
Item 6.  Exhibits
31
   
SIGNATURES
32
 
2
 
PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements

 
ActiveCare, Inc.
Condensed Consolidated Balance Sheets (Unaudited)

   
December 31,
    
September 30,
  
   
2015
    
2015
  
Assets
  
   
 
         
Current assets:
  
   
 
Cash
  
$
215,338
    
$
172,436
  
Accounts receivable, net
    
1,075,992
      
936,866
  
Inventory
    
720,964
      
742,471
  
Prepaid expenses and other
    
281,125
      
523,561
  
 
                
Total current assets
    
2,293,419
      
2,375,334
  
 
                
Property and equipment, net
    
124,878
      
135,770
  
Deposits and other assets
    
17,846
      
17,846
  
Domain name, net
    
9,831
      
10,010
  
 
                
Total assets
  
$
2,445,974
    
$
2,538,960
  
 
See accompanying notes to condensed consolidated financial statements.
3

ActiveCare, Inc.
Condensed Consolidated Balance Sheets (Unaudited) (continued)

   
December 31,
    
September 30,
  
   
2015
    
2015
  
Liabilities and Stockholders' Deficit
  
   
 
Current liabilities:
        
Accounts payable
  
$
4,649,000
    
$
4,493,211
  
Accounts payable, related party
    
237,362
      
162,797
  
Accrued expenses
    
1,304,681
      
743,967
  
Current portion of notes payable
    
1,315,100
      
1,259,916
  
Current portion of notes payable, related party
    
492,495
      
492,495
  
Dividends payable
    
970,898
      
567,350
  
Derivatives liability
    
385,164
      
79,347
  
                 
Total current liabilities
    
9,354,700
      
7,799,083
  
                 
Notes payable, related party, net of current portion
    
3,348,251
      
3,348,251
  
Notes payable, net of current portion
    
97,181
      
-
  
 
                
Total liabilities
    
12,800,132
      
11,147,334
  
 
                
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;79,486,837 and 78,113,971 shares outstanding, respectively
    
795
      
781
  
Additional paid-in capital, common and preferred
    
84,208,290
      
83,231,002
  
Accumulated deficit
    
(94,563,244
)
    
(91,840,158
)
 
                
Total stockholders' deficit
    
(10,354,158
)
    
(8,608,374
)
 
                
Total liabilities and stockholders' deficit
  
$
2,445,974
    
$
2,538,960
  
  
See accompanying notes to condensed consolidated financial statements.
4
 
ActiveCare, Inc.
Condensed Consolidated Statements of Operations (Unaudited)

   
Three Months Ended
  
   
December 31,
  
   
2015
    
2014
  
         
Chronic illness monitoring revenues
  
$
2,087,670
    
$
1,508,091
  
 
                
Chronic illness monitoring cost of revenues
    
1,593,356
      
1,117,223
  
                 
Gross profit
    
494,314
      
390,868
  
 
                
Operating expenses:
                
Selling, general and administrative (including $1,179,922 and 1,169,977, respectively, of stock-based compensation)
    
2,346,705
      
2,351,459
  
Research and development
    
22,909
      
45,198
  
                 
Total operating expenses
    
2,369,614
      
2,396,657
  
                 
Loss from operations
    
(1,875,300
)
    
(2,005,789
)
 
                
Other income (expense):
                
Interest expense, net
    
(491,149
)
    
(350,536
)
Gain on derivatives liability
    
46,311
      
106,444
  
Gain on disposal of property and equipment
    
600
      
-
  
 
                
Total other expense, net
    
(444,238
)
    
(244,092
)
 
                
Loss from continuing operations
    
(2,319,538
)
    
(2,249,881
)
 
                
Loss from discontinued operations
    
-
      
(272,982
)
 
                
Net loss
    
(2,319,538
)
    
(2,522,863
)
 
                
Dividends on preferred stock
    
(403,548
)
    
(195,187
)
 
                
Net loss attributable to common stockholders
  
$
(2,723,086
)
  
$
(2,718,050
)
 
                
Net loss per common share - basic and diluted
                
Continuing operations
  
$
(0.03
)
  
$
(0.05
)
Discontinued operations
    
-
      
(0.01
)
 
                
Net loss per common share
  
$
(0.03
)
  
$
(0.06
)
 
                
Weighted average common shares outstanding – basic and diluted
    
78,815,000
      
47,162,000
  
 
See accompanying notes to condensed consolidated financial statements.
5

ActiveCare, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)

 
  
Three Months Ended
  
   
December 31,
  
 
  
2015
    
2014
  
         
Cash flows from operating activities:
  
   
 
Net loss
  
$
(2,319,538
)
  
$
(2,522,863
)
Adjustments to reconcile net loss to net cash used in operating activities:
                
Stock-based compensation expense
    
1,085,294
      
453,565
  
Amortization of debt discounts
    
270,731
      
306,711
  
Stock and warrants issued for services
    
94,628
      
716,412
  
Depreciation and amortization
    
13,745
      
249,606
  
Gain on disposal of property and equipment
    
(600
)
    
-
  
Gain on derivatives liability
    
(46,311
)
    
(106,444
)
Changes in operating assets and liabilities:
                
Accounts receivable
    
(139,126
)
    
546,548
  
Inventory
    
21,507
      
237,154
  
Prepaid expenses and other assets
    
(28,230
)
    
(26,664
)
Accounts payable
    
125,354
      
(102,823
)
Accrued expenses
    
419,958
      
(78,874
)
                 
Net cash used in operating activities
    
(502,588
)
    
(327,672
)
 
                
Cash flows from investing activities:
                
Proceeds from sale of property and equipment
    
600
      
-
  
Purchases of property and equipment
    
(2,674
)
    
-
  
Proceeds from sale of discontinued operations
    
-
      
478,738
  
 
                
Net cash provided by (used in) investing activities
    
(2,074
)
    
478,738
  
 
                
Cash flows from financing activities:
                
Proceeds from issuance of notes payable, net
    
1,209,200
      
100,000
  
Principal payments on notes payable
    
(661,636
)
    
(51,705
)
 
                
Net cash provided by financing activities
    
547,564
      
48,295
  
 
                
Net increase in cash
    
42,902
      
199,361
  
Cash, beginning of the period
    
172,436
      
197,027
  
 
                
Cash, end of the period
  
$
215,338
    
$
396,388
  
 
See accompanying notes to condensed consolidated financial statements.
6

ActiveCare, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited) (continued)

 
  
Three Months Ended
  
   
December 31,
  
 
  
2015
    
2014
  
Supplemental Cash Flow Information:
  
   
 
Cash paid for interest
  
$
8,713
    
$
2,605
  
 
                
Non-Cash Investing and Financing Activities:
                
Dividends on preferred stock and related interest
  
$
403,548
    
$
195,187
  
Accrual of common stock options for loan origination fees
    
130,246
      
-
  
Issuance of common stock for loan origination fees
    
101,058
      
-
  
Conversion of related-party accounts payable and accrued liabilities to
    related-party notes payable
    
31,252
      
105,000
  
Issuance of common stock for prepaid consulting services
    
22,500
      
-
  
Issuance of common stock for dividends
    
-
      
6,251
  
 
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 US 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, 2015 and September 30, 2015, and the results of its operations and its cash flows for the three months ended December 31, 2015 and 2014.  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, 2015.  The results of operations for the three months ended December 31, 2015 may not be indicative of the results for the full fiscal year ending September 30, 2016.
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 December 31, 2015 and September 30, 2015 and is in default with respect to certain debt.  These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
In order for the Company to eliminate substantial doubt about its ability to continue as a going concern, it must achieve profitability, generate positive cash flows from operating activities and obtain the necessary debt or equity funding to meet its projected capital investment requirements.  Management's plans with respect to this uncertainty consist of raising additional capital by issuing debt or equity securities and increasing the sales of the Company's services and products.  There can be no assurance that the Company will be able to raise sufficient additional capital or that revenues will increase rapidly enough to achieve operating profits.  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 measures the fair values of its assets and liabilities using the US GAAP hierarchy.  The carrying amounts reported in the condensed 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 values because the underlying instruments are at interest rates which approximate current market rates.
2. 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 held in stock was sold to the buyer pursuant to a written invoice.  The purchase price included cash receipts of $412,280 for the customer contracts and $66,458 for the equipment held in stock.  The sale included all segment assets that generated revenue related to the CareServices segment.  The Company no longer holds any ownership interest in these assets and has ceased incurring costs related to the operations and development of the CareServices segment.  This segment was engaged in the business of developing, distributing and marketing mobile health monitoring and concierge services to distributors and consumers.  The debt secured by the CareServices customer contracts was amended in January 2015 and December 2015 and remains an obligation of the Company (see Note 11).  There were no material liabilities of discontinued operations.
8
As a result of the sale of the CareServices assets, the Company has reflected this segment as discontinued operations in the condensed consolidated financial statements for the three months ended December 31, 2014.  The following table summarizes certain operating data for discontinued operations for the three months ended December 31:
   
2015
    
2014
  
Revenues
  
$
-
    
$
141,523
  
                 
Cost of revenues
    
-
      
203,294
  
                 
Gross loss
    
-
      
(61,771
)
                 
Selling, general and administrative expenses
    
-
      
(211,211
)
                 
Loss from discontinued operations
  
$
-
    
$
(272,982
)

3. 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 period.
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 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 and options, shares issuable from restricted stock grants, and shares issuable from convertible notes and convertible Series D, Series E and Series F preferred stock.  As of December 31, 2015 and 2014, there were 49,873,389 and 27,905,091 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:
 
  
2015
    
2014
  
Common stock options and warrants
    
9,497,551
      
10,991,576
  
Series D convertible preferred stock
    
225,000
      
225,000
  
Series E convertible preferred stock
    
477,830
      
477,830
  
Series F convertible preferred stock
    
16,065,328
      
16,065,328
  
Convertible debt
    
23,600,180
      
135,607
  
Restricted shares of common stock
    
7,500
      
9,750
  
 
                
Total common stock equivalents
    
49,873,389
      
27,905,091
  
   
4. Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (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. In August 2015, the FASB voted to defer the effective date of the new revenue standard by one year. The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein, which will be effective for the Company for the quarter ending December 31, 2018. The Company is assessing the impact, if any, of implementing this guidance on its consolidated financial position, results of operations and liquidity.
9
In August 2014, the FASB issued ASU 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 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, which will be effective for the Company for the quarter ending December 31, 2017. The Company is assessing the impact, if any, of implementing this guidance on its evaluation 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, which will be effective for the Company for the quarter ending December 31, 2016. The Company is assessing the impact, if any, of implementing this guidance on its consolidated financial position, results of operations and liquidity.
In June 2015, the FASB issued ASU 2015-10, Technical Corrections and Improvements. The purpose of this ASU is to clarify guidance, correct unintended application of guidance, or make minor improvements to guidance. The ASU is effective for fiscal years and interim periods beginning after December 15, 2015, which will be effective for the Company for the quarter ending December 31, 2016. The Company is assessing the impact, if any, of implementing this guidance on its consolidated financial position, results of operations and liquidity.
In July 2015, the FASB issued ASU 2015-11, Inventory: Simplifying the Measurement of Inventory. The purpose of this ASU is to more closely align the measurement of inventory in U.S. GAAP with the measurement of inventory in International Financial Reporting Standards. This ASU requires entities to measure most inventory at the "lower of cost and net realizable value." Additionally, some of the amendments are designed to more clearly articulate the requirements for the measurement and disclosure of inventory. The ASU is effective for fiscal years and interim periods beginning after December 15, 2016, which will be effective for the Company for the quarter ending December 31, 2017. The Company is assessing the impact, if any, of implementing this guidance on its consolidated financial position, results of operations and liquidity.
5. 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 $67,749 and $30,495 as of December 31, 2015 and September 30, 2015, respectively.
6. Inventory
Inventory is recorded at the lower of cost or market, cost being determined using the first-in, first-out ("FIFO") method. Inventory 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.  During the three months ended December 31, 2015, the Company disposed of $163,526 of inventory for which a reserve for obsolescence had previously been recorded.  Inventory consists of the following as of:
10
   
December 31,
 2015
    
September 30,
2015
  
Finished goods
  
$
1,142,127
    
$
206,038
  
Finished goods held by distributors
    
-
      
1,350,368
  
 
                
Total inventory
    
1,142,127
      
1,556,406
  
 
                
Inventory reserve
    
(421,163
)
    
(813,935
)
 
                
Net inventory
  
$
720,964
    
$
742,471
  

7. Customer Contracts
The Company amortized Chronic Illness Monitoring customer contracts acquired during 2012 over their estimated useful lives through 2014.  As of December 31, 2015 and September 30, 2015, the cost associated with these customer contracts of $214,106 was fully amortized. Amortization expense related to these contracts for the three months ended December 31, 2015 and 2014 was $0.
The Company sold substantially all of the CareServices customer contracts during December 2014.  Amortization expense related to customer contracts in the CareServices segment for the three months ended December 31, 2015 and 2014 was $0 and $179,648, respectively. 
8. Patents
Amortization expense for the three months ended December 31, 2015 and 2014 was $0 and $31,718, respectively.  As of December 31, 2015 and September 30, 2015, the cost associated with the patents of $514,046 was fully amortized.
9. 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,
 2015
    
September 30,
2015
  
Software
  
$
100,574
    
$
100,574
  
Leasehold improvements
    
98,023
      
98,023
  
Furniture
    
68,758
      
68,758
  
Equipment
    
62,428
      
59,754
  
 
                
Total property and equipment
    
329,783
      
327,109
  
 
                
Accumulated depreciation and amortization
    
(204,905
)
    
(191,339
)
 
                
Property and equipment, net
  
$
124,878
    
$
135,770
  
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 the three months ended December 31, 2015, the Company recorded a gain on the disposal of property and equipment of $600.  During December 2014, the Company sold all of its equipment leased to customers (see Note 2).  Depreciation expense for the three months ended December 31, 2015 and 2014 was $13,745 and $38,061, respectively.
11
10. Accrued Expenses
Accrued expenses consisted of the following as of:
 
  
December 31,
 2015
    
September 30,
2015
  
 Interest
  
$
370,498
    
$
190,045
  
 Payroll
    
200,581
      
270,974
  
 Deferred revenue
    
184,617
      
147,344
  
 Commissions and fees
    
141,868
      
64,432
  
 Liability to issue warrants
    
130,246
      
-
  
 Warranty liability
    
95,630
      
-
  
 Liability to issue common stock
    
81,762
      
40,000
  
 Other
    
99,479
      
31,172
  
 
                
Total accrued expenses
  
$
1,304,681
    
$
743,967
  

11. Notes Payable
The Company had the following notes payable outstanding as of: 
   
December 31,
 2015
    
September 30,
 2015
  
Secured borrowings from third parties that purchased $1,439,395 of customer receivables for 80% of their value with interest from 2.25% to 7.50%.  The remaining 20% is held in reserve by the lender until collected then is returned to the Company.  The balance of the reserve was $169,953 as of December 31, 2015 and is not included in the outstanding balance of the note.  The Company may sell additional customer receivables for a balance up to $2,000,000 and must repurchase any receivables not collected within 90 days of the original date billed.  The Company issued 791,666 shares of common stock to a third party in connection with the agreement.  The $71,250 fair value of the stock is being amortized to interest expense over the term of the agreement.  The Company accrued warrants for the purchase of 1,333,333 shares of common stock to a third party in connection with the agreement.  The $130,246 fair value of the warrants is being amortized to interest expense over the term of the agreement.  The Company was required to pay commissions related to the agreement totaling $203,784, which are being amortized to interest expense over the term of the notes. In February 2016, the Company terminated the note and paid a termination fee of $50,300 in addition to the outstanding principal and interest then outstanding. See Note 20.
  
$
539,528
    
$
-
  
                 
Secured borrowings from a third party that purchased $945,000 of customer receipts for $750,000, with due dates ranging from November 2015 to December 2016 and payable in daily payments ranging from $955 to $1,909.  The $195,000 difference between the customer receipts and cash received is being amortized to interest expense over the term of the respective notes.  The secured borrowings are guaranteed by two officers of the Company.  In November 2015, one of the notes was amended to subordinate to another note and to increase the principal by $28,385.  The additional principal amount is being amortized to interest expense over the term of the note.  In February 2016, the note was settled for $377,607 or 91% of the outstanding balance. See Note 20.
    
484,418
      
421,413
  

12

   
December 31,
 2015
    
September 30,
2015
  
Unsecured notes payable with interest at 12%, with due dates ranging from March 2016 to April 2016 and convertible into common stock at a 15% discount from the 10-day volume adjusted weighted average closing price per share upon maturity.  In connection with the issuance of the notes, the Company issued 841,176 shares of common stock.  The $119,205 fair value of the stock is being amortized to interest expense over the term of the notes.  The notes included loan origination fees of $35,049, which are being amortized to interest expense over the term of the notes.  The Company recorded a derivative in connection with the convertible feature of the notes (see Note 14) and is amortizing the initial $151,283 fair value of the derivatives liability over the life of the notes.  In February 2016, the notes plus interest of $21,029 were converted into 9,287,985 shares of common stock, or $0.04 per common share, which was below the fair value of the Company's stock on the date of conversion.  The stock will be issued subsequent to the filing of the Company's Quarterly Report on Form 10-Q for the three months ended December 31, 2015, which includes these financial statements.  See Note 20.
  
$
350,490
    
$
212,490
  
                 
Note payable previously secured by CareServices customer contracts.  In January 2015, the note was amended to reduce the outstanding principal to $375,000, interest at 9%, and payable in 15 monthly installments beginning in February 2015.  The amendment released the collateralized customer contracts and the note payable is guaranteed by both a former Executive Chairman of the Board of Directors and a member of the Board of Directors.  A gain on the extinguishment of the old note of $769,449 was recorded in other income.  In December 2015, the note was amended to extend maturity to January 2018 payable in monthly installments beginning in July 2016, convert $31,252 from accrued interest into principal, interest at 10%, and provide that the note is convertible into common stock at its fair value per share.  The Company recorded a derivative in connection with the convertible feature of the note (see Note 14) and is amortizing the initial $302,690 fair value of the derivatives liability over the life of the notes.  In February 2016, the note was amended to subordinate to notes payable also issued during February 2016.
    
334,464
      
303,212
  
                 
Unsecured note payable with interest at 12%, due February 2016, convertible into common stock at $0.30 per share.  In connection with the issuance of the note, the Company repriced previously issued warrants to purchase shares of common stock.  The $22,397 increase in relative fair value of the warrants was included as a loss on the extinguishment of the old note in other expense in fiscal 2015.  The note also required a payment of 3,000,000 shares of common stock.  The fair value of $780,000 was included as a loss on the extinguishment of the old note in other expense in fiscal 2015.  The maturity date was extended during November 2015 for 125,000 shares of common stock, which has been included in accrued expenses.  The $8,750 fair value of the shares is being amortized over the extension period.  In February 2016, the note was amended to subordinate to notes payable, also issued during February 2016, and the conversion price was reduced to $0.06 per share, which was below the fair value of the Company's stock on the date of the agreement.  The note holder shall only be able to convert loan, or a portion thereof, upon maintaining holdings at 9.99% or below.  See Note 20.
    
300,000
      
300,000
  

13
   
December 31,
 2015
    
September 30,
2015
  
Secured borrowings from third parties that purchased a $337,600 customer receivable for $200,000, in default.  The Company was able to 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, was amortized to interest expense through June 2015.  In February 2016, the notes were converted into 5,800,000 shares of common stock, or $0.04 per common share, which was below the fair value of the Company's stock on the date of conversion.  The stock will be issued subsequent to the filing of the Company's Quarterly Report on this Form 10-Q for the three months ended December 31, 2015, which includes these financial statements.  See Note 20.
  
$
233,333
    
$
233,333
  
                 
Unsecured notes with interest at 18%, due April 2013, in default.  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
    
2,306,494
      
1,534,709
  
                 
Less discount
    
(894,213
)
    
(274,793
)
                 
Total notes payable
    
1,412,281
      
1,259,916
  
                 
Less current portion
    
(1,315,100
)
    
(1,259,916
)
                 
Notes payable, net of current portion
  
$
97,181
    
$
-
  

12. Related-Party Notes Payable
The Company had the following related-party notes payable outstanding as of:
   
December 31,
 2015
    
September 30,
2015
  
Secured borrowings from entities controlled by an officer that purchased a $2,813,175 customer receivable for $1,710,500.  The Company was able to buy back the receivable for $1,950,000 less cash received by the entities through March 2015.  The $239,500 difference between the buyback and cash received plus $253,500 of loan origination fees was amortized to interest expense through March 2015.  In September 2015, the note was modified to extend the maturity date to January 2017 with interest at 18%.  The Company added $81,600 of extension fees and issued 3,000,000 shares of common stock as part of the modification and the note is convertible into common stock at $0.30 per share.  The $540,000 fair value of the common stock was recognized as a loss on extinguishment of debt in fiscal 2015.  In February 2016, the note was amended to subordinate to notes payable, also issued during February 2016, and the conversion price was reduced to $0.06 per share, which was below the fair value of the Company's stock on the date of the agreement.  The conversion of the note is now limited to a maximum of 20,000,000 common shares in combination with other convertible notes payable held by the entities.  The note also now has a default penalty of 4,203,389 shares of common stock, in combination with other convertible notes held by the entity, if not paid by maturity.  See Note 20.
  
$
1,721,100
    
$
1,721,100
  

14
   
December 31,
 2015
    
September 30,
2015
  
Unsecured note payable to an entity controlled by an officer with interest at 18%, due January 2017, convertible into common stock at $0.30 per share.  The Company issued 3,000,000 shares of common stock as loan origination fees.  The $540,000 fair value of the common stock was recognized as a loss on extinguishment of debt in fiscal 2015.  In February 2016, the note was amended to subordinate to notes payable, also issued during February 2016, and reduced the conversion price to $0.06 per share, which was below the fair value of the Company's stock on the date of the agreement.  The conversion of the note is now limited to a maximum of 20,000,000 common shares in combination with other convertible notes payable held by the entity.  The note also now has a default penalty of 4,203,389 shares of common stock, in combination with other convertible notes held by the entity, if not paid by maturity.  See Note 20.
  
$
1,303,135
    
$
1,303,135
  
                 
Unsecured note payable to an entity controlled by a former Executive Chairman of the Board of Directors with no interest (18% in the event of default), due on demand and in default. The former Executive Chairman demanded payment by May 15, 2015.  In February 2016, the note plus accrued interest was bifurcated into two notes payable.  One of the bifurcated notes plus part of the second bifurcated note was assigned to a third party and converted into a convertible note payable.  The remaining portion of the second bifurcated note, in combination with another note payable held by the entity plus accrued interest, was converted into a convertible note payable.  See Note 20.
    
396,667
      
396,667
  
                 
Unsecured note payable to an entity controlled by a former Executive Chairman of the Board of Directors with interest at 18%, due January 2017.  In February 2016, the note plus accrued interest, in combination with another note payable held by the entity, was converted into a convertible note payable.  See Note 20.
    
324,016
      
324,016
  
                 
Unsecured note payable to a former officer with interest at 15%, due June 2012, 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 with interest at 12%, due September 2013, in default, and convertible into common stock at $0.75 per share.
    
26,721
      
26,721
  
                 
Unsecured note payable to an entity controlled by an officer with interest at 18%, due upon demand.  In February 2016, the note was amended to subordinate to notes payable, also issued during February 2016, and the note is convertible into shares of common stock at $0.06 per share, which was below the fair value of the Company's stock on the date of the agreement.  The conversion of the note is now limited to a maximum of 20,000,000 common shares in combination with other convertible notes payable held by the entity.  The note also now has a default penalty of 4,203,389 shares of common stock, in combination with other convertible notes held by the entity, if not paid by maturity.  See Note 20.
    
25,463
      
25,463
  
                 
Unsecured note payable to a former officer with interest at 12%, due on demand.
    
13,644
      
13,644
  
                 
Total notes payable, related-party
    
3,840,746
      
3,840,746
  
                 
Less current portion
    
(492,495
)
    
(492,495
)
                 
Notes payable, related party, net of current portion
  
$
3,348,251
    
$
3,348,251
  

15
13. Fair Value Measurements
The Company measures 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 does not measure any of its assets or liabilities 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 14 for more information about derivatives and the inputs used for calculating fair value.
14. Derivatives Liability
The derivatives liability as of December 31, 2015 and September 30, 2015 was $385,164 and $79,347, respectively.  The derivatives liability as of September 30, 2014 was 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.  The derivatives liability as of December 31, 2015 and September 30, 2015 is related to a variable conversion price adjustment on outstanding notes payable.
During the three months ended December 31, 2015, 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 prices ranging from $0.03 to $0.09 per share; risk free interest rates ranging from 0.16% to 1.06%; expected lives ranging from 0.17 to 2.09 years; expected dividends of 0%; volatility factors ranging from 125.33% to 231.42%; and stock prices ranging from $0.03 to $0.09.  During the fiscal year ended September 30, 2015, 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 prices ranging from $0.12 to $0.33 per share; risk free interest rates ranging from 0.010% to 0.260%; expected lives ranging from 0.001 to 0.50 years; expected dividends of 0%; volatility factors ranging from 0.01% to 138.68%; and stock prices ranging from $0.12 to $0.33.  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 US 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, 2015 and 2014 of $46,311 and $106,444, respectively.
15. 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 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 each of the three months ended December 31, 2015 and 2014, the Company accrued $6,251 of dividends on Series D preferred stock.  During the three months ended December 31, 2014, the Company settled $6,251 of accrued dividends by issuing 18,522 shares of common stock.
16
Series E Convertible Preferred Stock
During fiscal year 2013, the Board of Directors designated shares of preferred stock as Series E convertible preferred stock ("Series E preferred stock").  Series E preferred stock is convertible into common stock at $1.00 per share, the conversion price is adjustable if there are distributions of common stock or stock splits by the Company.  The designation also provides that the Series E preferred stock is non-voting and receives a monthly dividend of 3.322% for 25 to 32 months.  In addition, the convertibility and the redemption price of the Series E preferred stock is gradually reduced by dividend payments over 25 to 32 months.  After the dividend payment term, the redemption price of Series E preferred stock is $0, the Series E preferred stock has no convertibility to common stock and the holders are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company's gross profits payable quarterly for a two-year period.
During fiscal year 2014, $83,473 of debenture loans and accrued interest converted into 8,347 shares of Series E preferred stock.  During the three months ended December 31, 2015 and 2014, the Company accrued dividends of $84,572 and $81,716, respectively, to Series E preferred shareholders.  As of December 31, 2015 and September 30, 2015, 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 is convertible into common stock at $0.3337 per share (see Note 14).  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.  In February 2016, the Company converted all 5,361 outstanding shares into 10,000,000 shares of common stock and $5,900,000 of notes payable.  See Note 20.
During fiscal year 2014, the Company issued 5,361 shares of Series F preferred stock for net proceeds of $3,580,771, after considering $675,229 of related costs, and the conversion of $574,592 of debt and accrued interest.  During the three months ended December 31, 2015 and 2014, the Company accrued dividends of $312,725 and $107,220, respectively, to Series F preferred 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 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.
16. 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, 2015, the Company issued 1,372,866 shares of common stock as follows:
· 250,000 shares for future services to be provided by an independent consultant, the value at the date of grant was $22,500;
· 1,122,866 shares for notes payable origination and financing fees, the value on the date of grant was $101,058.
The fair value of unvested common stock as of December 31, 2015 was $1,918,011.
17. 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 options or warrants is based on the US Treasury yield curve in effect at the time of grant.  The dividend yield is zero.
17
During the three months ended December 31, 2015 and 2014, the Company did not grant any common stock options or warrants.
The following table summarizes information about stock options and warrants outstanding as of December 31, 2015:
 
Options and Warrants
  
Number of
Options and
 Warrants
    
Weighted-
Average
 Exercise
Price
  
Outstanding as of October 1, 2015
    
9,497,551
    
$
0.97
  
Granted
    
-
          
Exercised
    
-
          
Forfeited
    
-
          
Outstanding as of December 31, 2015
    
9,497,551
      
0.91
  
Exercisable as of December 31, 2015
    
7,767,551
      
1.00
  

As of December 31, 2015, the outstanding warrants have an aggregate intrinsic value of $0, the weighted average remaining term of the warrants was 2.66 years, and the fair value of unvested stock options and warrants was $124,784.
18. Segment Information
The Company operated one business segment during the three months ended December 31, 2015 and 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 Company's CareServices segment were sold in December 2014 and that segment was discontinued.  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, 2015 and 2014 and for the three months then ended:
18
 
  
Corporate
    
Chronic Illness Monitoring
    
CareServices
 (Discontinued Operations)
    
Total
  
As of December 31, 2015 and for the Three
  
   
   
   
 
Months Then Ended
  
   
   
   
 
Sales to external customers
  
$
-
    
$
2,087,670
    
$
-
    
$
2,087,670
  
Segment income (loss)
    
(2,537,504
)
    
217,966
      
-
      
(2,319,538
)
Interest expense, net
    
491,149
      
-
      
-
      
491,149
  
Segment assets
    
544,308
      
1,901,666
      
-
      
2,445,974
  
Property and equipment purchases
    
2,674
      
-
      
-
      
2,674
  
Depreciation and amortization
    
13,745
      
-
      
-
      
13,745
  
                                 
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
      
-
      
233,665
      
249,606
  
 
19. Commitments and Contingencies
During the three months ended December 31, 2014, the Company leased office space under a non-cancelable operating lease, which was terminated during June 2015.  In February 2015, the Company entered into a sublease agreement for part of the office space under the non-cancelable operating lease through the end of the original lease period.  Payments under the sublease were made by the sublessee directly to the Company's landlord.
The Company's rent expense for facilities under the terminated operating lease for the three months ended December 31, 2014 was approximately $76,000.
During June 2015, the Company entered into a new non-cancelable operating lease for its existing office space, excluding the previously subleased space, and with payments beginning in July 2015.  Future minimum rental payments under the non-cancelable operating lease as of December 31, 2015 were as follows:
Years Ending September 30,
    
2016 (nine months)
  
$
95,230
  
2017
    
130,036
  
2018
    
111,340
  
         
 
  
$
336,606
  

The Company's rent expense under the new non-cancelable operating lease for three months ended December 31, 2015 was approximately $31,000.
On May 28, 2015, an investor of the Company filed a lawsuit claiming damages of $1,000,000 exclusive of interest and costs against the Company, its Executive Chairman, an entity controlled by its former Executive Chairman, and 4G Biometrics, a wholly owned subsidiary of the Company for a breach of contract.  The Company has engaged legal counsel regarding the matter.  As the lawsuit is in its early stages, it is not possible to predict the outcome of the matter.  The Company intends to vigorously dispute the litigation and believes it has meritorious defenses to the claims.
On November 4, 2015, the Company received a demand for payment of $275,000 from a former employee of the Company and former principal of 4G Biometrics who was terminated for cause in regards to his employment agreement.  On December 4, 2015, the Company filed a complaint against the former owners of 4G Biometrics, including this former employee, seeking damages in excess of $300,000 related to alleged misrepresentations made to induce ActiveCare to acquire 4G Biometrics.  Between February 4, 2016 and February 8, 2016, the Company settled the complaint with each of the former owners of 4G Biometrics where all parties released each other from all outstanding claims, including any current monetary obligations to each party, excluding one former owner of 4G Biometrics who continues employment with the Company.  A Stipulation for Order of Dismissal with Prejudice of all Claims and Counterclaims has been filed and is in the process of being approved.  The settlement resulted in the termination of $39,863 of related party accounts payable.
19
20. Subsequent Events
Subsequent to December 31, 2015, the Company entered into the following agreements and transactions:

(1) In February 2016, the Company terminated a secured note payable with an outstanding principal balance of $706,344 and accrued interest and fees of $38,703 for a cash payment of $795,347.
(2) In February 2016, the Company entered into a line of credit agreement with a third party in which it may draw up to $1,500,000, interest at 12.25%, maturing in February 2018, and secured by the Company's assets.  The line of credit limit may increase up to $3,000,000 as the Company meets certain milestones.  The interest rate may reduce to 10.75% as the Company meets certain milestones.
(3) In February 2016, the Company entered into a note payable agreement with a third party, in conjunction with the line of credit described above, for $1,500,000, interest at 12.75%, maturing in March 2019, and secured by the Company's assets.  The Company may borrow additional amounts under the note payable agreement up to a total balance of $3,000,000 as the Company meets certain milestones.  The interest rate may reduce to 11.25% as the Company meets certain milestones.  The Company issued warrants to purchase 12,015,350 shares of common stock at $0.065 per common share in connection with the note payable.
(4) In February 2016, the Company converted third party convertible notes payable with outstanding principal balances totaling $350,490 and interest balances totaling $21,029 for a total of 9,287,985 shares of common stock, or $0.04 per common share, which was below the fair value of the Company's stock on the date of conversion.  The stock will be issued subsequent to the filing of the Company's Quarterly Report on Form 10-Q for the three months ended December 31, 2015, which includes these financial statements.
(5) In February 2016, the Company settled third party notes payable with outstanding principal balances totaling $417,160 for $377,607, or 91% of the outstanding principal balance.
(6) In February 2016, the Company sold $380,000 of future customer receipts to a third party for $494,000 in cash.  The $114,000 difference between the future customer receipts and cash received by the Company is being amortized to interest expense over the term of the note.
 
20
(7) In February 2016, the Company settled secured borrowings from third parties with outstanding principal balances totaling $233,333 for a total of 5,800,000 shares of common stock, or $0.04 per common share, which was below the fair value of the Company's stock on the date of conversion.  The stock will be issued subsequent to the filing of the Company's Quarterly Report on Form 10-Q for the three months ended December 31, 2015, which includes these financial statements.
(8) In February 2016, the Company converted 5,361 shares of its Series F Convertible Preferred Stock plus accrued dividends of $603,113 into 10,000,000 shares of common stock with certain temporary restrictions, and $5,900,000 of notes payable, interest at 10%, due November 2018. The Company may, at its option, make payments either in cash, shares of common stock or a combination thereof.  The notes payable are convertible at $0.30 per common share and adjustable to a rate the same as any grants of warrants, conversion options, or sale of equity at a rate lower than the conversion price subsequent to the agreement date.  The conversion of these notes is limited to a maximum of 19,667,000 common shares.  The Company is also required to cancel warrants to purchase 5,022,000 shares of common stock and issue new warrants with an exercise price of $0.30 per common share.  The Company is also required to issue warrants for the purchase of up to 8,000,000 shares of common stock exercisable at $0.001 per share that vest upon certain events of default.  No shares of Series F Convertible Preferred Stock remained after the conversion
(9) In February 2016, the Company modified a third party convertible note payable with a principal balance of $300,000 to subordinate to newly acquired notes payable.  The Company also amended the note to reduce the conversion price from $0.30 per share to $0.06 per share, which was below the fair value of the Company's stock on the date of the agreement.  The note holder shall only be able to convert the loan, or a portion thereof, upon maintaining holdings at 9.99% or below.
(10) In February 2016, the Company modified related party convertible notes payable with principal balances totaling $3,024,235 to subordinate to newly acquired notes payable.  The Company also amended the notes to reduce the conversion price from $0.30 per share to $0.06 per share, which was below the fair value of the Company's stock on the date of the agreement.  In addition, the Company modified another note payable with the related party with a principal balance of $25,463 to subordinate to newly acquired notes payable.  The Company also amended the note to make it convertible into shares of common stock at $0.06 per share, which was below the fair value of the Company's stock on the date of the agreement.  The conversion of these notes is limited to a combined maximum of 20,000,000 common shares.  These notes were also amended in combination to have a default penalty of 4,477,780 shares of common stock if not paid by maturity.
(11)
In February 2016, the Company bifurcated a related party note payable with a principal balance of $396,667 and accrued interest of $56,924 into two new notes payable with principal balances of $210,510 and $243,082, respectively.  The bifurcated note with principal balance of $243,082 and $20,000 of the bifurcated note with principal balance of $210,510 was assigned to a third party and exchanged for a new convertible note payable which bears interest at 18%, is due in January 2017, and is payable at the Company's option in cash or shares of common stock at fair value. The note holder shall only be able to convert the loans, or a portion thereof, upon maintaining holdings at 4.99% or below
(12)
In February 2016, the Company converted related party notes payable with principal balances totaling $514,525 and accrued interest totaling $27,480 into a new convertible note payable which bears interest at 18%, is due in January 2017, and is convertible into shares of common stock at $0.06 per share, which was below the fair value of the Company's stock on the date of the agreement.  The conversion of the note is limited to a maximum of 9,250,000 common shares, subject to a beneficial ownership cap of 4.99% of the issued and outstanding common stock and has a default penalty of 734,489 shares of common stock if not paid by maturity.
(13)
In  February 2016, the Company paid $150,000 to a related-party in connection with an existing consulting agreement for a commission on fund raising activities..
(14)
In January 2016, the Company received 1,041,666 shares of common stock returned from a vendor, which were cancelled.  The stock will be reissued to the same vendor subsequent to the filing of the Company's Quarterly Report on Form 10-Q for the three months ended December 31, 2015, which includes these financial statements.
 
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Item 2.                          Management's Discussion and Analysis of Financial Condition and Results of Operations
The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to assist in better understanding 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, 2015 and 2014, and the accompanying notes thereto, contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2015 and our unaudited condensed consolidated financial statements for the three months ended December 31, 2015 and 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. is a Delaware corporation, formed March 5, 1998. 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.  Our 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 US 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.
Going Concern
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 December 31, 2015 and September 30, 2015 and are in default with respect to certain debt.  We determined that our goodwill of $825,894 was impaired during the fourth fiscal quarter of 2015 and it was expensed.  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.
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Our Product and Service Strategy
During the three months ended December 31, 2015, our product and service strategy consisted solely of chronic illness monitoring.  During the three months ended December 31, 2014, our product/service strategy fell into two distinctly different categories; chronic illness monitoring and CareServices or personal emergency response systems ("PERS").  In December 2014, we sold substantially all of our customer contracts and equipment leased to customers associated with our CareServices segment.  The sale of our CareServices contracts allows us to focus solely on our Chronic Illness Monitoring segment.
Chronic Illness Monitoring
Chronic illness monitoring involves the use of biometric monitoring devices in combination with proprietary data and algorithms to assess the wellbeing of an individual under care.  Individual care profiles are created through the aggregation of personal health and medical claims information from multiple data sources.  Real-time biometric readings for blood glucose levels, blood pressure, heart rate, weight, tidal volume and other vital readings can be captured over time and added to the existing personal information.  This unique data set may now be used for proactive care protocols, care provider alerts to elevated readings, and behavioral intervention prior to crisis events.
Technology to facilitate data-driven chronic illness monitoring consists of three components: (1) biometric monitoring products and supplies, (2) medical and claims data aggregation, and (3) algorithms for the analysis of the data.  Biometric monitoring products and supplies are provided by numerous medical hardware providers and deliver a wide range of features and functionality.  ActiveCare is agnostic to any specific device requirement, and has as a core competency the ability to integrate and capture data from any 510(k) or HL7 compliant monitoring device.  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.
CareCenter
The central point of our product offerings is our CareCenter.  Our CareCenter is staffed 24x7 with CareCenter specialists who are 911-certified and trained.  Our CareCenter specialists and CareCenter provide monitoring related to chronic illness test results, contact testers who have not tested when scheduled, and onboard new users to our services.  We focus on our outreach initiatives in respect of engagement programs, which assist end users with the importance of monitoring their health.
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 have developed products that incorporate GPS, cellular capability, and fall detection, all of which are connected to our 24-hour CareCenter with the push of a button.  The transmitter can be worn on a neck pendant or belt clip, or carried in a purse, and sends a cellular signal to our CareCenter.  When the wearer of the device pushes the button, the staff at the CareCenter evaluate the situation and decide whether to call emergency services or a designated friend or family member.
Research and Development Program
During the three months ended December 31, 2015, we spent approximately $23,000, compared to $45,000 during the same period in 2014, on research and development related to chronic illness monitoring.  The research and development program focused on ongoing improvements to methods and systems for the capture and analysis of data, as well as scalable architectures to migrate to production applications and deployments during fiscal year 2015 that were developed during fiscal years 2013 and 2012.
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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 measure 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 consists of diabetic supplies and is recorded at the lower of cost or market, cost being determined using the first-in, first-out ("FIFO") method.  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.
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 estimates of fair value are based on the best information available as of the date of the assessment, which primarily incorporates management assumptions about expected future cash flows and the Company's overall market capitalization.  Future cash flows can be affected by changes in industry or market conditions.  Goodwill was impaired by $825,894 as of September 30, 2015, due, in part, to a potentially long-term reduction in the market capitalization of the Company subsequent to September 30, 2015.
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.  No long-lived assets were considered to be impaired during the three months ended December 31, 2015.
Extinguishment of Debt
       We compare the cash flow of a modified note payable on the date of modification to the original terms of the note payable.  The original note is derecognized and a gain or loss on the extinguishment is recognized if the present value of the cash outflow of the original note payable is 10% or more different than the modified note payable.
Revenue Recognition
For the 2014 period presented, revenues came from two sources: (1) sales of Chronic Illness Monitoring products and services; and (2) sales from CareServices.  The CareServices segment was sold in December 2014 and, therefore, the 2015 period only reflects revenues from Chronic Illness Monitoring.  Information regarding revenue recognition policies relating to the Chronic Illness Monitoring and CareServices business segments is contained in the following paragraphs.
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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 elements.
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.
When multiple elements 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 is to be used. Total consideration under our multiple-element contracts is allocated to supplies and monitoring through application of the relative fair value method.
During the three months ended June 30, 2014, we began to provide enhanced monitoring services to a key customer, which pays a separate monthly monitoring fee.  Beginning in the three months ended June 30, 2015, our sales initiatives under the direction of new executive management became focused on the monitoring of end users.  This monitoring is accounted for as an element with stand-alone value.
CareServices
CareServices included contracts in which we leased monitoring devices and provided monitoring services to end users.  We typically entered into contracts on a month-to-month basis with end users that used CareServices.  These contracts could be cancelled by either party at any time with 30-days' notice.  Under a standard contract, the device and service became billable on the date the end user ordered the device, and remained billable until the device was returned to the Company.  Revenues were recognized at the end of each month the service had been provided.  In those circumstances in which payment was received in advance, we recorded deferred revenue.
CareServices revenue was recognized when persuasive evidence of an arrangement existed, delivery of the device or service had occurred, prices were fixed or determinable, and collection was reasonably assured.  Shipping and handling fees were included as part of net revenues.  The related freight costs and supplies directly associated with shipping products to end users were included as a component of cost of revenues.  All CareServices sales were made with net 30-day payment terms.
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.
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Results of Operations
Three Months Ended December 31, 2015 and 2014
Revenues
Revenues for the three months ended December 31, 2015 were $2,088,000 compared to $1,508,000 for the same period in 2014, an increase of $580,000, or 38%.  The increase is primarily due to resupply shipments to end users who were newly enrolled during fiscal year 2015 and 2014 and increased sales to new customers.
Cost of Revenues
Cost of revenues for the three months ended December 31, 2015 was $1,593,000, compared to $1,117,000 for the same period in 2014, an increase of $476,000, or 43%.  The increase in cost of revenues is primarily due to an increase in revenue and the cost of warranty liabilities, offset, in part, by a reduction in the reserve for obsolescence during the three months ended December 31, 2015.
Gross Profit
Gross profit for the three months ended December 31, 2015 was $494,000, compared to $391,000 for the same period in 2014, an increase of $103,000 for the reasons described above.  We expect gross profit to improve throughout the remainder of fiscal year 2016 as we acquire more Chronic Illness Monitoring members and retain existing members.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended December 31, 2015 were $2,347,000, compared to $2,351,000 for the same period in 2014, a decrease of $4,000.  Included in selling, general and administrative expense is $1,179,922 and $1,169,977 of stock-based compensation incurred during the three months ended December 31, 2015 and 2014, respectively.  The decrease in expenses incurred is primarily due to decreases in rent expense and accounting expense, offset, in part, by increases in bad debt expense, travel expense and advertising expense.
Research and Development Expenses
Research and development expenses for the three months ended December 31, 2015 were $23,000, compared to $45,000 for the same period in 2014, a decrease of $22,000.  We expect to continue investing in research and development as we develop new platforms for Chronic Illness Monitoring and as funds become available.
Gain on Derivatives Liability
Gain on derivatives liability for the three months ended December 31, 2015 was $46,000, compared to $106,000 for the same period in 2014.  The derivatives liability recorded as of December 31, 2015 relates to variable conversion features of notes payable, some of which are at a 15% discount from the fair value of the Company's common stock on the maturity date and others at the fair value of the Company's common stock.  The gain on derivatives liability recorded during the three months ended December 31, 2014 relates to a variable conversion feature for the Series F preferred stock related to a milestone adjustment that occurred during the quarter then ended.  This adjustment eliminated the variable conversion feature of Series F preferred stock.
Interest Expense
Interest expense for the three months ended December 31, 2015 was $491,000, compared to $351,000 for the same period in 2014, an increase of $141,000.  The increase is primary due to additional notes payable issued and modifications made to existing notes payable during the fiscal year ended September 31, 2015 and three months ended December 31, 2015.
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 held in stock was sold to the buyer pursuant to a written invoice.  The purchase price included cash receipts of $412,280 for the customer contracts and $66,458 for the leased equipment.  During the three months ended December 31, 2014, we recognized a loss from discontinued operations of $273,000.
Net Loss
Net loss for the three months ended December 31, 2015 was $2,320,000, compared to $2,523,000 for the same period in 2014 for the reasons described above.
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Dividends on Preferred Stock
Dividends on preferred stock for the three months ended December 31, 2015 were $404,000, compared to $195,000 for the same period in 2014.  The increase in dividends is due an increase in the dividend rate (as set out in the Series F Convertible Preferred stock certificate of designation) from 8% to 25%.
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, 2015 was $215,000.  At that time, we had a working capital deficit of $7,061,000, compared to a working capital deficit of $5,424,000 as of September 30, 2015.  The increase in working capital deficit is primarily due to reductions in prepaid expenses and additions to accrued expenses, accounts payable, dividends payable which were accrued and not paid, and derivatives liabilities related to the issuance of notes payable, offset, in part, by additions to accounts receivable due to additional sales.
Operating activities for the three months ended December 31, 2015 used cash of $503,000, compared to $328,000 for the same period in 2014.  The increase in cash used in operating activities is primarily due the increase in accounts receivable during the three months ended December 31, 2015 compared to the decrease in accounts receivable during the same period in 2014, offset, in part, by the increase in accrued expenses during the three months ended December 31, 2015 compared to the decrease in accrued expenses during the same period in 2014.
Investing activities for the three months ended December 31, 2015 used cash of $2,000, compared to cash provided by investing activities of $479,000 for the same period in 2014.  The decrease in 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 in December 2014.
Financing activities for the three months ended December 31, 2015 provided cash of $548,000, compared to $48,000 in fiscal year 2014. The increase in cash provided from financing activities is primarily due to the net increase in proceeds from the issuance of debt during the three months ended December 31, 2015 over 2014, offset, in part by, a net increase in principal payments on debt during the three months ended December 31, 2015 over 2014.
We had an accumulated deficit as of December 31, 2015 of $94,563,000, compared to $91,840,000 as of September 30, 2015.  Our total stockholders' deficit as of December 31, 2015 was $10,354,000 compared to $8,608,000 as of September 30, 2015.  These changes were primarily due to our net loss for the three months ended December 31, 2015.
Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (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. In August 2015, the FASB voted to defer the effective date of the new revenue standard by one year. The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein, which will be effective for the Company for the quarter ending December 31, 2018. The Company is 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 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 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, which will be effective for the Company for the quarter ending December 31, 2017. The Company is assessing the impact, if any, of implementing this guidance on its evaluation 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, which will be effective for the Company for the quarter ending December 31, 2016. The Company is assessing the impact, if any, of implementing this guidance on its consolidated financial position, results of operations and liquidity.
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In June 2015, the FASB issued ASU 2015-10, Technical Corrections and Improvements. The purpose of this ASU is to clarify guidance, correct unintended application of guidance, or make minor improvements to guidance. The ASU is effective for fiscal years and interim periods beginning after December 15, 2015, which will be effective for the Company for the quarter ending December 31, 2016. The Company is assessing the impact, if any, of implementing this guidance on its consolidated financial position, results of operations and liquidity.
In July 2015, the FASB issued ASU 2015-11, Inventory: Simplifying the Measurement of Inventory. The purpose of this ASU is to more closely align the measurement of inventory in US GAAP with the measurement of inventory in International Financial Reporting Standards. This ASU requires entities to measure most inventory at the "lower of cost and net realizable value." Additionally, some of the amendments are designed to more clearly articulate the requirements for the measurement and disclosure of inventory. The ASU is effective for fiscal years and interim periods beginning after December 15, 2016, which will be effective for the Company for the quarter ending December 31, 2017. The Company is assessing the impact, if any, of implementing this guidance on its consolidated financial position, results of operations and liquidity.
Recent Developments
 
Subsequent to December 31, 2015 and prior to the date of this report on Form 10-Q, we entered into certain transactions to restructure our capitalization, consolidate certain obligations and obtain additional debt financing.  These transactions included the conversion of outstanding preferred stock into common stock and debt and the conversion of outstanding debentures and other notes into common stock, as well as the repayment or restructuring of debt obligations of the Company as follows:
· We terminated a secured note payable with an outstanding principal balance of $706,344 and accrued interest and fees of $38,703 for a cash payment of $795,347.
· We entered into a line of credit agreement with Partners for Growth IV, L.P. ("PFG") pursuant to which we may draw up to $1,500,000 in principal. Borrowed amounts bear interest at 12.25%. The balance of borrowed principal and accrued interest matures in February 2018, and the line of credit is secured by substantially all of the Company's assets.  Amounts available under the line of credit may increase up to $3,000,000 and the annual interest rate may be reduced to 10.75% as the Company meets certain milestones.  We issued warrants to purchase 12,015,350 shares of common stock at $0.065 per common share in connection with the note payable.
· We entered into a note payable agreement with PFG in conjunction with the line of credit described above, to borrow $1,500,000.  Obligations under the note payable agreement bear interest at 12.75% and mature in March 2019.  The obligations of the Company are secured by substantially all of the Company's assets under the security agreement mentioned above.  The Company may borrow additional amounts under this agreement up to a total balance of $3,000,000 and the interest rate may reduce to 11.25% as the Company meets certain milestones.
· We converted third party convertible notes payable with outstanding principal balances totaling $350,490 and interest balances totaling $21,029 into a total of 9,287,985 shares of common stock, at a conversion price of $0.04 per common share, which was below the fair value of the Company's stock on the date of conversion.  The stock will be issued subsequent to the filing of this report.
· We settled third party notes payable with outstanding principal balances totaling $417,160 for $377,607, or 91% of the outstanding principal balance.
· We sold $380,000 of future customer receipts to a third party for $494,000 in cash.
· We settled secured obligations owed to third parties with outstanding principal balances totaling $233,333 by agreeing to issue 5,800,000 shares of common stock at $0.04 per common share, which was below the fair value of the Company's stock on the date of conversion.  The stock will be issued subsequent to the filing of this report.
· We converted all issued and outstanding shares of our Series F Convertible Preferred Stock plus accrued dividends of $603,113 in exchange for 10,000,000 shares of common stock with certain temporary restrictions and notes payable in the principal amount of $5,900,000.  The notes bear interest at 10%, are due and payable in full in November 2018 and are subject to a subordination agreement with PFG. We may, at our option, make payments either in cash, shares of common stock or a combination thereof.  The notes payable are convertible into common stock of the Company at $0.30 per common share, subject to adjustment based on subsequent grants of warrants, conversion options, or the sale of equity securities of the Company at prices lower than the conversion price.  The conversion of these notes is limited to a maximum of 19,667,000 common shares.  The Company is also required to cancel warrants to purchase 5,022,000 shares of common stock and issue new warrants with an exercise price of $0.30 per common share.  The Company is also required to issue warrants for the purchase of up to 8,000,000 shares of common stock exercisable at $0.001 per share that vest upon certain events of default.  No shares of Series F Convertible Preferred Stock remained after the conversion.
· We modified a third party convertible note payable with a principal balance of $300,000 to subordinate to the PFG financing described above.  As modified, the conversion price of the note was reduced from $0.30 per share to $0.06 per share, which was below the fair value of the Company's stock on the date of the agreement.  The note holder shall only be able to convert the loan, or a portion thereof, upon maintaining beneficial ownership of the Company's securities at or below 9.99% of the total issued and outstanding common stock of the Company.
· We modified convertible notes payable to Banyan Investment Company, LLC, Keystone Partners, LLC, The Mark and Nancy Peterson Foundation, Rimrock Capital, LLC, and Bluestone Advisors, LLC with principal balances totaling $3,024,235 to subordinate to the PFG financing and reduced the conversion price of such notes from $0.30 per share to $0.06 per share, which was below the fair value of the Company's stock on the date of the agreement.  Banyan Investment Company, LLC, Keystone Partners, LLC, The Mark and Nancy Peterson Foundation, Rimrock Capital, LLC, and Bluestone Advisors, LLC are affiliates of our Chief Financial Officer, Jeffrey Peterson.
· We modified a note payable to Bluestone Advisors, LLC with a principal balance of $25,463 to subordinate to the PFG financing and amended the note to make it convertible into shares of common stock at $0.06 per share, which was below the fair value of the Company's stock on the date of the agreement.  The conversion of these notes is limited to a combined maximum of 20,000,000 common shares and provide for the payment of a default penalty by the issuance of 4,477,780 shares of common stock if the note is not paid by maturity.
· We bifurcated a related party note payable to ADP Management Corporation ("ADP Management") with a principal balance of $396,667 and accrued interest of $56,924 into two new notes payable with principal balances of $210,510 and $263,082, respectively.  The bifurcated note with principal balance of $263,082 and $20,000 of the bifurcated note with principal balance of $210,510 was assigned to a third party and exchanged for a new convertible note payable which bears interest at 18%, is due in January 2017, and is payable at the Company's option in cash or shares of common stock at fair value. The note holder shall only be able to convert the loans, or a portion thereof, upon maintaining holdings at 4.99% or below. ADP Management is an affiliate of David G. Derrick, a former director and executive officer of the Company.
· We converted notes payable to ADP Management with principal balances totaling $514,525 and accrued interest totaling $27,480 into a new convertible note payable which bears interest at 18%, is due in January 2017, and is convertible into shares of common stock at $0.06 per share, which was below the fair value of our stock on the date of the agreement.  The conversion of the note is limited to a maximum of 9,250,000 common shares subject to a beneficial ownership cap of 4.99% of the issued and outstanding common stock and has a default penalty of 734,489 shares of common stock if not paid by maturity.
· We paid $150,000 to ADP Management in connection with an existing consulting agreement for a commission on the PFG financing.
· We received 1,041,666 shares of common stock returned from a vendor, which were cancelled.  The stock will be reissued to the same vendor subsequent to the filing of this report.
28

Forward-Looking Statements and Certain Risks

The statements contained in this report that are not purely historical are considered to be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). These statements represent our expectations, hopes, beliefs, anticipations, commitments, intentions, and strategies regarding the future. They may be identified by the use of words or phrases such as "believes," "expects," "anticipates," "should," "plans," "estimates," and "potential," among others. Forward-looking statements include, but are not limited to, statements contained in Management's Discussion and Analysis of Financial Condition and Results of Operations regarding our financial performance, revenue, and expense levels in the future and the sufficiency of our existing assets to fund our future operations and capital spending needs. Readers are cautioned that actual results could differ materially from the anticipated results or other expectations that are expressed in these forward-looking statements for the reasons that are detailed in our most recent Annual Report on Form 10-K. The fact that some of these risk factors may be the same or similar to those in our past Exchange Act reports means only that the risks are present in multiple periods. We believe that many of the risks detailed here and in our other Exchange Act filings are part of doing business in the industry in which we operate and will likely be present in all periods reported. The fact that certain risks are common in the industry does not lessen their significance. The forward-looking statements contained in this report are made as of the date of this report, and we assume no obligation to update them or to update the reasons why our actual results could differ from those that we have projected.
 
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, 2015, which was filed with the Securities and Exchange Commission ("SEC") on January 13, 2016. 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 principal executive officer and principal 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.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2015, our disclosure controls and procedures were not effective, for the reasons discussed below.  
During the audit process for the year ended September 30, 2015, 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:
·
Ineffective controls over the accounting for debt extinguishments and impairment of goodwill
   
·
Ineffective controls over segregation of access to the accounting information system and the payroll system
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, 2015, management improved procedures related to internal controls over financial reporting.
29

PART II – OTHER INFORMATION
Item 1.                          Legal Proceedings
On May 28, 2015, an investor of the Company filed a lawsuit claiming damages of $1,000,000 exclusive of interest and costs against the Company, its Executive Chairman, an entity controlled by its former Executive Chairman, and 4G Biometrics, a wholly owned subsidiary of the Company for a breach of contract.  The Company has engaged legal counsel regarding the matter.  As the lawsuit is in its early stages, it is not possible to predict the outcome of the matter.  The Company intends to vigorously dispute the litigation and believes it has meritorious defenses to the claims.
On November 4, 2015, the Company received a demand for payment of $275,000 from a former employee of the Company and former principal of 4G Biometrics who was terminated for cause in regards to his employment agreement.  On December 4, 2015, the Company filed a complaint against the former owners of 4G Biometrics, including this former employee, seeking damages in excess of $300,000 related to alleged misrepresentations made to induce ActiveCare to acquire 4G Biometrics.  Between February 4, 2016 and February 8, 2016, the Company settled the complaint with each of the former owners of 4G Biometrics where all parties released each other from all outstanding claims, including any current monetary obligations to each party, excluding one former owner of 4G Biometrics who continues employment with the Company.  A Stipulation for Order of Dismissal with Prejudice of all Claims and Counterclaims has been filed and is in the process of being approved.  The settlement resulted in the termination of $39,863 of related party accounts payable.
Item 2.                          Unregistered Sales of Equity Securities and Use of Proceeds
Recent Sales of Unregistered Securities
During the three months ended December 31, 2015, we issued the following shares of common stock without registration under the Securities Act of 1933 (the "Securities Act"):
 
(1)
250,000 shares for future services to be provided by an independent consultant, the value at the date of grant was $22,500;
   
(2)
1,122,866 shares for notes payable origination and financing fees, the value on the date of grant was $101,058.
The securities issued in the above transactions were issued to accredited investors, 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 $298,000 are past due, in default, and unpaid.  In addition, a note payable due to a former Executive Chairman with a total principal amount of $397,000 is past due, in default, and unpaid.  Notes payable due to other related parties with total principal amounts of $57,000 are past due, in default and unpaid.  The Company will make payments on these notes payable as funds are available.
Item 5.                          Other Information
None.

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Item 6. Exhibits         
Exhibit Number
Description
   
10(i)
Form of Loan and Security Agreement between ActiveCare, Inc. and Partners for Growth IV, L.P. dated February 19, 2016
   
10(ii)
Form of Exchange Agreement by and among ActiveCare, Inc. and the Holders of ActiveCare Series F Convertible Preferred Stock
   
10(iii)
Form of Notice of Conversion by and among ActiveCare, Inc. and the Holders of ActiveCare 12% Subordinated Convertible Promissory Notes
   
10(iv)
Form of Merchant Agreement dated February 11, 2016
   
10(v)
Form of Settlement Agreement dated February 9, 2016
   
10(vi)
Form of Addendum #1 to Settlement Agreement by and among ActiveCare, Inc. and Bluestone Advisors, LLC
   
10(vii)
Form of Secured Convertible Promissory Note by and among ActiveCare, Inc. and ADP Management Corporation
   
10(viii)
Form of Secured Convertible Promissory Note by and among ActiveCare, Inc. and Tonaquint, Inc.
   
10(ix) Form of Asset Purchase and Sale Agreement dated November 2, 2015
   
10(x)
Form of Addendum to Note Payable dated February 16, 2016
   
10(xi)
Form of Debenture Agreement by and among ActiveCare, Inc. and the Holders of ActiveCare Series F Convertible Preferred Stock
   
10(xii)
Form of Warrant Agreements by and among ActiveCare, Inc. and the Holders of ActiveCare Series F Convertible Preferred Stock
   
10(xiii) Form of Warrant Agreements related to the Partners for Growth Loan and Security Agreement
   
31.1
Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
31.2
Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
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Certification of principal executive officer and principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   
101 INS
XBRL Instance Document*
   
101 SCH
XBRL Schema Document*
   
101 CAL
XBRL Calculation Linkbase Document*
   
101 DEF
XBRL Definition Linkbase Document*
   
101 LAB
XBRL Labels Linkbase Document*
   
101 PRE
XBRL Presentation Linkbase Document*
               
*            The XBRL related information in Exhibit 101 shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
31

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/  James J. Dalton
 
 
James J. Dalton
Chief Executive Officer
(Principal Executive Officer)
 
Date: February 24, 2016
 
 
  
/s/ Jeffrey S. Peterson
 
 
Jeffrey S. Peterson
Chief Financial Officer
(Principal Financial and Accounting Officer)
 
Date: February 24, 2016
 
32
 EX-10.1 2 exh101.htm FORM OF LOAN AND SECURITY AGREEMENT BETWEEN ACTIVECARE, INC. AND PARTNERS FOR GROWTH IV, L.P. DATED FEBRUARY 19, 2016
Exhibit 10.1
 
Partners for Growth 
Loan and Security Agreement
 
Borrower:                                    ActiveCare, Inc. a Delaware corporation
Address:                                        1365 West Business Park Drive, Suite 100, Orem, UT 84058
Date:                                                  February 19, 2016
THIS LOAN AND SECURITY AGREEMENT ("Agreement") is entered into on the above date (the "Effective Date") between PARTNERS FOR GROWTH IV, L.P. ("PFG"), whose address is 1660 Tiburon Blvd., Suite D, Tiburon, CA 94920  and Borrower(s) named above (jointly and severally, the "Borrower"), whose chief executive offices are located at the above addresses ("Borrower's Address"). The Schedules to this Agreement (the "Schedules") being signed by the parties concurrently, are an integral part of this Agreement.  (Definitions of certain terms used in this Agreement are set forth in Section 7 below.)
1.    LOANS.
1.1  Loans. PFG will make Loans to Borrower in the amount (s) shown in the Schedules subject at all times to, and notwithstanding any other provision of this Agreement, no Default or Event of Default having occurred and being continuing at any time a Loan is requested or made, and subject to deduction of Reserves for accrued interest and such other Reserves as PFG may establish in accordance with the definition thereof.
1.2   Interest.  All Loans and all other monetary Obligations shall bear interest at the rates shown in the Schedules, except where expressly set forth to the contrary in this Agreement.  Interest shall be payable monthly, on the first day of each month for interest accrued during the prior month.
1.3  Fees.  Borrower shall pay PFG the fees shown in the Schedules, which are in addition to all interest Lender Expenses and other sums payable to PFG and are not refundable.
1.4  Loan Requests.  To obtain a Loan (which term shall include a request for an Advance under Schedule 1, an increase in Dollar Credit Limit under Schedule 1, the Tranche 2 Loan under Schedule 2 or any other credit provided to Borrower), Borrower shall make a Qualifying Request to PFG compliant with Section 8.5. Loan Requests are not deemed made until PFG acknowledges receipt of the same by electronic mail or otherwise in writing.  Without limiting the effect of Section 8.22 in the event there are at any time multiple Borrowers hereunder, Borrower appoints the Responsible Officer(s) as its authorized agent to make Loan Requests and any Loan Request made by such Responsible Officer(s) shall be binding on Borrower as if made by its own officers who are duly authorized to bind Borrower in respect of this Agreement. PFG's obligation to fund a Loan Request shall be subject to its receipt of such reports, certificates and other information as may be set forth in the Schedules and Exhibits. Loan Requests received after 12:00 Noon Pacific time will not be deemed to have been received by PFG until the next Business Day. PFG may rely on any Loan Request given by a person whom PFG believes in good faith is a Responsible Officer, and Borrower will indemnify PFG for any loss PFG suffers as a result of that reliance.
1.5  Late Fee.  If any payment of accrued interest for any month is not made within three business days after the later of the date a bill therefor is sent by PFG or three business days after the due date therefor, or if any payment of principal or any other payment is not made within three Business Days after the date due, then Borrower shall pay PFG a late payment fee equal to 5% of the amount of each such late payment.  The provisions of this paragraph shall not be construed as PFG's consent to Borrower's failure to pay any amounts when due, and PFG's acceptance of any such late payments shall not restrict PFG's exercise of any remedies arising out of any such failure. Unless expressly waived in writing by PFG in its sole discretion, interest at the Default Rate shall commence to apply to outstanding monetary Obligations as from the date the above grace periods expire.
1.6  Overadvances. If, at any time or for any reason, the total of all outstanding Revolving Loans and all other overdue monetary Obligations in respect of the Schedule 1 Loans exceeds the Schedule 1 Revolving Credit Limit (an "Overadvance"), Borrower shall pay the amount of the excess to PFG on the next Business Day following written notice or demand.  Without limiting Borrower's obligation to repay to PFG the amount of any Overadvance, Borrower agrees to pay PFG interest on the outstanding amount of any Overadvance, on demand, at the Default Rate.
1
2.  SECURITY INTEREST.
2.1  Grant of Security Interest.  To secure the payment and per-formance of all of the Obligations when due, Borrower hereby grants to PFG a continuing security interest in, and pledges to PFG, all of the following (collectively, the "Collateral"):  all right, title and interest of Borrower in and to all of the following, whether now owned or hereafter arising or acquired and wherever located: all Accounts; all Inventory; all Equipment; all Collateral Accounts (including Deposit Accounts); all General Intangibles (including without limitation all Intellectual Property); all Investment Property; all Other Property; and any and all claims, rights and interests in any of the above, and all guaranties and security for any of the above, and all substitutions and replacements for, additions, accessions, attachments, accessories, and improvements to, and proceeds (including proceeds of any insurance policies, pro-ceeds of proceeds and claims against third parties) of, any and all of the above and all Borrower's books relating to any and all of the above.
3.  REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER.
In order to induce PFG to enter into this Agreement and to make Loans, Borrower represents and warrants to PFG as follows, and Borrower covenants that the fol-lowing representations will continue to be true, except for representations expressly specified to be made as of a particular date, and that Borrower will at all times comply with all of the following covenants, throughout the term of this Agreement and thereafter until all Obligations (other than inchoate indemnity obligations) have been paid and performed in full:
3.1  Corporate Existence, Authority and Consents.  Borrower is and will continue to be, duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation and has in full force and effect all Governmental Authorizations required for Borrower to lawfully conduct its business as conducted on the Effective Date.  Borrower shall give PFG 30 days' prior written notice before changing its jurisdiction or form of organization. Borrower is and will con-tinue to be qualified and licensed to do business in all ju-risdictions in which any failure to do so could result in an adverse effect on Borrower or its business or result in a monetary or non-monetary obligation with a value in excess of $50,000. The execution, delivery and performance by Borrower of this Agreement, and all other documents contemplated hereby (i) have been duly and validly authorized, (ii) are enforceable against Borrower in accordance with their terms (except as en-forcement may be limited by equitable principles and by bankruptcy, insolvency, reorganization, moratorium or similar Legal Requirements relating to creditors' rights generally), (iii) do not violate Borrower's Constitutional Documents, or any Legal Requirement or any material agreement or instru-ment of Borrower or relating to its property, (iv) do not require any action by, filing, registration or qualification with, or Governmental Authorization from, any Governmental Body (except such Governmental Authorizations which have already been obtained and are in full force and effect), and (v) do not constitute grounds for acceleration of any material Indebtedness or obligation under any agreement or instru-ment of Borrower or relating to its property. Without limiting the foregoing: (A) the Board has the authority under Borrower's Constitutional Documents to enter into and cause Borrower to perform, or to delegate such authority to a Responsible Officer to enter into and cause Borrower to perform, its Obligations, and (B) no consent is required of any Person to make the representation set forth in clause (A) absolutely true in all respects.
3.2  Name; Trade Names and Styles.  As of the Effective Date, the name of Borrower set forth in the heading to this Agreement is its correct name, as set forth in its Constitutional Documents.  Listed in the Representations are all prior names of Borrower and all of Borrower's present and prior trade names as of the Effective Date.  Borrower shall give PFG thirty (30) days' prior written notice before changing its name or doing business under any other name.  Borrower has complied, and will in the future comply, in all material respects, with all laws relating to the conduct of business under a fictitious business name, if applicable to Borrower.
3.3  Place of Business; Location of Collateral.  As of the Effective Date, the ad-dress set forth in the heading to this Agreement is Borrower's chief executive office.  In addition, as of the Effective Date, Borrower has places of business and Collateral is located only at the locations set forth in the Representations.  Borrower will give PFG at least thirty (30) days prior written notice before opening any additional place of business, changing its chief execu-tive office, or moving any of the Collateral valued at greater than $10,000 to a location other than Borrower's Address or one of the locations set forth in the Representations, except that Borrower may maintain sales offices in the ordinary course of business at which not more than a total of $10,000 fair market value of Equipment is located.
3.4  Title to Collateral; Perfection; Permitted Liens.
(a)    Borrower is as of the Effective Date, and will at all times in the future be, the sole owner of all the Collateral, except for Collateral which is leased or licensed to Borrower.  The Collateral is as of the Effective Date and will remain free and clear of any and all liens, charges, security interests, encumbrances and adverse claims, except for Permitted Liens.  As of the Effective Date, PFG will have, and will continue to have, a First-Priority perfected and enforceable security in-terest in all of the Collateral, subject only to Permitted Liens, and Borrower will at all times defend PFG and the Collateral against all claims of others.
2
(b)    Borrower has set forth in the Representations all of Borrower's Collateral Accounts as of the Effective Date, and Borrower shall (i) give PFG five (5) Business Days advance written notice before (A) establishing any new Collateral Accounts or (B) depositing any Cash or Cash Equivalents or Investment Property into any new Collateral Account and (iii) shall cause the institution where any Collateral Account is maintained to execute and deliver to PFG a Control Agreement in form sufficient to perfect PFG's security interest in the Collateral Account and otherwise satisfactory to PFG in its good faith business judgment.
(c)    In the event that Borrower shall at any time after the Effective Date have any commercial tort claims against others, which it is asserting, and in which the potential recovery exceeds $100,000, Borrower shall promptly notify PFG thereof in writing and provide PFG with such information regarding the same as PFG shall request (unless providing such information would waive Borrower's attorney-client privilege).  Such notification to PFG shall constitute a grant of a security interest in the commercial tort claim and all proceeds thereof to PFG, and Borrower shall execute and deliver all such documents and take all such actions as PFG shall request in connection therewith.
(d)                  No Collateral with a value in excess of $250,000 is affixed to any real property in such a manner or with such intent as to become a fixture, except as disclosed in detail in Exhibit A. From and after the Effective Date, without PFG's consent in each instance, no material part of the Collateral will be affixed to any real property in such a manner, or with such intent, as to become a fixture.  Borrower is not, except as set forth in Exhibit A, and will not become a lessee under any real property lease pursuant to which the lessor may obtain any rights in any of the Collateral and no such lease now prohibits, restrains, impairs or will prohibit, restrain or im-pair Borrower's right to remove any Collateral from the leased premises.  Whenever any Collateral is located upon premises in which any third party has an interest, Borrower shall, whenever requested by PFG, use commercially reasonable efforts to cause such third party to exe-cute and deliver to PFG, in form acceptable to PFG, such waivers and subordinations as PFG shall specify in its good faith business judgment.  Borrower will keep in full force and effect, and will comply with all material terms of, any lease of real property where any of the Collateral now or in the future may be located.
(e)    Except as specified in the Representations, Borrower is not party to, nor is it bound by, any Restricted License.
3.5  Maintenance of Collateral. Borrower will maintain the Collateral in good working condition (ordinary wear and tear excepted), and Borrower will not use the Collateral for any unlawful purpose.  Borrower will immediately advise PFG in writing of any material loss or damage to the Collateral.
3.6  Books and Records.  Borrower has maintained and will maintain at Borrower's Address complete and accurate books and records, comprising an accounting system in ac-cordance with GAAP.
3.7  Financial Condition, Statements and Reports.  All Financial Statements now or in the future delivered to PFG have been, and will be, prepared in conformity with GAAP and now and in the future will fairly present the results of operations and fi-nancial condition of Borrower in all material respects, in accordance with GAAP, at the times and for the pe-riods therein stated.  Between the last date covered by any such statement provided to PFG and the Effective Date, there has been no Material Adverse Change.
3.8  Tax Returns and Payments; Pension Contributions.  Borrower has timely filed, and will timely file, all required Tax Returns, and Borrower has timely paid, and will timely pay, all Taxes now or in the future owed by Borrower.  Borrower may, however, defer pay-ment of any of the foregoing which are contested by Borrower in good faith, provided that Borrower (i) contests the same by appropriate proceedings promptly and diligently insti-tuted and conducted, (ii) notifies PFG in writing of the commencement of, and any material development in, the proceedings, and (iii) posts bonds or takes any other steps required to keep the same from becoming a lien upon any of the Collateral.  Borrower is unaware of any claims or adjustments proposed for any of Borrower's prior tax years which could result in additional Taxes becoming due and payable by Borrower.  Borrower has paid, and shall continue to pay all amounts necessary to fund all pre-sent and future pension, profit sharing and deferred com-pensation plans in accordance with their terms, and Borrower has not and will not withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any such plan which could reasonably be expected to result in any liability of Borrower, in-cluding any liability to the Pension Benefit Guaranty Corporation or its successors or any other Governmental Body.
3.9  Compliance with Law.  Borrower has, to the best of its knowledge, complied, and will comply, in all material respects, with all provisions of all Legal Requirements applicable to Borrower, including, but not limited to, those relating to Borrower's ownership of real or personal prop-erty, the conduct and licensing of Borrower's business, and all environmental matters.
3
3.10  Litigation.  Except as disclosed in the Representations, there is no claim, suit, litigation, proceeding or investiga-tion pending or (to the best of Borrower's Knowledge) threat-ened against or affecting Borrower in any court or before any Governmental Body (or any basis therefor known to Borrower) (i) involving individually or in the aggregate more than $50,000, or (ii) which could reasonably be expected to result, either separately or in the aggregate, in any Material Adverse Change.  Borrower will promptly inform PFG in writing of any claim, proceeding, litigation or investigation in the future threatened or instituted against Borrower involving any single claim of $50,000 or more, or involving $100,000 or more in the aggregate.
3.11  Use of Proceeds.  All proceeds of all Loans shall be used solely for lawful business purposes, including any purposes detailed in the Schedules.  Borrower is not purchasing or carrying any "margin stock" (as defined in Regulation U of the Board of Governors of the Federal Reserve System) and no part of the proceeds of any Loan will be used to purchase or carry any "margin stock" or to extend credit to others for the purpose of purchasing or carrying any "margin stock."
3.12  No Default.  At the Effective Date, no Default or Event of Default has occurred, and no Default or Event of Default will have occurred after giving effect to any Loans being made concurrently herewith.
3.13  Protection and Registration of Intellectual Property Rights.  Borrower owns or otherwise holds the right to use all Intellectual Property rights material to Borrower's business or necessary for the conduct of its business as currently conducted and reflected in any of Borrower's financial plans covering future periods.  Borrower shall: (a) protect, defend and maintain the validity and enforceability of its Intellectual Property, other than Intellectual Property that is not material to Borrower's business, has a fair value of less than $25,000 and that Borrower has affirmatively determined not to maintain or to abandon; (b) promptly advise PFG in writing of infringements of its Intellectual Property material to its business; (c) not allow any Intellectual Property material to Borrower's business to be abandoned, forfeited or dedicated to the public without PFG's written consent, (d) provide (i) written notice to PFG at least ten (10) days prior to entering into or becoming bound by any Restricted License (other than over-the-counter software that is commercially available to the public and licenses or agreements of Borrower with customers in which Borrower is an original equipment manufacturer, and (ii) the consent or waiver of any Person whose consent or waiver is necessary for (A) any Restricted License to be deemed "Collateral" and for PFG to have a Lien in it that might otherwise be restricted or prohibited by law or by the terms of any such Restricted License, whether now existing or entered into in the future, and (B) PFG to have the ability in the event of a liquidation of any Collateral to dispose of such Collateral in accordance with PFG's rights and remedies under this Agreement and the other Loan Documents, and (e) while any Obligations are Outstanding, shall not Transfer any Intellectual Property without PFG's consent, which consent shall not be unreasonably withheld if no Default or Event of Default has occurred and is then continuing, the Transfer of such Intellectual Property would not give rise to such a Default or Event of Default, and if such Intellectual Property meets the three criteria set forth as the exceptions to Borrower's duties to protect, defend and maintain under clause (a), above.  If, before the Obligations have been paid and/or performed in full, Borrower shall (i) adopt, use, acquire or apply for registration of any trademark, service mark or trade name, (ii) apply for registration of any patent or obtain any patent or patent application; (iii) create or acquire any published or material unpublished works of authorship material to the business that is or is to be registered with the U.S. Copyright Office or any non-U.S. equivalent; or (iv) register or acquire any domain name or domain name rights, then the provisions of Section 2.1 shall automatically apply thereto, and Borrower shall use all commercially reasonable efforts to give PFG advance written notice thereof and in any event shall thereafter give PFG prompt written notice thereof (which for purposes hereof shall be deemed to be not more than five (5) Business Days from the occurrence of each and any of the foregoing). Borrower shall further provide PFG with all information and details relating to the foregoing and take such further actions as PFG may reasonably request from time to time to enable PFG to perfect or continue the perfection of PFG's interest in such Collateral.
3.14  Domain Rights and Related Matters.  Borrower (a) is the sole record, legal and beneficial owner of all domain names and domain name rights used in connection with its business and that of its Subsidiaries, free and clear of any rights or claims of any third party; (b) has set forth in the Representations information with respect to domain names and ownership thereof, domain registry, domain servers, location and administrative contact information, web hosting and related services and facilities (collectively, "Domain Rights") that is true, accurate and complete and Borrower shall promptly notify PFG of any material changes to such information; (c) shall maintain all Domain Rights that Borrower has not affirmatively determined to abandon in full force and effect so long as any Obligations remain outstanding; (d) shall, upon request of PFG, notify such third parties (including domain registrars, hosting companies and internet service providers) of PFG's security interest in Borrower's Domain Rights; and (e) shall promptly advise PFG in writing of any material disputes or infringements of its Domain Rights. The obligations of Borrower under this Section shall not be limited by any Borrower obligations under the IP Security Agreement and related Collateral Agreements and Notices executed in connection with this Agreement.
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3.15 Representations, Warranties and Covenants Relating to Accounts.
(a) Representations Relating to Accounts.  Borrower represents and warrants to PFG as follows:  Each Account with respect to which Facility A Loans are requested by Borrower shall, on the date each such Loan is requested and made, (i) represent an undisputed bona fide existing un-conditional obligation of the Account Debtor created by the sale, delivery, and acceptance of goods or the rendition of services, or the non-exclusive licensing of Intellectual Property, in the ordinary course of Borrower's business, and (ii) meet the Minimum Eligibility Requirements set forth in Section 7 below.
(b) Representations Relating to Documents and Legal Compliance.  Borrower represents and warrants to PFG as follows:  All statements made and all unpaid balances appearing in all invoices, instruments and other documents evidencing the Accounts are and shall be true and cor-rect in all material respects and all such invoices, instruments and other docu-ments and all of Borrower's books and records are and shall be genuine and in all respects what they purport to be.  All sales and other transactions underlying or giving rise to each Account shall comply in all material respects with all applicable laws and governmental rules and regulations.  To the best of Borrower's Knowledge, all signatures and endorsements on all documents, instru-ments, and agreements relating to all Accounts are and shall be genuine, and all such documents, instruments and agreements are and shall be legally enforceable in accor-dance with their terms.
(c) Documents Relating to Accounts. If requested by PFG, Borrower shall furnish PFG with copies (or, at PFG's request, originals) of all contracts, orders, invoices, and other similar documents, and all shipping instructions, delivery receipts, bills of lading, and other evidence of delivery, for any goods the sale or disposition of which gave rise to such Accounts, and Borrower warrants the genuineness of all of the fore-going.  Borrower shall also furnish to PFG an aged ac-counts receivable trial balance as provided in the Schedule.  In addition, Borrower shall deliver to PFG, on its request, the originals of all instruments, chattel paper, security agreements, guarantees and other documents and property evidencing or securing any Accounts, in the same form as received, with all necessary endorsements, and copies of all credit memos.
4.  ADDITIONAL DUTIES OF BORROWER.
Borrower will at all times comply with all of the following covenants throughout the term of this Agreement:
4.1  Financial and Other Covenants.  Borrower shall at all times comply with the financial and other covenants set forth in the Schedules.
4.2.  Remittance of Proceeds. All proceeds arising from the disposition of any Collateral shall be delivered, in kind, by Borrower to PFG in the original form in which re-ceived by Borrower not later than the following Business Day after receipt by Borrower, to be applied to the Obligations in such order as PFG shall determine; pro-vided that, if no Default or Event of Default has occurred and is continuing, Borrower shall not be obligated to remit to PFG (i) the proceeds of Accounts arising in the ordinary course of business, or (ii) the pro-ceeds of the sale of surplus, worn out or obsolete Equipment dis-posed of by Borrower in good faith in an arm's length transaction for an aggregate purchase price of $25,000 or less (for all such transactions in any fiscal year).  Borrower agrees that it will not commingle proceeds of Collateral (other than those described in subclauses (i) and (ii) above) with any of Borrower's other funds or property, but will hold such proceeds separate and apart from such other funds and property and in an express trust for PFG, except as set forth above.  PFG may, in its good faith business judgment, require that all proceeds of Collateral be de-posited by Borrower into a Lock-Box account, or such other "blocked account" as PFG may specify, pursuant to a blocked account agreement in such form as PFG may specify in its good faith business judgment.  Nothing in this Section limits the restrictions on disposi-tion of Collateral set forth elsewhere in this Agreement.
4.3  Insurance.  Borrower shall at all times insure all of the tangible personal property Collateral and carry such other business insurance, with insurers reasonably accept-able to PFG, in such form and amounts as PFG may reasonably require and as are customary and in accordance with standard practices for Borrower's industry and locations, and Borrower shall provide evidence of such insurance to PFG.  All such insurance policies shall name PFG as an additional loss payee, and shall contain a lenders loss payee en-dorsement in form reasonably acceptable to PFG.  Upon receipt of the proceeds of any such insurance, PFG shall apply such proceeds in reduction of the Obligations as PFG shall determine in its good faith business judgment, except that, provided no Default or Event of Default has occurred and is continuing, PFG shall release to Borrower insurance proceeds with respect to Collateral totaling less than $100,000, which shall be utilized by Borrower for the re-placement of the Collateral with respect to which the in-surance proceeds were paid.  PFG may require reason-able assurance that the insurance proceeds so released will be so used.  If Borrower fails to provide or pay for any in-surance, PFG may, but is not obligated to, obtain the same at Borrower's expense.  Borrower shall promptly de-liver to PFG copies of all material reports made to insurance companies.
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4.4  Reports.  Borrower, at its expense, shall provide PFG with the written reports set forth in the Schedules, and such other written reports with respect to Borrower (including budgets, projections, operating plans and other financial documentation), as PFG shall from time to time specify in its good faith business judgment.
4.5  Access to Collateral, Books and Records; Additional Reporting and Notices.  At rea-sonable times, and on three (3) Business Days" notice, PFG, or its agents, shall have the right to inspect the Collateral, and the right to audit and copy Borrower's books and records. The foregoing inspections and audits shall be at Borrower's expense and the charge therefor shall be $850 per person per day (or such higher amount as shall repre-sent PFG's then current standard charge for the same), plus Lender Expenses, provided that so long as no Default or Event of Default has occurred and is then continuing and no prior inspection or audit has revealed material deficiencies or inaccuracies in Borrower's books and records, only one such inspection and audit shall be at Borrower's expense during any calendar year.  Notwithstanding the foregoing, Borrower shall not be required to disclose to PFG any document or information (i) where disclosure is prohibited by applicable law, or (ii) is subject to attorney-client or similar privilege or constitutes attorney work product. If Borrower is withholding any information under the preceding sentence, it shall so advise PFG in writing, giving PFG a general description of the nature of the information withheld. Without limiting the scope of reporting under Section 6 of the Schedules, Borrower shall promptly disclose to PFG any efforts to sell Borrower, its business or assets or any material part thereof or to refinance the Loan and shall disclose the salient details of any offers received from time to time in respect of the foregoing. At any time when a Default or Event of Default has occurred and is continuing (whether or not PFG has agreed to forbear), PFG shall be entitled (i) to be briefed by Borrower as to such matters as PFG may require in its business discretion, (ii) to receive advance notice of any and all Board meetings or written consents, together with the agendas for the foregoing, and (iii) to observe any such Board meetings, whether or not formally constituted as such.
4.6  Negative Covenants.  Except as may be permitted in the Schedules, Borrower shall not, without PFG's prior written consent (which shall be a matter of its good faith business judgment and shall be conditioned on Borrower then being in compliance with the terms of this Agreement), do, cause or permit any of the following to occur:
(i) acquire any assets, except in the ordinary course of business, or make any Investments other than Permitted Investments;
(ii) enter into any transaction outside the ordinary course of business with a value in excess of $50,000; (which non-ordinary course transactions shall include mergers, amalgamations, consolidations in respect of Borrower, provided that with not less than thirty (30) days' notice to PFG, one Borrower may merge with another Borrower and a Non-Borrower Subsidiary may merge with a Borrower or another Non-Borrower Subsidiary;
(iii) Transfer any part of its business or property, except for (A) the sale of finished Inventory in the ordinary course of Borrower's business, (B) the sale of obsolete or unneeded Equipment in the ordinary course of business and otherwise in compliance with the terms of this Agreement, (C) the making of Permitted Investments, and (D) the granting of Permitted Liens; and, for the avoidance of any doubt, a Transfer of business or property, as contemplated above, would include (1) Borrower or any Subsidiary making or causing any payment to be made on Subordinated Debt unless expressly permitted under the terms of the subordination, intercreditor or other agreement to which the Subordinated Debt is subject (and, if permitted in this Agreement, only to the extent permitted), and (2) other than with the express consent of PFG in its sole business discretion, the amendment or modification of any such subordination, intercreditor or other agreement to provide for earlier or greater principal, interest or other payments thereon or adversely affect the subordination thereof to Obligations owed to PFG;
(iv) store any Inventory or other Collateral with any ware-houseman or other third party with an aggregate value (per location) of $10,000 or greater, unless there is in place a bailee agreement in such form as PFG shall specify in its good faith business judgment between PFG and such warehouseman or other third party;
(v) sell any Inventory on a sale-or-return, guaranteed sale, consignment, or other con-tingent basis;
(vi) make any loans of any money or other assets, other than Permitted Investments;
(vi) incur or permit to exist any Indebtedness, other than Permitted Indebtedness, or make any payment on Indebtedness, including Permitted Indebtedness, unless the terms of a Subordination Agreement between PFG and the holder of such Permitted Indebtedness expressly permit such payment and, in such case, only to the extent so permitted;
(viii) guarantee or otherwise become liable with respect to the obligations of another party or entity;
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(ix) pay or declare any Dividends (except for dividends payable solely in stock of Borrower);
(x) redeem, retire, purchase or otherwise acquire, directly or indirectly, any of Borrower's equity, except as required in the ordinary course of business and consistent with past practice in connection with redeeming or purchasing equity of departing employees, up to a maximum aggregate of $25,000 in any fiscal year;
(xi) engage, directly or indirectly, in any business other than the businesses currently engaged in by Borrower or reasonably related thereto;
(xii) with respect to the Dormant Subsidiaries, after the date hereof (A) cause or permit the Dormant Subsidiaries (collectively) to hold assets of any kind with a value of more than $10,000, or (B) cause or permit any Dormant Subsidiary to conduct or carry on any active business of any kind, or (C) cause or permit Borrower to make a Permitted Investment in the Dormant Subsidiaries or incur Permitted Indebtedness to any Dormant Subsidiary;
(xiii) make or permit any payment on any Subordinated Debt, except under the terms of the subordination, intercreditor, or other similar agreement to which such Subordinated Debt is subject, or (b) amend any provision in any document relating to the Subordinated Debt which would increase the amount thereof, provide for earlier or greater principal, interest, or other payments thereon, or adversely affect the subordination thereof to Obligations owed to PFG;
(xiv) (A) without at least thirty (30) days prior written notice to PFG: (1) add any new offices or business locations, including warehouses (unless such new offices or business locations contain less than $10,000 in Borrower's assets or property), (2) change its jurisdiction of organization, (3) change its organizational structure or type, (4) change its legal name, (5) change any organizational number (if any) assigned by its jurisdiction of organization; or (6) form any new Subsidiaries, and in each case, subject to (A) Borrower's and such Subsidiary(ies) compliance with Section 4.9 hereof, (B) such Subsidiary(ies) compliance with Section 4.10, and (C) such Subsidiary(ies) compliance with Section 8(a) of the Schedules;
(xiv) liquidate or dissolve, or elect or resolve to liquidate or dissolve; or
(xv) the Board shall permit or shall resolve to or approve, or Borrower shall otherwise take any steps to effect, any of the foregoing actions in clauses (i) through (xiv), inclusive, which are not otherwise expressly permitted herein.
Transactions permitted by the foregoing provisions of this Section are only permitted if no Default or Event of Default would occur as a result of such transac-tion.
4.7  Litigation Cooperation.  Should any third-party suit or proceeding be instituted by or instituted or threatened in writing against PFG with re-spect to any Collateral or relating to Borrower, Borrower shall, without expense to PFG, make available Borrower and its officers, employees and agents and Borrower's books and records, to the extent that PFG may deem them reasonably necessary in order to prosecute or defend any such suit or proceeding.
4.8  Changes.  Borrower agrees to promptly notify PFG in writing of any changes in the information set forth in the Representations.
4.9  Further Assurances.  Borrower agrees, at its ex-pense, on reasonable request by PFG, to execute all documents and take all actions, as PFG, may, in its good faith business judgment, deem neces-sary or useful in order to perfect and maintain PFG's perfected First-Priority security interest in the Collateral (subject to Permitted Liens), and in order to fully consummate the transactions contemplated by this Agreement, including without limitation, the joinder of any New Subsidiaries to this Agreement and execution of such other agreements and instruments as PFG may reasonably request, including execution of a cross-corporate continuing guaranty among Borrowers and Non-Borrower Subsidiaries. In addition, Borrower shall Deliver to PFG, within five (5) days after the same are sent or received, copies of all correspondence, reports, documents and other filings with any Governmental Body regarding compliance with or maintenance of Governmental Authorizations or Legal Requirements or that could reasonably be expected to have a material effect on any of the Governmental Authorizations or otherwise on the operations of Borrower or any of its Subsidiaries.
4.10 Collateral Accounts. Subject to Section 8(a) of the Schedules, Borrower shall: (a) At all times maintain all of its Collateral Accounts with depositary institutions in respect of which a Control Agreement in favor of PFG is at all times in effect; and (b) provide PFG five (5) days prior written notice before establishing any Collateral Account at or with any bank or financial institution other than the institutions holding Collateral on the Effective Date.
4.11 Authorization to File Security Instruments.  By executing and delivering a term sheet in respect of the Loans, Borrower shall be deemed to have authorized PFG to file Security Instruments on or prior to the Effective Date, without notice to Borrower, with all appropriate jurisdictions to perfect or protect PFG's interest or rights hereunder, including a notice that any disposition of the Collateral, by either Borrower or any other Person, shall be deemed to violate the rights of PFG under the Code. Such Security Instruments may indicate the Collateral as "all assets of the Debtor" or words of similar effect, or as being of an equal or lesser scope, or with greater detail, all in PFG's discretion.
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4.12 Full Disclosure. No written representation, warranty or other statement of Borrower in any certificate or written statement given to PFG, as of the date such representation, warranty, or other statement was made, taken together with all such written certificates and written statements given to PFG, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in the certificates or statements not misleading (it being recognized by PFG that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not viewed as facts and that actual results during the period or periods covered by such projections and forecasts may differ from the projected or forecasted results).
5.  TERM.
5.1  Maturity Date.  This Agreement shall continue in effect until the Maturity Date(s) as defined in Section 7, subject to Sections 5.2, 5.3 and 5.4, below.
5.2  Early Termination.  This Agreement may be termi-nated prior to the Maturity Date as follows:  (i) if expressly permitted in the Schedules, by Borrower, effective three (3) Business Days after written notice of termination is given to PFG and payment in full in cash of all Obligations (other than inchoate indemnity obligations); or (ii) by PFG at any time after the occurrence and during the continuance of an Event of Default, without notice, effective immediately.  If a Borrower right to prepay Obligations is provided in the Schedules and the exercise of such right is subject to payment of any consideration to PFG as a condition to such exercise, a Borrower Default or Event of Default that results in an acceleration of Obligations and/or termination of this Agreement shall not relieve Borrower of the obligation to pay such consideration, which shall be included in the Obligations required to be paid or performed by Borrower. If not all Loans are repaid, the right to terminate shall be conditioned upon an amendment to this Loan Agreement providing for the incorporation of Schedule provisions from the Facility being terminated to the Facility remaining outstanding.
5.3  Payment of Obligations.  On the Maturity Date or on any earlier effective date of termination, Borrower shall pay and perform in full all Obligations, whether evidenced by installment notes or otherwise, and whether or not all or any part of such Obligations are otherwise then due and payable. Notwithstanding any termination of this Agreement, (i) all of PFG's security interests in all of the Collateral and all of the terms and provisions of this Agreement shall continue in full force and effect until all Obligations have been paid and performed in full, and (ii) no further Loans will be made to Borrower unless PFG otherwise agrees in its sole and absolute discretion.  No termination shall in any way affect or impair any right or remedy of PFG, nor shall any such termination re-lieve Borrower of any Obligation to PFG, until all of the Obligations have been paid and performed in full.  Upon payment and performance in full of all the Obligations and termination of this Agreement, PFG shall promptly terminate its financing statements with respect to Borrower and de-liver to Borrower such other documents as may be required to fully terminate PFG's security interests.
5.4  Survival of Certain Obligations. Without limiting the survival of obligations addressed otherwise in this Agreement and notwithstanding any other provision of this Agreement, all covenants, representations and warranties made in this Agreement continue in full force until this Agreement has terminated pursuant to its terms and all Obligations (other than inchoate indemnity obligations and any other obligations which, by their terms, are to survive the termination of this Agreement) have been paid in full and satisfied.  The obligation of Borrower in Section 8.9 to indemnify PFG shall survive until the statute of limitations with respect to such claim or cause of action shall have run.
6.  EVENTS OF DEFAULT AND REMEDIES.
6.1  Events of Default.  The occurrence of any of the following events shall constitute an "Event of Default" un-der this Agreement regardless of whether notice thereof is given by PFG, and Borrower shall give PFG im-mediate written notice thereof:
(a) Any warranty, represen-tation, covenant, statement, report or certificate made or delivered to PFG by Borrower or any of Borrower's officers, em-ployees or agents, now or in the future shall be untrue or misleading in a material respect when made or deemed to be made; or
(b) Borrower shall fail to pay any Loan or any interest thereon or any other monetary Obligation when due; or
(c) Borrower (i) shall fail to comply with any of the financial covenants set forth in the Schedules, or (ii) shall breach any of the provisions of Section 4.6 hereof, or (iii) shall fail to perform any other non-monetary Obligation which by its nature cannot be cured, or (iv) shall fail to permit PFG to conduct an inspection or audit as provided in Section 4.5 hereof or shall fail to provide the notices, information, briefing and other rights set forth in Section 4.5, or (v) shall fail to provide PFG with a Report under Section 6 of the Schedules within three (3) Business Days after the date due; or
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(d) Borrower shall fail to per-form any other non-monetary Obligation, which failure is not cured within ten (10) Business Days after the date due; provided, however, if such failure results from a Default or an Event of Default for which there is a shorter cure period set forth in this Section 6.1, then the applicable cure period shall be such shorter period; or
(e) any levy, assessment, attachment or seizure is made on all or any part of the Collateral which is not cured within five (5) Business Days af-ter the occurrence of the same, or any lien or encum-brance (other than a Permitted Lien) is made on all or any part of the Collateral which is not cured within ten (10) Business Days af-ter the occurrence of the same; or
(f) any default or event of default occurs under any obligation secured by a Permitted Lien, which is not cured within any applicable cure period or unconditionally waived in writing by the holder of the Permitted Lien (and for purposes of the foregoing, a waiver does not include a forbearance); or
(g) there is, under any agreement to which Borrower or any Guarantor is a party with a third party or parties, (i) any default resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount individually or in the aggregate in excess of $50,000; or (ii) any breach or default by Borrower or any Guarantor, the result of which could result in a Material Adverse Change or have a material adverse effect on Borrower, any Guarantor or its business or prospects; or
 (h) (i) Dissolution, termina-tion of existence, insolvency or business failure of Borrower or any Guarantor; or (ii) appointment of a receiver, trustee or custo-dian, for all or any part of the property of, assignment for the benefit of creditors by, or the commencement of any Insolvency Proceeding by, against or in respect of Borrower or any Guarantor under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any juris-diction, now or in the future in effect, in each above case that is not dismissed or stayed within forty-five (45) days (and for the avoidance of doubt, PFG shall have no obligation to advance any Loan while any of the foregoing conditions or those set forth in clauses (iii) and (iv), below, exist); or (iii) Borrower or any Guarantor shall generally not pay its debts as they become due; or (iv) Borrower or any Guarantor shall conceal, remove or Transfer any part of its property, with intent to hinder, delay or defraud its creditors, or make or suffer any Transfer of any of its prop-erty which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law; or
(i) Borrower, any Guarantor or any Person acting for Borrower makes any representation, warranty, or other statement now or later in this Agreement, any Loan Document or in any writing delivered to PFG or to induce PFG to enter this Agreement or any Loan Document, and such representation, warranty, or other statement is incorrect in any material respect when made; or
(j) revocation or termination of, or limita-tion or denial of liability upon, any guaranty of the Obligations or any attempt to do any of the foregoing, or commencement of proceedings by any guarantor of any of the Obligations under any bankruptcy or insolvency law; or
(k) revocation or termination of, or limitation or denial of liability upon, any pledge of any certificate of deposit, securities or other property or asset of any kind pledged by any third party to secure any or all of the Obligations, or any attempt to do any of the foregoing, or commencement of proceedings by or against any such third party under any bankruptcy or insolvency law; or
(l) Borrower makes any payment on account of any indebtedness or obligation which has been subordinated to the Obligations (other than as permitted in the applicable subordination agreement), or if any Person who has subordinated such indebtedness or obligations terminates or in any way limits his subordina-tion agreement; or
 (m) Borrower shall (i) enter into any agreement, binding or non-binding, that would result in a Change in Control, or (ii) effect or suffer a Change in Control; or
(n) a default or breach shall occur under any other Loan Document, which default or breach shall be continuing after the later of cure period expressly specified in such Loan Document or five (5) Business Days; or
(o) Borrower or any Person acting for Borrower makes any representation, warranty, or other statement now or later in this Agreement, any Loan Document or in any writing delivered to PFG or to induce PFG to enter this Agreement or any Loan Document, and such representation, warranty, or other statement is incorrect in any material respect when made; or
(p) a Material Adverse Change shall occur.
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PFG may cease making any Loans hereunder during any of the cure periods provided above, and thereafter if an Event of Default has occurred and is continuing.
6.2  Remedies.  Upon the occurrence and during the continuance of any Event of Default, and at any time thereafter, PFG, at its option, and without notice or demand of any kind (all of which are hereby expressly waived by Borrower), may do any one or more of the following: (a) Cease making Loans or other-wise extending credit to Borrower under this Agreement or any other Loan Document; (b) Accelerate and de-clare all or any part of the Obligations to be immediately due, payable, and performable, notwithstanding any de-ferred or installment payments allowed by any instrument evidencing or relating to any Obligation; (c) Take posses-sion of any or all of the Collateral wherever it may be found, and for that purpose Borrower hereby authorizes PFG without judicial process to enter onto any of Borrower's premises without interference to search for, take possession of, keep, store, or remove any of the Collateral, and remain on the premises or cause a custo-dian to remain on the premises in exclusive control thereof, without charge for so long as PFG deems it necessary, in its good faith business judgment, in order to complete the enforcement of its rights under this Agreement or any other agreement; provided, however, that should PFG seek to take posses-sion of any of the Collateral by court process, Borrower hereby irrevocably waives: (i) any bond and any surety or security relating thereto required by any statute, court rule or otherwise as an incident to such possession; (ii) any demand for possession prior to the commencement of any suit or action to recover possession thereof; and (iii) any requirement that PFG retain possession of, and not dis-pose of, any such Collateral until after trial or final judg-ment; (d) Require Borrower to assemble any or all of the Collateral and make it available to PFG at places desig-nated by PFG which are reasonably convenient to PFG and Borrower, and to remove the Collateral to such locations as PFG may deem advisable; (e) Complete the processing, manufacturing or repair of any Collateral prior to a disposition thereof and, for such purpose and for the purpose of removal, PFG shall have the right to use Borrower's premises, vehicles, hoists, lifts, cranes, and other Equip-ment and all other property without charge; (f) Sell, lease or otherwise dispose of any of the Collateral, in its condi-tion at the time PFG obtains possession of it or after further manufacturing, processing or repair, at one or more public and/or private sales, in lots or in bulk, for cash, ex-change or other property, or on credit, and to adjourn any such sale from time to time without notice other than oral announcement at the time scheduled for sale.  PFG shall have the right to conduct such disposition on Borrower's premises without charge, for such time or times as PFG deems reasonable, or on PFG's premises, or elsewhere and the Collateral need not be located at the place of dis-position.  PFG may directly or through any affiliated company purchase or lease any Collateral at any such pub-lic disposition, and if permissible under applicable law, at any private disposition.  Any sale or other disposition of Collateral shall not relieve Borrower of any liability Borrower may have if any Collateral is defective as to title or physical condition or otherwise at the time of sale; (g) Demand payment of, and collect any Accounts and General Intangibles comprising Collateral and, in connec-tion therewith, Borrower irrevocably authorizes PFG to endorse or sign Borrower's name on all collections, receipts, instruments and other documents, to take posses-sion of and open mail addressed to Borrower and remove therefrom payments made with respect to any item of the Collateral or proceeds thereof, and, in PFG's good faith business judgment, to grant extensions of time to pay, compromise claims and settle Accounts and the like for less than face value; (h) Exercise any and all rights under any present or future Control Agreements relating to Deposit Accounts or Investment Property; and (i) Demand and receive possession of any of Borrower's federal and state income tax returns and the books and records utilized in the preparation thereof or re-ferring thereto.  All Lender Expenses, liabilities and obligations incurred by PFG with respect to the foregoing shall be added to and become part of the Obligations, shall be due on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations.  Without limiting any of PFG's rights and remedies, from and after the occurrence and during the continuance of any Event of Default, the interest rate applicable to the Obligations shall be the Default Rate.
6.3  Standards for Determining Commercial Reasonableness.  Borrower and PFG agree that a sale or other disposition (collectively, "sale") of any Collateral which complies with the following standards will conclu-sively be deemed to be commercially reasonable:  (i) Notice of the sale is given to Borrower at least ten (10) days prior to the sale, and, in the case of a public sale, notice of the sale is published at least five (5) days before the sale in a newspaper of general circulation in the county where the sale is to be conducted; (ii) Notice of the sale describes the Collateral in general, non-specific terms; (iii) The sale is conducted at a place designated by PFG, with or without the Collateral being present; (iv) The sale commences at any time between 8:00 a.m. and 6:00 p.m.;  (v) Payment of the purchase price in cash or by cashier's check or wire transfer is required; (vi) With respect to any sale of any of the Collateral, PFG may (but is not obligated to) direct any prospective purchaser to ascertain directly from Borrower any and all information concerning the same.  PFG shall be free to employ other methods of noticing and selling the Collateral, in its discretion, if they are commercially reasonable. Without limiting the foregoing, if Exigent Circumstances exist, Borrower and PFG agree that notice periods may be shorter than as set forth above and such shorter notice periods are commercially reasonable in Exigent Circumstances. Borrower further acknowledges and agrees that if PFG's or third parties' access to Collateral is inhibited, restricted or denied, it shall be commercially reasonable for PFG to conduct a sale of Collateral under such circumstances even though the lack of access to Collateral would likely give rise to a sale price less than if parties had unfettered access to Collateral for purposes of conducting a sale.
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6.4  Power of Attorney.  Upon the occurrence and during the continuance of any Event of Default, without limiting PFG's other rights and remedies, Borrower grants to PFG an irrevocable power of attorney coupled with an interest, authorizing and permitting PFG (acting through any of its employees, attorneys or agents) at any time, at its option, but without obligation, with or without notice to Borrower, and at Borrower's expense, to do any or all of the following, in Borrower's name or otherwise, but PFG agrees that if it exercises any right hereunder, it will do so in good faith and in a commercially reasonable manner:  (a) Execute on behalf of Borrower any docu-ments that PFG, in its good faith business judgment, deems advis-able in order to perfect and maintain PFG's security in-terest in the Collateral, or in order to exercise a right of Borrower or PFG, or in order to fully consummate all the transactions contemplated under this Agreement, and all other Loan Documents; (b) Execute on behalf of Borrower, any invoices relating to any Account, any draft against any Account Debtor and any notice to any Account Debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of mechanic's, materialman's or other lien, or assignment or satisfaction of mechanic's, materialman's or other lien; (c) Take control in any manner of any cash or non-cash items of payment or proceeds of Collateral; en-dorse the name of Borrower upon any instruments, or doc-uments, evidence of payment or Collateral that may come into PFG's possession; (d) Endorse all checks and other forms of remittances received by PFG; (e) Pay, contest or settle any lien, charge, encumbrance, security interest and adverse claim in or to any of the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; (f) Grant extensions of time to pay, compromise claims and settle Accounts and General Intangibles for less than face value and execute all releases and other documents in connection therewith; (g) Pay any sums required on account of Borrower's taxes or to secure the release of any liens therefor, or both; (h) Settle and adjust, and give releases of, any insurance claim that relates to any of the Collateral and obtain payment therefor; (i) Instruct any third party having custody or con-trol of any books or records belonging to, or relating to, Borrower to give PFG the same rights of access and other rights with respect thereto as PFG has under this Agreement; (j) Execute on behalf of Borrower and file in Borrower's name such documents and instruments as may be necessary or appropriate to effect the Transfer of Domain Rights, domain names, domain registry administrative contacts and domain and website hosting services into the name of PFG or its designees, and (k) Take any action or pay any sum re-quired of Borrower pursuant to this Agreement and any other Loan Documents.  Any and all Lender Expenses incurred by PFG with respect to the foregoing shall be added to and become part of the Obligations, shall be payable on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations.  In no event shall PFG's rights under the foregoing power of attorney or any of PFG's other rights under this Agreement be deemed to indicate that PFG is in control of the busi-ness, management or properties of Borrower.
6.5  Application of Proceeds.  All proceeds realized as the result of any sale of the Collateral shall be applied by PFG first to Lender Expenses incurred in the exercise of its rights under this Agreement, second to the interest due upon any of the Obligations, and third to the principal of the Obligations, in such order as PFG shall determine in its sole discretion.  Any surplus shall be paid to Borrower or other persons legally entitled thereto; Borrower shall remain liable to PFG for any deficiency.  If, PFG, in its good faith business judgment, directly or indirectly en-ters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, PFG shall have the option, exercisable at any time, in its good faith business judgment, of either reducing the Obligations by the principal amount of the purchase price or deferring the reduction of the Obligations until the actual receipt by PFG of the cash therefor.
6.6  Remedies Cumulative.  In addition to the rights and remedies set forth in this Agreement, PFG shall have all the other rights and remedies accorded a secured party un-der the Code and under all other applicable laws, and under any other instrument or agreement now or in the future entered into between PFG and Borrower, and all of such rights and remedies are cumulative and none is exclusive.  Exercise or partial exercise by PFG of one or more of its rights or remedies shall not be deemed an election, nor bar PFG from sub-sequent exercise or partial exercise of any other rights or remedies.  The failure or delay of PFG to exercise any rights or remedies shall not operate as a waiver thereof, but all rights and remedies shall continue in full force and ef-fect until all of the Obligations have been fully paid and performed.
7.    DEFINITIONS.  As used in this Agreement, the fol-lowing terms have the following meanings:
"Account Debtor" means the obligor on an Account.
"Accounts" means all present and future "accounts" as defined in the Code in effect on the Effective Date with such additions to such term as may hereafter be made, and includes without limitation all accounts receivable, healthcare receivables and other sums owing to Borrower.
"Adjusted EBITDA" means: (a) Net Income, plus (b) Interest Expense, plus (c) to the extent deducted in the calculation of Net Income, depreciation expense and amortization expense, plus (d) income tax expenses plus (e) other non-cash expense items, such as stock compensation expense, plus (f) on a one-time basis, third party expenses incurred by Borrower in connection with the negotiation and execution of this Agreement (including PFG's fees and reimbursable expenses).
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"Advance" means a Schedule 1 Loan made to Borrower pursuant to a Qualifying Request or otherwise.
 "Affiliate" means, with respect to any Person, a relative, partner, shareholder, director, officer, or employee of such Person, or any parent or Subsidiary of such Person, or any Person directly or indirectly through any other Person controlling, controlled by or under common control with such Person.
"Board" means the Board of Directors or other governing authority of Borrower as authorized in its Constitutional Documents (which for the avoidance of doubt, includes a member or manager of a limited liability company).
"Borrowing Base Certificate" means a calculation of Borrower's ability to request Advances at any time under Schedule 1 in such form as is specified from time to time by PFG, initially in the form of Exhibit C.
"Business Day" or "business day" means a day other than a Saturday, Sunday or other day on which commercial banks in San Francisco are authorized or required by law to close.
"Cash" means unrestricted and unencumbered (except for the Liens of PFG) cash or cash equivalents in Deposit Accounts or other Collateral Accounts for which there is in effect a Control Agreement among Borrower, PFG and the depositary institution in respect of such accounts, unless the requirement for a Control Agreement has been waived by PFG.
 "Cash Equivalents" means (a) marketable direct obligations issued or unconditionally guaranteed by the United States or any agency or any State thereof having maturities of not more than one (1) year from the date of acquisition; (b) commercial paper maturing no more than one (1) year after its creation and having a rating of at least A-1 or the equivalent thereof by Standard & Poor's Ratings Group or a rating of P-1 or the equivalent thereof by Moody's Investors Service, Inc.; (c) certificates of deposit held with institutions in respect of which a Control Agreement is in effect and maturing no more than one (1) year after issue; and (d) money market funds at least ninety-five percent (95%) of the assets of which constitute Cash Equivalents of the kinds described in clauses (a) through (c) of this definition and (e) Investments pursuant to Borrower's Investment Policy, provided that such investment policy (and any such amendment thereto) has been provided by Borrower to PFG and approved in writing by PFG.
"Change in Control" means any event, transaction, or occurrence as a result of which (a) any "person" (as such term is defined in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as an amended (the "Exchange Act")), other than a trustee or other fiduciary holding securities under an employee benefit plan of Borrower, is or becomes a beneficial owner (within the meaning Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of Borrower, representing thirty-five percent (35%) or more of the combined voting power of Borrower's then outstanding securities in a single transaction or a series of related transactions (other than by the sale of Borrower's equity securities in a public offering or to venture capital or private equity investors so long as Borrower identifies to PFG the venture capital or private equity investors at least seven (7) Business Days prior to the initial closing of the transaction and provides to PFG a description of the material terms of the transaction and such other information as PFG may reasonably request); or (b) during any period of twelve (12) consecutive calendar months, individuals who at the beginning of such period constituted the Board of Borrower (together with any new directors whose election by the Board of Borrower was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason other than death or disability to constitute a majority of the directors then in office (other than as a result of the above-referenced venture capital / private equity exception, subject to the same notice and information requirements as specified above).
"Code" means the Uniform Commercial Code as adopted and in effect in the State of California from time to time.
"Collateral" has the meaning set forth in Section 2 above.
"Collateral Account" is any Deposit Account, Securities Account, or Commodity Account, each as defined in the Code, and any other account of any kind or type in respect of Investment Property, including each of Borrower's primary operating and other deposit accounts and securities accounts, including all cash management, merchant services, and foreign exchange accounts and facilities.
"Compliance Certificate" means Borrower's certification of its compliance with the terms and conditions of this Agreement and such other matters as PFG may require to be addressed in such certificate, in the form as initially set forth as Exhibit B hereto, as such form may be amended from time to time upon advance notice from PFG.
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"Constitutional Document" means for any Person, such Person's formation documents, as last certified by the Secretary of State (or equivalent Governmental Body) of such Person's jurisdiction of organization, together with, (a) if such Person is a corporation, its bylaws in current form, (b) if such Person is a limited liability company, its limited liability company agreement (or operating or similar agreement), (c) if such Person is a partnership, its partnership agreement (or similar agreement), and (d) if such Person is a statutory joint venture company or similar entity, its joint venture (or similar) agreement, each of the foregoing with all current amendments or modifications thereto.
 "Contingent Obligation" is, for any Person, any direct or indirect liability, contingent or not, of that Person for (a) any indebtedness, lease, Dividend, letter of credit or other obligation of another such as an obligation, in each case directly or indirectly guaranteed, endorsed, co made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (b) any obligations for undrawn letters of credit for the account of that Person; and (c) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but "Contingent Obligation" does not include endorsements in the ordinary course of business.  The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under any guarantee or other support arrangement.
 "continuing" and "during the continuance of" when used with reference to a Default or Event of Default means that the Default or Event of Default has occurred and has not been either waived in writing by PFG or cured within any applicable cure period.
"Control Agreement" means a written agreement among PFG, Borrower and a depositary bank or other custodian in respect of Borrower's Collateral Accounts by which the depositary bank or other custodian, as appropriate, agrees to comply with instructions given from time to time by PFG directing the disposition of the funds, investments and securities in Borrower's Collateral Accounts without further consent of Borrower, which instructions may include not complying with instructions (which term may include the honoring of checks written by Borrower against funds in said accounts) given by Borrower, and containing other terms acceptable to PFG.
"Current Depositary(ies)" means the banking and / or other financial institutions at which Borrower maintains Collateral Accounts on the Effective Date.
"Default" means any event which with notice or passage of time or both, would constitute an Event of Default.
"Default Rate" means the lesser of (i) the applicable rate(s) set forth in the Schedules, plus six percent (6%) per annum, and (ii) the maximum rate of interest that may lawfully be charged to a commercial borrower under applicable usury laws.
"Deposit Accounts" means all present and future "deposit accounts" as defined in the Code in effect on the Effective Date with such additions to such term as may hereafter be made, and includes without limitation all general and special bank accounts, demand accounts, checking accounts, savings accounts and certificates of deposit, and as used in this Agreement, the term "Deposit Accounts" shall be construed to also include securities, commodities and other Investment Property accounts.
"Dividend" means a payment or other distribution in respect to equity to an owner thereof, (A) whether or not (i) in respect of net profits or otherwise, (ii) declared by Borrower's (or other relevant party's) (iii) Board, previously paid, or (iv) authorized in its Constitutional Documents or otherwise, and (B) for the avoidance of doubt, includes distributions to members of a limited liability company.
"Dormant Subsidiary(ies)" means 4G Biometrics LLC, a Texas limited liability company and Subsidiary of Borrower and Gwire Corporation, a Utah corporation.
"Eligible Accounts" means Accounts and General Intangibles arising in the ordinary course of Borrower's business from the sale of goods or the rendition of services, or the non-exclusive licensing of Intellectual Property, which PFG, in its good faith business judgment, shall deem eligible for borrowing. Without limiting the fact that the determina-tion of which Accounts are eligible for borrowing is a matter of PFG's good faith business judgment, the following (the "Minimum Eligibility Requirements") are the minimum requirements for an Account to be an Eligible Account:
(i) the Account must not be outstanding for more than ninety (90) days from its invoice date (the "Eligibility Period"),
(ii) the Account must not represent progress billings, or be due under a fulfillment or requirements contract with the Account Debtor,
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(iii) the Account must not be subject to any non-ministerial contingencies (including Accounts arising from sales on consignment, guaranteed sale or other terms pursuant to which payment by the Account Debtor may be condi-tional),
(iv) the Account must not be owing from an Account Debtor with whom Borrower has any dispute of other than immaterial in nature (whether or not relating to the particular Account),
(v) the Account must not be owing from an Affiliate of Borrower,
(vi) the Account must not be owing from an Account Debtor which is subject to any insolvency or bankruptcy proceeding, or whose financial condition is not acceptable to PFG, or which, fails or goes out of a mate-rial portion of its business,
(vii) the Account must not be owing from the United States or any department, agency or instrumentality thereof (unless there has been compliance, to PFG's satisfaction, with the United States Assignment of Claims Act),
(viii) the Account must not be owing from an Account Debtor located outside the United States or Canada (unless pre-approved by PFG in its discretion in writing, or backed by a letter of credit sat-isfactory to PFG, or FCIA insured satisfactory to PFG), and
(ix) the Account must not be owing from an Account Debtor to whom Borrower is or may be liable for goods purchased from such Account Debtor or otherwise (but, in such case, the Account will be deemed not eligible only to the extent of any amounts owed by Borrower to such Account Debtor).
Accounts owing from one Account Debtor will not be deemed Eligible Accounts to the extent they exceed 35% of the total Accounts outstanding.  In addi-tion, if more than 50% of the Accounts owing from an Account Debtor are outstanding for a period longer than their Eligibility Period (without regard to unapplied credits) or are otherwise not eligible Accounts, then all Accounts owing from that Account Debtor will be deemed ineligible for borrowing.  PFG may, from time to time, in its good faith business judgment, revise the Minimum Eligibility Requirements, upon written notice to Borrower.
 "Equipment" means all present and future "equipment" as defined in the Code in effect on the Effective Date with such additions to such term as may hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing.
"Event of Default" means any of the events set forth in Section 6.1 of this Agreement.
"Exigent Circumstances" means circumstances that substantially inhibit an orderly sale process or that imply urgency due to rapid erosion of value or opportunity, including Borrower closing its business or "going dark", inability or refusal (express or implied by non-response) to provide for the security of Collateral.
"Facility" or "Facility [x]" means either or both of the Loan facilities set forth in Schedule 1 and Schedule 2, as the context indicates.
"Financial Statements" means consolidated financial statements of Borrower, including a balance sheet, income statement and cash flow and, in the case of monthly-required financial statements, showing data for the month being reported and a history showing each month from the beginning of the relevant fiscal year.
"First-Priority" means, in relation to PFG's Lien in Collateral, a security interest that is prior to any other security interest, with the exception of Permitted Liens, which other Permitted Liens may only have superior priority to PFG's Lien as expressly specified herein or pursuant to the terms of a subordination agreement between PFG and the holder of such other Permitted Lien.
 "GAAP" means generally accepted accounting principles consistently applied.
"General Intangibles" means all present and future "general intangibles" as defined in the Code in effect on the Effective Date with such additions to such term as may hereafter be made, and includes without limitation all Intellectual Property, payment intangibles, royalties, contract rights, goodwill, franchise agreements, purchase orders, customer lists, route lists, telephone numbers, domain names, claims, income tax refunds, security and other deposits, options to purchase or sell real or personal property, rights in all litigation presently or hereafter pending (whether in contract, tort or otherwise), insurance policies (including without limitation key man, property damage, and business interruption insurance), payments of insurance and rights to payment of any kind.
"good faith business judgment" means honesty in fact and good faith (as defined in Section 1201 of the Code) in the exercise of PFG's business judgment.
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"Governmental Authorization" means any: (a) permit, license, certificate, franchise, concession, approval, consent, ratification, permission, clearance, confirmation, endorsement, waiver, certification, designation, rating, registration, qualification or authorization that is, has been issued, granted, given or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement; or (b) right under any Contract with any Governmental Body.
 "Governmental Body" means any: (a) nation, principality, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (b) local, municipal, foreign or other government; (c) governmental or quasi-governmental authority of any nature (including any governmental division, subdivision, department, agency, bureau, branch, office, commission, council, board, instrumentality, officer, official, representative, organization, unit, body or entity and any court or other tribunal); (d) multi-national organization or body; or (e) individual, entity or body exercising, or entitled to exercise, any executive, legislative, judicial, administrative, regulatory, police, military or taxing authority or power of any nature.
"including" means including (but not limited to).
"Indebtedness" means (a) indebtedness for borrowed money or the deferred purchase price of property or services (other than trade payables arising in the ordinary course of business), (b) obligations evidenced by bonds, notes, debentures or other similar instruments, (c) reimbursement obligations in connection with letters of credit, (d) capital lease obligations and (e) Contingent Obligations.
"Insolvency Proceeding" is any proceeding by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or insolvency law in any jurisdiction, including assignments for the benefit of creditors, compositions, receiverships, administrations, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.
 "Intellectual Property" means all present and future: (a) copyrights, copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work thereof, whether published or unpublished, (b) trade secret rights, including all rights to unpatented inventions and know‑how, and confidential information; (c) mask work or similar rights available for the protection of semiconductor chips; (d) patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same; (e) trademarks, servicemarks, trade styles, and trade names, whether or not any of the foregoing are registered, and all applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by any such trademarks; (f) Domain Rights as described in Section 3.14 hereof, (g) computer software and computer software products; (h) designs and design rights; (i) technology; (j) all claims for damages by way of past, present and future infringement of any of the rights included above; and (k) all licenses or other rights to use any property or rights of a type described above.
"Inventory" means all present and future "inventory" as defined in the Code in effect on the Effective Date with such additions to such term as may hereafter be made, and includes without limitation all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products, including without limitation such inventory as is temporarily out of Borrower's custody or possession or in transit and including any returned goods and any documents of title representing any of the above.
"Investment" means any beneficial ownership interest in any Person (including any stock, partnership interest or other equity or debt securities issued by any Person), and any loan, advance or capital contribution to any Person.
"Investment Property" means all present and future investment property, securities, stocks, bonds, debentures, debt securities, partnership interests, limited liability company interests, options, security entitlements, securities accounts, commodity contracts, commodity accounts, and all financial assets held in any securities account or otherwise, and all options and warrants to purchase any of the foregoing, wherever located, and all other securities of every kind, whether certificated or uncertificated.
"Knowledge" or "best of knowledge" and words of similar import mean either (i) the actual knowledge without independent investigation (so long as consistent with the standards of prudence applicable to such Person under clause (ii), below) of any of Borrower's officers, including its Chief Executive Officer, President, Chief Information Officer (if any), Chief Technology Officer (or equivalent), Chief Financial Officer and Corporate Controller, or Borrower's Vice Presidents or General Managers supervising a business unit or division, or any persons succeeding or performing the responsibilities of such identified positions including Directors with executive authority, or (ii) such knowledge as the persons in such identified positions would have assuming (A) Borrower policies in accordance with generally-accepted norms of corporate governance and (B) the actual exercise of reasonable investigation, diligence and prudence by such persons in accordance with such policies.
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"Legal Requirement" means any written local, municipal, foreign or other law, statute, legislation, constitution, principle of common law, resolution, ordinance, code, edict, decree, proclamation, treaty, convention, rule, regulation, ruling, directive, pronouncement, requirement, specification, determination, decision, opinion or interpretation that is, has been issued, enacted, adopted, passed, approved, promulgated, made, implemented or otherwise put into effect by or under the authority of any Governmental Body.
"Lender Expenses" means, in each case without limitation as to type and kind: (a) reasonable Professional Costs, and all fil-ing, recording, search, title insurance, appraisal, audit, and other reasonable costs incurred by PFG, pursuant to, or in connection with, or relating to this Agreement (whether or not a lawsuit is filed), including, but not limited to, Professional Costs PFG pays or incurs in order to do the following: (i) prepare and negotiate this Agreement and all present and future documents relating to this Agreement; (ii) obtain legal advice in connection with this Agreement or Borrower; en-force, or seek to enforce, any of its rights or retain the services of consultants to do so; (iii) prosecute ac-tions against, or defend actions by, Account Debtors; (iv) commence, intervene in, or defend any action or proceed-ing; (v) initiate any complaint to be relieved of the automatic stay in bankruptcy; (vi) file or prosecute any probate claim, bankruptcy claim, third-party claim, or other claim; (vii) exam-ine, audit, copy, and inspect any of the Collateral or any of Borrower's books and records; (viii) protect, obtain possession of, lease, dispose of, or otherwise enforce PFG's secu-rity interest in, the Collateral; and (ix) otherwise represent PFG in any litigation relating to Borrower; (b) without limiting the generality of the foregoing, all costs and expenses (including Professional Costs).
"Lien" or "lien" is a security interest, claim, mortgage, deed of trust, levy, charge, pledge or other encumbrance of any kind, whether voluntarily incurred or arising by operation of law or otherwise against any property.
"Loan" and "Loans" means the Facility A and Facility B Loans made pursuant to this Agreement and detailed in the Schedules and, where the context does not otherwise indicate, when used in Schedule 1 will generally mean the Facility A Loans and when used in Schedule 2 will generally mean the Facility B Loan and Tranches.
"Loan Documents" means, collectively, this Agreement, the Representations, and all other present and future documents, instruments and agreements between PFG and Borrower, including, but not limited to those relating to this Agreement, and all amendments and modifications thereto and replacements therefor.
"Loan Request" means any request that may be made by a Borrower in connection with this Agreement, including a borrowing request, consent request, a waiver request and any other accommodation that may be given by PFG under or relating to the Loan Agreement.
"Material Adverse Change" means any of the following: (i) a material adverse change in the business, operations, or financial or other condition of Borrower or any Guarantor, or (ii) a material impairment of the prospect of repayment of any portion of the Obligations; or (iii) a material impairment of the value or priority of PFG's security interests in the Collateral, or (iv) PFG's determination, based upon information available to it and in its reasonable judgment, that there is a reasonable likelihood that Borrower shall fail to comply with one or more of the financial covenants in Section 5 of the Schedules during the next succeeding financial reporting period.
"Maturity" and "Maturity Date(s)" means the Maturity Date(s) set forth in Section 4 of each of the Schedules, or such earlier date(s) at which Obligations become due by acceleration or otherwise.
"Minimum Eligibility Requirements" is defined in the definition of "Eligible Accounts" above.
 "New Subsidiary(ies)" means any person that becomes a Subsidiary of Borrower after the date hereof.
 "Non-Borrower Subsidiary(ies)" means any direct or indirect Subsidiary from time to time of Borrower (including a Dormant Subsidiary) not joined as a co-Borrower hereunder and otherwise joined to the Loan Documents.
"Non-Overdue Monetary Obligations" means, at any time, the amount of monetary Obligations other than principal Indebtedness owed by Borrower to PFG but not then due, such as accrued and unpaid interest not yet due.
"Obligations" means all present and future Loans, ad-vances, debts, liabilities, obligations, guaranties, covenants, duties and indebtedness at any time owing by Borrower to PFG, including obligations and covenants intended to survive the termination of this Agreement, whether evidenced by this Agreement or any note or other instrument or document, or otherwise, including indebtedness under any obligation to purchase equity derivatives (including stock warrants) purchased or otherwise issued to PFG from time to time, whether aris-ing from an extension of credit, opening of a letter of credit, banker's acceptance, loan, guaranty, indemnifica-tion or otherwise, whether direct or indirect (including, without limitation, those acquired by assignment and any participation by PFG in Borrower's debts owing to oth-ers), absolute or contingent, due or to become due, includ-ing, without limitation, all interest, charges, expenses, fees, attorney's fees, expert witness fees, audit fees, collateral monitoring fees, closing fees, facility fees, commitment fees, contingent fees, back-end and performance-based fees, termination fees, minimum interest charges and any other sums chargeable to Borrower under this Agreement or under any other Loan Documents.
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"Ordinary (or "ordinary") course of business" and derivatives shall apply to an action taken or an action required to be taken and not taken by or on behalf of a Borrower. An action will not be deemed to have been taken in the "ordinary course of business" unless: (a) such action is consistent with its past practices (if such type of action has been taken in the past and, if not, such action shall be deemed not in the ordinary course of business) and is similar in nature and magnitude to actions customarily taken by it; (b) such action is taken in accordance with sound and prudent business practices in its jurisdiction of organization; and (c) such action is not required to be authorized by its shareholders and does not require any other separate or special authorization of any nature.
 "Other Property" means the following as defined in the Code in effect on the Effective Date with such additions to such terms as may hereafter be made, and all rights relating thereto: all present and future "commercial tort claims" (including without limitation any commercial tort claims identified in the Representations), "documents", "instruments", "promissory notes", "chattel paper", "letters of credit", "letter-of-credit rights", "fixtures", "farm products" and "money"; and all other goods and personal property of every kind, tangible and intangible, whether or not governed by the Code.
"Payment" means all checks, wire transfers and other items of payment received by PFG for credit to Borrower's outstanding Obligations.
"Permitted Indebtedness" means:
(i) the Loans and other Obligations;
(ii) Indebtedness existing on the Effective Date and shown on Exhibit A hereto, expressly subject to the limitations set forth therein with respect to such Indebtedness, including pursuant to the terms of any Subordination Agreement in effect with respect to such Indebtedness and, if not in effect at any time, such Indebtedness shall cease to be Permitted Indebtedness hereunder;
(iii) Subordinated Debt;
(iv) other Indebtedness secured by Permitted Liens described in clauses (i) and (iii) of that definition;
(v) unsecured Indebtedness to trade creditors incurred in the ordinary course of business;
 (vi) Liens of carriers, warehouseman, suppliers, or other Persons that are possessory in nature arising in the ordinary course of business so long as such Liens attach only to Inventory, securing liabilities in the aggregate amount not to exceed $50,000 and which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto;
(vii) extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness (i) through (vi) above, provided that the principal amount thereof is not increased or the terms thereof are not modified to impose materially more burdensome terms upon Borrower; and
(viii) reimbursement obligations in respect of letters of credit in an aggregate face amount outstanding not to exceed $300,000 at any time outstanding, which have been reported to PFG in writing.
"Permitted Investments" are:
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(i) Investments (if any) shown on Exhibit A and existing on the Effective Date;
(ii) Investments consisting of Cash Equivalents;
(iii) Investments consisting of the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of Borrower;
(iv) Investments in Subsidiaries existing on the Effective Date.
"Permitted Liens" means the following:
(i) purchase money Liens (including Liens arising under any retention of title, hire purchase or conditional sales arrangement or arrangements having similar effect) (i) on Equipment acquired or held by Borrower incurred for financing the acquisition of the Equipment securing no more than $100,000 in the aggregate amount outstanding, or (ii) existing on Equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the Equipment;
 (ii) Liens for Taxes not yet payable;
(iii) additional Liens consented to in writing by PFG, which consent may be withheld in its good faith business judgment. PFG shall have the right to require, as a condition to its consent under this sub-paragraph (iii), that the holder of the additional se-curity interest or lien sign a subordination agreement in PFG's then standard form, acknowledge that the secu-rity interest is subordinate to the security interest in favor of PFG, and agree not to take any action to enforce its subordinate security interest so long as any Obligations remain outstanding, and that Borrower agrees that any un-cured default in any obligation secured by the subordinate security interest shall also constitute an Event of Default under this Agreement;
(iv) Liens being terminated substantially concurrently with this Agreement;
(v) Liens of materialmen, mechanics, ware-housemen, carriers, or other similar liens arising in the or-dinary course of business and securing obligations which are not delinquent;
(vi) Liens to secure payment of workers' compensation, employment insurance, old-age pensions, social security and other like obligations incurred in the ordinary course of business (other than Liens imposed by ERISA);
(vii) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by liens of the type described above in clauses (i), (ii), (iii) and (ix), provided that any extension, renewal or re-placement lien is limited to the property encumbered by the existing lien and the principal amount of the indebted-ness being extended, renewed or refinanced does not in-crease and other terms are not less favorable to Borrower;
(viii) Liens in favor of customs and revenue author-ities which secure payment of customs duties in connec-tion with the importation of goods; and
(ix) non-exclusive licenses of Intellectual Property granted to third parties in the ordinary course of business.
"Person" means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organiza-tion, association, corporation, government, or any agency or political division thereof, or any other entity.
"Plan" means Borrower's financial plan as presented to PFG in hard copy on December 21, 2015 entitled "ActiveCare Projections 11.30.15 (PFG Covenants).xlsx" for Borrower's 2016 fiscal year (ending September 30, 2016), appended hereto (for the avoidance of doubt) as Exhibit  D, as such financial plan is approved by Borrower's Board in subsequent fiscal years for future periods.
"Professional Costs" means all reasonable fees  and  expenses  of  auditors,  accountants,  valuation  experts,  Collateral disposition service providers, restructuring and other advisory services in connection with restructurings, workouts  and  Insolvency Proceedings, and fees and costs of attorneys.
"Qualifying Request" means a request made by a Responsible Officer of Borrower under Section 1.4 for (i) a Loan (A) that is within Borrower's borrowing availability under the relevant Schedules to this Agreement, (B) that is within Borrower's credit availability under Schedule 1 (for revolving line Advances) and otherwise satisfies the relevant conditions set forth in Section 9 of the Schedules for their respective Loan facilities, (C) that is accompanied by such certificates, documents and instruments as may be required under this Agreement or otherwise reasonably required by PFG to confirm Borrower's compliance with the Loan Documents at the time of such request, and (D) that is made within twenty (20) days of the due date of the Reporting package (under Section 6 of the Schedules) showing satisfaction of the relevant borrowing conditions, or (ii) any other matter for which PFG's consent is required under the Loan Documents.
"Representations" means the written Representations and Warranties provided by Borrower to PFG referred to in the Schedules.
"Responsible Officer(s)" means James Dalton and Jeffrey Peterson, and any other person authorized to bind Borrower and notified to PFG in writing by a Responsible Officer as a new Responsible Officer.
"Restricted License" means any material license or other agreement with respect to which Borrower is the licensee (a) that prohibits or otherwise restricts Borrower from granting a security in Borrower's interest in such license or agreement or any other property, or (b) for which a default under or termination of could interfere with PFG's right to sell any Collateral.
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"Reserves" means, as of any date of determination, such amounts as PFG may from time to time establish and revise in its good faith business judgment, reducing the amount of Loans, and other financial accommodations which would otherwise be available to Borrower under the lending formula(s) provided in the Schedule:  (a) to reflect events, conditions, contingencies or risks which, as determined by PFG in its good faith business judgment, do or may adversely affect (i) the Collateral or any other property which is security for the Obligations or its value (including without limitation any increase in delinquencies of Accounts), (ii) the assets, business or prospects of Borrower or any Guarantor, or (iii) the security interests and other rights of PFG in the Collateral (including the enforceability, perfection and priority thereof); or (b) to reflect PFG's good faith belief that any collateral report or financial information furnished by or on behalf of Borrower or any Guarantor to PFG is or may have been incomplete, inaccurate or misleading in any material respect; or (c) in respect of any state of facts which PFG determines in good faith constitutes a Default or an Event of Default.
"Revenue(s)" means, as calculated in accordance with GAAP, receipts from customers in the ordinary course of business for the sale of goods and services, net of discounts and refunds.
"Recurring Revenue(s)" means repetitive transaction revenue that recurs in the ordinary course of business at regular intervals (e.g., monthly, quarterly or yearly) pursuant to a contract with a term of one year or more, which revenue will recur until the underlying contract is terminated.
"Security Instruments" means financing statements and similar notices filed under the Code or other relevant local law (U.S. or non-U.S.) in any jurisdiction in which such financing statements may be filed, fixed and floating charges, share charges, mortgage debentures, and any other notices, instruments and filings that reflect the "all assets" security granted to PFG by Borrower in this Agreement and the other Loan Documents.
"Subordinated Debt" means debt incurred by Borrower subordinated to Borrower's debt to PFG pursuant to a subordination agreement entered into between PFG, Borrower and the subordinated creditor(s) upon terms acceptable to PFG in its sole business discretion, but which may at PFG's option include: (i) subordination of subordinated creditor Lens, (ii) restrictions or prohibition of payments on subordinated debt until all Obligations to PFG are fully repaid and performed, and (iii) a prohibition on the exercise of remedies by a subordinated creditor until all Obligations to PFG are fully repaid and performed.
"Subordination Agreement" means those certain Subordination Agreements, effective as of the Effective Date, by and between PFG and (i) each of Valera Capital LLC and Azadian Group LLC, (ii) holders of Borrower's Series F Preferred Stock, and (iii) any holders of Indebtedness, including (as may be required by PFG) Permitted Indebtedness.
"Subsidiary" means, with respect to any Person, domestic or foreign (i) any Person of which more than 50% of the voting stock or other equity interests is owned or (ii) regardless of percentage ownership threshold a Person controlled, directly or indirectly, by such Person or one or more Affiliates of such Person, and for the avoidance of doubt, shall include a "sister" company to a Person under common direct or indirect ownership and any other Person with legal existence, regardless of its level of business activity.
"Tax" means any tax (including any income tax, franchise tax, capital gains tax, estimated tax, gross receipts tax, value-added tax, surtax, excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business tax, occupation tax, inventory tax, occupancy tax, withholding tax or payroll tax), levy, assessment, tariff, impost, imposition, toll, duty (including any customs duty), deficiency or fee, and any related charge or amount (including any fine, penalty or interest), that is, has been or may in the future be (a) imposed, assessed or collected by or under the authority of any Governmental Body, or (b) payable pursuant to any tax-sharing agreement or similar contract.
"Tax Return" means any return (including any information return), report, statement, declaration, estimate, schedule, notice, notification, form, election, certificate or other document or information that is, has been or may in the future be filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the determination, assessment, collection or payment of any Tax or in connection with the administration, implementation or enforcement of or compliance with any Legal Requirement relating to any Tax.
"Tranche" means a Loan that may be funded upon the occurrence of an event, satisfaction of a condition or after the passage of time, as may be indicated in the Schedules.
"Transfer" or "transfer" shall include any sale, assignment with or without consideration, encumbrance, hypothecation, pledge, or other transfer or disposition of any kind, including, but not limited to, transfers to receivers, levying creditors, trustees or receivers in bankruptcy proceedings or general assignees for the benefit of creditors, whether voluntary or by operation of law, directly or indirectly.
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Other Terms.  All accounting terms used in this Agreement, unless otherwise indicated, shall have the meanings given to such terms in accordance with GAAP, consistently applied.  All other terms contained in this Agreement, unless otherwise indicated, shall have the meanings provided by the Code, to the extent such terms are defined therein.
8.    GENERAL PROVISIONS.
8.1  Confidentiality.  PFG agrees to use the same degree of care that it exercises with respect to its own proprietary information, to maintain the confidentiality of any and all proprietary, trade secret or confidential information provided to or received by PFG from Borrower, which indicates that it is confidential, including business plans and forecasts, non-public financial information, confidential or secret processes, formulae, devices and contractual information, customer lists, and employee relation matters, provided that PFG may disclose such information (i) to its officers, directors, employees, attorneys, accountants, affiliates, advisory boards, participants, prospective participants, assignees and prospective assignees, and such other Persons to whom PFG shall at any time be required to make such disclosure in accordance with applicable law or legal process, and (ii) in its good faith business judgment in connection with the enforcement of its rights or remedies after an Event of Default, or in connection with any dispute with Borrower or any other Person relating to Borrower.  The confidentiality agreement in this Section supersedes any prior confidentiality agreement of PFG relating to Borrower.
8.2  Interest Computation.  In computing interest on the Obligations, all Payments received after 12:00 Noon, Pacific Time, on any day shall be deemed received on the next Business Day.
8.3  Payments. All Payments may be applied, and in PFG's good faith business judgment reversed and re-applied, to the Obligations, in such order and manner as PFG shall determine in its good faith business judgment.
8.4  Monthly Accountings.  PFG may provide Borrower monthly with an account of advances, charges, expenses and payments made pursuant to this Agreement.  Such account shall be deemed correct, accurate and bind-ing on Borrower and an account stated (except for reverses and reapplications of payments made and corrections of er-rors discovered by PFG), unless Borrower notifies PFG in writing to the contrary within sixty (60) days after such account is rendered, describing the nature of any al-leged errors or omissions.
8.5  Notices.  All notices to be given under this Agreement shall be in writing and shall be given either personally, or by reputable private delivery service, or by regular first-class mail, or certified mail return receipt re-quested, or by fax to the most recent fax number a party has for the other party (and if by fax, sent concurrently by one of the other methods provided herein), or by electronic mail to the most recent electronic mail address for Borrower provided for the chief financial officer or financial controller executing the Representations (and if by electronic mail, with an electronic delivery and/or read receipt), addressed to PFG or Borrower at the addresses shown in the heading to this Agreement, in the Representations or at any other address designated in writing by one party to the other party. All no-tices shall be deemed to have been given upon delivery in the case of notices personally delivered, or at the expira-tion of one Business Day following delivery to the private delivery service, or two (2) Business Days following the de-posit thereof in the United States mail, with postage pre-paid, or on the first business day of receipt during business hours in the case of notices sent by fax or electronic mail, as provided herein.
8.6 Authorization to Use Borrower Name, Etc. Borrower irrevocably authorizes PFG to: (i) use Borrower's logo on PFG's website and in its marketing materials to denote the lending relationship between PFG and Borrower; (ii) use a "tombstone" to highlight the transaction(s) from time to time between PFG and Borrower; and (iii) to issue press releases in a form reasonable acceptable to Borrower and PFG highlighting and summarizing the credit facilities extended by PFG to Borrower from time to time under this Agreement, as amended from time to time, all of the above (i) through (iii), for marketing purposes.
8.7  Severability.  Should any provision of this Agreement be held by any court of competent jurisdiction to be void or unenforceable, such defect shall not affect the remainder of this Agreement, which shall continue in full force and effect.
8.8  Integration.  This Agreement and such other written agreements, documents and instruments as may be exe-cuted in connection herewith are the final, entire and com-plete agreement between Borrower and PFG and super-sede all prior and contemporaneous negotiations and oral representations and agreements, all of which are merged and integrated in this Agreement.  There are no oral under-standings, representations or agreements between the par-ties which are not set forth in this Agreement or in other written agreements signed by the parties in connection herewith.
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8.9  Waivers; Indemnity.  The failure of PFG at any time or times to require Borrower to strictly comply with any of the pro-visions of this Agreement or any other Loan Document shall not waive or diminish any right of PFG later to demand and re-ceive strict compliance therewith.  Any waiver of any de-fault shall not waive or affect any other default, whether prior or subsequent, and whether or not similar.  None of the provisions of this Agreement or any other Loan Document shall be deemed to have been waived by any act or knowledge of PFG or its agents or employees, but only by a specific written waiver signed by an authorized officer of PFG and delivered to Borrower.  Borrower waives the benefit of all statutes of limitations relating to any of the Obligations or this Agreement or any other Loan Document, and Borrower waives demand, protest, notice of protest and notice of de-fault or dishonor, notice of payment and nonpayment, re-lease, compromise, settlement, extension or renewal of any commercial paper, instrument, account, General Intangible, document or guaranty at any time held by PFG on which Borrower is or may in any way be liable, and notice of any action taken by PFG, unless expressly required by this Agreement. Borrower hereby agrees to indemnify PFG and its affiliates, subsidiaries, parent, directors, officers, employees, agents, and attorneys, and to hold them harmless from and against any and all claims, debts, liabilities, demands, obligations, actions, causes of action, penalties and Lender Expenses of every kind, which they may sustain or incur based upon or arising out of any of the Obligations, or any relationship or agreement between PFG and Borrower, or any other matter, relating to Borrower or the Obligations; provided that this indemnity shall  not extend to damages determined by a court of competent jurisdiction in a final judgment to have been proximately caused by the indemnitee's own willful misconduct.  Notwithstanding any provision in this Agreement to the contrary, the indemnity agreement set forth in this Section shall survive any termination of this Agreement and shall for all purposes continue in full force and effect.
8.10  No Liability for Ordinary Negligence.  Borrower agrees that any and all claims it may have under this Agreement shall be limited to claims against PFG and not its directors, officers, employees, agents, attorneys or any other Person affiliated with or representing PFG. Neither PFG, nor any of its directors, officers, employees, agents, attorneys or any other Person affiliated with or representing PFG shall be liable for any claims, de-mands, losses or damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower or any other party through the negligence of PFG, or any of its directors, officers, employees, agents, attorneys or any other Person affiliated with or representing PFG, but nothing herein shall relieve PFG from liability for its own willful misconduct.
8.11  Amendment; Electronic Execution of Documents.  The terms and provisions of this Agreement may not be waived or amended, except in a writing executed by Borrower and a duly authorized offi-cer of PFG. The words "execution," "signed," "signature" and words of like import in any Loan Document shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity and enforceability as a manually executed signature or the use of a paper-based recordkeeping systems, as the case may be, to the extent and as provided for in any applicable law, including, without limitation, any state law based on the Uniform Electronic Transactions Act.
8.12  Time of Essence.  Time is of the essence in the performance by Borrower of each and every obligation under this Agreement.
8.13  Lender Expenses.  Borrower shall reim-burse PFG for all Lender Expenses.  All Lender Expenses to which PFG may be entitled pursuant to this Paragraph shall immediately become part of Borrower's Obligations, shall be due on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations.
8.14  Benefit of Agreement.  The provisions of this Agreement shall be binding upon and inure to the benefit of the respective successors, assigns, heirs, beneficiaries and representatives of Borrower and PFG; provided, however, that Borrower may not assign or Transfer any of its rights under this Agreement without the prior written consent of PFG, and any prohibited assignment shall be void.  No consent by PFG to any assignment shall re-lease Borrower from its liability for the Obligations.
8.15  Joint and Several Liability.  If Borrower consists of more than one Person, their liability shall be joint and several, and the compromise of any claim with, or the re-lease of, any Borrower shall not constitute a compromise with, or a release of, any other Borrower.
8.16  Limitation of Actions.  Any claim or cause of action by Borrower against PFG, its directors, officers, employees, agents, accountants or attorneys, based upon, arising from, or relating to this Loan Agreement, or any other Loan Document, or any other transaction contemplated hereby or thereby or relating hereto or thereto, or any other matter, cause or thing whatsoever, incurred, done, omitted or suffered to be done by PFG, its directors, officers, employees, agents, accountants or attorneys, shall be barred unless asserted by Borrower by the commencement of an action or proceeding in a court of competent jurisdiction by (a) the filing of a complaint within one year after the earlier to occur of (i) the first act, occurrence or omission upon which such claim or cause of action, or any part thereof, is based, or (ii) the date this Agreement is terminated, and (b) the service of a summons and complaint on an officer of PFG, or on any other person authorized to accept service on behalf of PFG, within thirty (30) days thereafter.  Borrower agrees that such one-year period is a reasonable and sufficient time for Borrower to investigate and act upon any such claim or cause of action.  The one-year period provided herein shall not be waived, tolled, or extended except by the written consent of PFG in its sole discretion.  This provision shall survive any termination of this Loan Agreement or any other Loan Document.
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8.17  Loan Monitoring.  At rea-sonable times and upon reasonable advance notice to Borrower, PFG shall have the right to visit personally with Borrower up to two times per calendar year at its principal place of business or such other location as the parties may mutually agree, for the purpose of meeting with Borrower's management in order to remain as up-to-date with Borrower's business as is practicable and to maintain best practices in terms of lender loan monitoring and diligence. Lender Expenses incurred for travel, lodging and similar expenses for up to three PFG staff for such visits shall be at Borrower's expense and reimbursed in the same manner as other PFG expenses under this Agreement.
8.18  Paragraph Headings; Construction; Counterparts.  Paragraph headings are only used in this Agreement for convenience.  Borrower and PFG acknowledge that the headings may not describe completely the subject matter of the applica-ble paragraph, and the headings shall not be used in any manner to construe, limit, define or interpret any term or provision of this Agreement. This Agreement has been fully reviewed and negotiated between the parties with the benefit of independent counsel and no uncertainty or ambiguity in any term or provision of this Agreement shall be construed strictly against PFG or Borrower under any rule of construction or otherwise. References to "Borrower" are construed to mean "each Borrower", unless otherwise expressly specified. Amounts set off in brackets or parentheses are negative. The word "shall" is mandatory, the word "may" is permissive, and the word "or" is not exclusive. The term "Agreement" includes the Schedules. Obligations of a similar nature addressed in different sections of this Agreement shall be deemed supplemental to one another and not exclusive unless expressly set forth as such. The term "Guarantor" means any guarantor from time to time of Borrower's Obligations and during any period where there is no such guarantor, such references shall be ignored and of no force and effect. Cross references in one Schedule to Sections of another Schedule shall survive the termination of the Loans set forth in such cross-referenced Schedule. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, is an original, and all taken together, constitute one Agreement.
8.19  Correction of Loan Documents. PFG may correct patent errors and fill in any blanks in the Loan Documents consistent with the agreement of the parties so long as PFG provides Borrowers with written notice of such correction and allows Borrower at least ten (10) days to object to such correction.  In the event of such objection, such correction shall not be made except by an amendment signed by both PFG and Borrower.
8.20  Governing Law; Jurisdiction; Venue.  This Agreement and all acts and transactions hereunder and all rights and obligations of PFG and Borrower shall be governed by the laws of the State of California.  As a ma-terial part of the consideration to PFG to enter into this Agreement, Borrower (i) agrees that all actions and pro-ceedings relating directly or indirectly to this Agreement shall be litigated in courts located within California and that the exclusive venue therefor shall, at PFG's option, be Santa Clara County; (ii) consents to the jurisdiction and venue of any such court and consents to service of process in any such action or proceeding by personal de-livery or by internationally-recognized commercial courier or overnight delivery service or by certified mail, return receipt requested, to the last known address for Borrower; and (iii) waives any and all rights Borrower may have to object to the jurisdiction of any such court, or to transfer or change the venue of any such action or proceeding. Notwithstanding the foregoing, PFG, in pursuit of collection and Collateral or rights therein, may pursue remedies in any jurisdiction in which Borrower or any Collateral resides or is deemed to reside.

8.21 Withholding.  Payments received by PFG from Borrower under this Agreement will be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Body (including any interest, additions to tax or penalties applicable thereto).  Specifically, however, if at any time any Governmental Body, applicable law, regulation or international agreement requires Borrower to make any withholding or deduction from any such payment or other sum payable hereunder to PFG, Borrower hereby covenants and agrees that the amount due from Borrower with respect to such payment or other sum payable hereunder will be increased to the extent necessary to ensure that, after the making of such required withholding or deduction, PFG receives a net sum equal to the sum which it would have received had no withholding or deduction been required, and Borrower shall pay the full amount withheld or deducted to the relevant Governmental Body.  Borrower will, upon request, furnish PFG with proof reasonably satisfactory to PFG indicating that Borrower has made such withholding payment; provided, however, that Borrower need not make any withholding payment if the amount or validity of such withholding payment is contested in good faith by appropriate and timely proceedings and as to which payment in full is bonded or reserved against by Borrower.  The agreements and obligations of Borrower contained in this Section 8.21 shall survive the termination of this Agreement.
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8.22  Multiple Borrowers; Suretyship Waivers. If at any time there is more than one Borrower:
(a) Borrowers' Agent. Each such Borrower shall be deemed to have irrevocably appointed each other Borrower, as the agent, attorney-in-fact and legal representative of all Borrowers for all purposes, including requesting disbursement of Loans and receiving account statements and other notices and communications to Borrowers (or any of them) from PFG. PFG may rely, and shall be fully protected in relying, on any request for a Loan, disbursement instruction, report, information or any other notice or communication made or given by any Borrower, whether in its own name, as Borrowers' agent, or on behalf of one or more Borrowers, and PFG shall not have any obligation to make any inquiry or request any confirmation from or on behalf of any other Borrower as to the binding effect on it of any such request, instruction, report, information, other notice or communication, nor shall the joint and several character of Borrowers' obligations hereunder be affected thereby.
(b)    Waivers.  Each Borrower shall be deemed to have waived:  (i) any right to require PFG to institute suit against, or to exhaust its rights and remedies against, any other Borrower or any other Person, or to proceed against any property of any kind which se-cures all or any part of the Obligations, or to exercise any right of offset or other right with respect to any reserves, credits or deposit accounts held by or main-tained with PFG or any indebtedness of PFG to any other Borrower, or to exercise any other right or power, or pur-sue any other remedy PFG may have; (ii) any defense arising by reason of any disability or other defense of any other Borrower or any guarantor or any endorser, co-maker or other Person, or by reason of the cessation from any cause whatsoever of any liability of any other Borrower or any guarantor or any en-dorser, co-maker or other Person, with respect to all or any part of the Obligations, or by reason of any act or omission of PFG or others which directly or indirectly results in the discharge or release of any other Borrower or any guarantor or any other Person or any Obligations or any se-curity therefor, whether by operation of law or otherwise; (iii) any defense arising by reason of any failure of PFG to obtain, per-fect, maintain or keep in force any Lien on, any prop-erty of any Borrower or any other Person; (iv) any defense based upon or arising out of any Insolvency Proceeding, liquidation or dissolu-tion proceeding commenced by or against or in respect of any Borrower or any guarantor or any endorser, co-maker or other Person, including without limitation any discharge of, or bar against collecting, any of the Obligations (including without limitation any interest thereon), in or as a result of any such proceeding.  Until all of the Obligations have been paid, performed, and discharged in full, nothing shall discharge or sat-isfy the liability of Borrower hereunder except the full perfor-mance and payment of all of the Obligations.  If any claim is ever made upon PFG for repayment or recov-ery of any amount or amounts received by PFG in payment of or on account of any of the Obligations, because of any claim that any such payment con-stituted a preferential Transfer or fraudu-lent conveyance, or for any other reason whatsoever, and PFG repays all or part of said amount by rea-son of any judgment, decree or order of any court or administrative body having jurisdiction over PFG or any of its property, or by reason of any settlement or compromise of any such claim effected by PFG with any such claimant (including without limitation the any other Borrower), then and in any such event, Borrower agrees that any such judgment, decree, order, settlement and compromise shall be binding upon Borrower, notwithstanding any revocation or release of this Agreement or the cancellation of any note or other instrument evidencing any of the Obligations, or any release of any of the Obligations, and Borrower shall be and remain liable to PFG under this Agreement for the amount so repaid or recovered, to the same extent as if such amount had never originally been received by PFG, and the provisions of this sen-tence shall survive, and continue in effect, notwithstanding any re-vocation or release of this Agreement.  Each Borrower hereby expressly and unconditionally waives all rights of subrogation, reim-burse-ment and indemnity of every kind against any other Borrower, and all rights of recourse to any assets or property of any other Borrower, and all rights to any collateral or security held for the payment and performance of any Obligations, including (but not limited to) any of the forego-ing rights which Borrower may have under any present or future document or agreement with any other Borrower or other Person, and in-cluding (but not limited to) any of the foregoing rights which Borrower may have under any equitable doctrine of subrogation, implied contract, or unjust enrichment, or any other equitable or legal doctrine. Each Borrower further hereby waives any other rights and defenses that are or may become available to Borrower by reason of California Civil Code Sections 2787 to 2855 (inclusive), 2899, and 3433, as now in effect or hereafter amended, and under all other similar statutes and rules now or hereafter in effect.
(c)    Consents. Each Borrower shall be deemed to have consented and agreed that, without notice to or by Borrower and without affecting or impair-ing in any way the obligations or liability of Borrower hereunder, PFG may, from time to time before or after revocation of this Agreement, do any one or more of the following in PFG's sole and absolute discretion:  (i) accept partial payments of, compromise or settle, re-new, extend the time for the payment, dis-charge, or performance of, refuse to enforce, and release all or any parties to, any or all of the Obligations; (ii) grant any other indul-gence to any Borrower or any other Person in respect of any or all of the Obligations or any other matter; (iii) accept, release, waive, surren-der, enforce, exchange, modify, impair, or extend the time for the performance, discharge, or payment of, any and all property of any kind securing any or all of the Obligations or any guaranty of any or all of the Obligations, or on which PFG at any time may have a Lien, or refuse to enforce its rights or make any com-promise or settlement or agreement therefor in respect of any or all of such property; (iv) substitute or add, or take any action or omit to take any action which results in the release of, any one or more other Borrowers or any en-dorsers or guarantors of all or any part of the Obligations, includ-ing, without limitation one or more parties to this Agreement, regard-less of any destruction or impairment of any right of contribution or other right of Borrower; (v) apply any sums re-ceived from any other Borrower, any guarantor, endorser, or co-signer, or from the disposition of any Collat-eral or security, to any indebtedness whatsoever owing from such Person or secured by such Collateral or security, in such manner and order as PFG determines in its sole discretion, and regardless of whether such indebtedness is part of the Obligations, is secured, or is due and payable.  Borrower con-sents and agrees that PFG shall be under no obligation to marshal any assets in favor of Borrower, or against or in payment of any or all of the Obligations.  Borrower further consents and agrees that PFG shall have no duties or responsibilities whatso-ever with respect to any property securing any or all of the Obligations.  Without limiting the generality of the foregoing, PFG shall have no obligation to monitor, verify, audit, examine, or obtain or maintain any insurance with respect to, any property se-curing any or all of the Obligations.
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 (d)                  Foreclosure of Trust Deeds. Each Borrower shall be deemed to have waived all rights and defenses that Borrower may have because any other Borrower's Obligations are secured by real property.  This means, among other things:  (1) PFG may collect from Borrower without first foreclosing on any real or personal property collateral pledged by the other Borrower; and  (2) If PFG forecloses on any real property collateral pledged by another Borrower:  (A) The amount of the Obligations may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price; and  (B) PFG may collect from Borrower even if PFG, by foreclosing on the real property collateral, has destroyed any right Borrower may have to collect from the other Borrower.  This is an unconditional and irrevocable waiver of any rights and defenses Borrower may have because any other Borrower's Obligations are secured by real property.  These rights and defenses include, but are not limited to, any rights or defenses based upon Section 580a, 580b, 580d, or 726 of the California Code of Civil Procedure.  Each Borrower waives all rights and defenses arising out of an election of remedies by PFG, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed Borrower's rights of subrogation and reimbursement against another Borrower or any other Person by the operation of Section 580d of the California Code of Civil Procedure or otherwise.
(e)    Independent Liability.  Each Borrower shall be deemed to have agreed that one or more successive or concur-rent actions may be brought hereon against Borrower, in the same action in which any other Borrower may be sued or in separate actions, as often as deemed advisable by PFG. Each Borrower is fully aware of the financial condition of each other Borrower and is executing and delivering this Agreement based solely upon its own independent investigation of all matters pertinent hereto, and Borrower is not relying in any man-ner upon any repre-sentation or statement of PFG with respect thereto.  Each Borrower represents and war-rants that it is in a position to obtain, and Borrower hereby assumes full responsibility for obtaining, any ad-ditional information concerning any other Borrower's financial condition and any other matter pertinent hereto as Borrower may desire, and Borrower is not relying upon or expecting PFG to furnish to it any information now or hereafter in PFG's possession concern-ing the same or any other matter.
(f) Subordination.  All indebtedness of a Borrower now or hereafter arising held by another Borrower is subordinated to the Obligations and Borrower holding the indebtedness shall take all actions reasonably requested by PFG to effect, to enforce and to give notice of such subordination.
8.23 Electronic Execution of Documents.  The words "execution," "signed," "signature" and words of like import in any Loan Document shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity and enforceability as a manually executed signature or the use of a paper-based recordkeeping systems, as the case may be, to the extent and as provided for in any applicable law, including, without limitation, any state law based on the Uniform Electronic Transactions Act.
8.24 Relationship.  The relationship of the parties to this Agreement is determined solely by the provisions of this Agreement.  The parties do not intend to create any agency, partnership, joint venture, trust, fiduciary or other relationship with duties or incidents different from those of parties to an arm's-length contract.
8.25 Third Parties.  Nothing in this Agreement, whether express or implied, is intended to: (a) confer any benefits, rights or remedies under or by reason of this Agreement on any persons other than the express parties to it and their respective permitted successors and assigns; (b) relieve or discharge the obligation or liability of any person not an express party to this Agreement; or (c) give any person not an express party to this Agreement any right of subrogation or action against any party to this Agreement.
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8.26 Mutual Waiver of Jury Trial.  BORROWER AND PFG EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FU-TURE INSTRUMENT OR AGREEMENT BETWEEN PFG AND BORROWER, OR ANY CONDUCT, ACTS OR OMISSIONS OF PFG OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH PFG OR BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.  WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES' AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial by jury is not enforceable, the parties hereto agree that any and all disputes or controversies of any nature between them arising at any time shall be decided by a reference to a private judge, mutually selected by the parties (or, if they cannot agree, by the Presiding Judge of the Santa Clara County, California Superior Court) appointed in accordance with Code of Civil Procedure Section 638 (or pursuant to comparable provisions of federal law if the dispute falls within the exclusive jurisdiction of the federal courts), sitting without a jury, in Santa Clara County, California; and the parties hereby submit to the jurisdiction of such court.  The reference proceedings shall be conducted pursuant to and in accordance with the provisions of Code of Civil Procedure §§ 638 through 645.1, inclusive.  The private judge shall have the power, among others, to grant provisional relief, including without limitation, entering temporary restraining orders, issuing preliminary and permanent injunctions and appointing receivers.  All such proceedings shall be closed to the public and confidential and all records relating thereto shall be permanently sealed.  If during the course of any dispute, PFG desires to seek provisional relief, but a judge has not been appointed at that point pursuant to the judicial reference procedures, then PFG may apply to the Santa Clara County, California Superior Court for such relief.  The proceeding before the private judge shall be conducted in the same manner as it would be before a court under the rules of evidence applicable to judicial proceedings.  The parties shall be entitled to discovery which shall be conducted in the same manner as it would be before a court under the rules of discovery applicable to judicial proceedings. The private judge shall oversee discovery and may enforce all discovery rules and order applicable to judicial proceedings in the same manner as a trial court judge.  The parties agree that the selected or appointed private judge shall have the power to decide all issues in the action or proceeding, whether of fact or of law, and shall report a statement of decision thereon pursuant to the Code of Civil Procedure § 644(a).  Nothing in this paragraph shall limit the right of PFG at any time to exercise self-help remedies, foreclose against Collateral, or obtain provisional remedies.  The private judge shall also determine all issues relating to the applicability, interpretation, and enforceability of this paragraph.
 [Signature Page Follows]
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Borrower:
 
ACTIVECARE, INC.
 
By_______________________________
President or Vice President
By_______________________________
Secretary or Ass't Secretary
PFG:
 
PARTNERS FOR GROWTH IV, L.P.
 
By_______________________________
 
Name:  ___________________________
 
Title: Manager, Partners for Growth IV, LLC
Its General Partner


26
Partners For Growth
Schedule 1 to
Loan and Security Agreement

Borrower:                           ActiveCare, Inc. a Delaware corporation
Address:                               1365 West Business Park Drive, Suite 100, Orem, UT 84058
Date:                                        February 19, 2016
This Schedule 1 forms an integral part of the Loan and Security Agreement between PARTNERS FOR GROWTH IV, L.P. and the above-borrower of even date.
1.  CREDIT LIMIT
(Section 1.1): The Facility A Loan set forth in this Schedule 1 is a revolving line of credit not to exceed the lesser of (a) $1,500,000 (the initial "Dollar Credit Limit") at any one time outstanding, and (b) up to 80% (the "Advance Rate") of the amount of Borrower's Eligible Accounts (as defined in Section 7 above) (such not to exceed amount, the "Revolving Line Credit Limit").
Increase to Credit Limit: The initial Dollar Credit Limit may be increased as follows, in each case subject to no Default or Event of Default having occurred and then continuing: (i) if for the six-month period ending March 31, 2016 Borrower meets or exceeds (A) $4,500,000 in Revenue and (B) $2,750,000 in Recurring Revenue, the Dollar Credit Limit shall increase by $500,000; (ii) if for the nine-month period ending June 30, 2016 Borrower meets or exceeds (A) $7,500,000 in Revenue and (B) $5,000,000 in Recurring Revenue, the Dollar Credit Limit shall increase by $500,000; and (iii) if for the twelve-month period ending September 30, 2016 Borrower meets or exceeds (A) $11,500,000 in Revenue and (B) $8,000,000 in Recurring Revenue, the Dollar Credit Limit shall increase by $500,000. Such increases, if earned, shall be effective as from the date(s) Borrower delivers true and accurate Reports as specified in Section 6 of this Schedule demonstrating Borrower's qualification for such increase(s).
Availability Cure: If Borrower should fail to qualify for an increase in the Dollar Credit Limit in the first or second measurement period but earn Revenue and Recurring Revenue in the next succeeding measurement period aggregating more than the shortfall in the relevant prior period, then the Dollar Credit Limit shall be increased notwithstanding such failure. For example only, if Borrower earns $4,800,000 in Revenue and $2,900,000 in Recurring Revenue for the six-month period ending March 31, 2016 (failing to earn a Dollar Credit Limit Increase) but earns $10,000,000 in Revenue and $6,000,000 in Recurring Revenue for the nine-month period ending June 30, 2016, then the Dollar Credit Limit shall increase by $1,000,000 (Borrower having qualified for the nine-month measured $500,000 and made up more than the shortfall of the six-month period).
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Repayment: Interest only, payable monthly, with principal and all other Facility A Obligations due at the Maturity Date.
Early Termination Fee: Facility A may be terminated prior to Maturity by Borrower upon notice given on any Business Day, effective upon the close of the Business Day on which all Facility A Obligations have been indefeasibly repaid and subject to a prepayment fee equal to $30,000 being paid concurrently with termination.
2. INTEREST.

Interest Rate (Section 1.2):

The Loan shall bear interest at a per annum rate equal to 12.25%, fixed; provided, however, if Borrower meets its Plan for the calendar quarters ending March 31, 2016 and June 30, 2016 for Revenues and Adjusted EBITDA, then the Interest Rate shall be reduced to 10.75%, fixed.

Interest shall be calculated on the basis of a 360-day year and a year of twelve months of 30 days each for the actual number of days elapsed. Accrued interest for each month shall be payable monthly, on the first day of each month for interest accrued during the prior month.
3.  FEES (Section 1.3):

Loan Fee: $37,500 payable concurrently herewith, and $12,500 payable upon the availability of each increase in Dollar Credit Limit under Section 1 of this Schedule

 
4.  MATURITY DATE
 
(Section 5.1): February 19, 2018.

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5.  FINANCIAL COVENANTS
 
(Section 4.1): Borrower shall comply with each of the following covenants.  Compliance shall be determined as of the end of each measurement period, except as otherwise specifically provided below:
Minimum Recurring
Revenue: Borrower shall meet or exceed quarterly Recurring Revenue (as defined in Section 7) of not less that the amounts set forth below for the periods indicated, measured on a calendar quarterly basis:

Period                                                Minimum Quarterly Recurring Revenue

 
3/31/16
  
$
1,500,000
  
 
6/30/16
  
$
1,750,000
  
 
9/30/16
  
$
2,000,000
  
 
12/31/16
  
$
2,500,000
  
 
3/31/17
  
$
2,500,000
  
 
6/30/17
  
$
2,500,000
  
 
9/30/17
  
$
2,500,000
  
 
FUTURE PERIODS
  
TO BE MUTUALLY AGREED BETWEEN PFG AND BORROWER BASED ON BORROWER'S THEN CURRENT PLAN BUT NOT BELOW PRIOR YEAR PERIOD THRESHOLDS.
  

3

Adjusted EBITDA: Borrower shall meet or exceed trailing 3-month Adjusted EBITDA (as defined in Section 7), tested monthly, of not less that the amounts set forth below for the periods indicated:

  Period Minimum Adjusted EBITDA

 
3/31/16
  
$
(1,250,0000
)
 
4/30/16
  
$
(1,500,000
)
 
5/31/16
  
$
(1,250,000
)
 
6/30/16
  
$
(250,000
)
 
7/31/16
  
$
1.00
  
 
8/30/16
  
$
250,000
  
 
9/30/16
  
$
500,000
  
 
10/31/16
  
$
600,000
  
 
11/30/16
  
$
600,000
  
 
12/31/16
  
$
750,000
  
 
1/31/17
  
$
750,000
  
 
2/28/17
  
$
750,000
  
 
3/31/17
  
$
750,000
  
 
4/30/17
  
$
750,000
  
 
5/31/17
  
$
750,000
  
 
6/30/17
  
$
750,000
  
 
7/31/17
  
$
750,000
  
 
8/30/17
  
$
750,000
  
 
9/30/17
  
$
750,000
  
 
FUTURE PERIODS
  
TO BE MUTUALLY AGREED BETWEEN PFG AND BORROWER BASED ON BORROWER'S THEN CURRENT PLAN BUT NOT BELOW PRIOR YEAR PERIOD THRESHOLDS.
  

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6.  REPORTING.
      (Section 4.4):
Borrower shall provide PFG with the following:
(a)
Monthly accounts payable, accounts receivable and deferred Revenue schedules, aged by invoice date, and outstanding or held check registers, if any, within twenty (20) days after the end of each month.
(b)
Monthly unaudited consolidated Financial Statements, as soon as available, and in any event twenty (20) days after the end of each month.
(c)
Monthly Compliance Certificates within twenty (20) days after the end of each month and Borrowing Base Certificates within twenty (20) days after the end of each month and with each Schedule 1 Loan advance request, signed by the Chief Financial Officer of Borrower, certifying that as of the end of such month or as at such date of Loan request Borrower was in full compliance with all of the terms and conditions of this Agreement and setting forth calculations showing compliance with the financial covenants set forth in the Schedules and such other information as PFG shall reasonably request and, with respect to the Borrowing Base Certificates, showing the calculations required to maintain outstanding Advances or request new Advances.
(d)
Updates to the Representations, as and when required to render the information therein true, correct, accurate and complete as of the date of such date: (i) in all respects as to matters addressed in Part A of the Representations (except for the Collateral values set forth in Part A, Section 3(g), which must be true and correct in all material respects) and Part B, Section 11, and (ii) in all material respects with respect to all other sections of the Representations Letter.
(e)
Annual Borrower Board-approved Budgets and Forecasts, within the earlier of five (5) Business Days of approval by Borrower's Board or when available.
(f)
Annual consolidated and consolidating Financial Statements, as soon as available, and in any event within one hundred twenty (120) days following the end of Borrower's fiscal year, certified by, and with an unqualified opinion of, independent certified public accountants acceptable to PFG. If Borrower is required to file and is current in its filings of Form 10-K with the Securities and Exchange Commission and the same is available within said period through EDGAR, this requirement will be deemed satisfied.

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7.  BORROWER INFORMATION:

Borrower represents and warrants that the information set forth in the Representations and Warranties of Borrower dated February 19, 2016, previously submitted to PFG (the "Representations") is true and correct as of the Effective Date.
8.  ADDITIONAL PROVISIONS

(a)
Collateral Accounts.  Concurrently, Borrower shall cause the banks and other institutions where its Collateral Accounts are maintained to enter into Control Agreements with PFG, in form and substance legally sufficient and otherwise satisfactory to PFG in its good faith business judgment and sufficient to perfect PFG's security interest in said Collateral Accounts.  Said Control Agreements shall permit PFG, upon a Default, to exercise exclusive control over said Collateral Accounts and proceeds thereof.
(b)
Subordination of Inside Debt.  All present and future indebtedness of Borrower to its officers, directors and shareholders ("Inside Debt") shall, at all times, be subordinated to the Lien of PFG in respect of and prior payment of Obligations.  Borrower represents and warrants that there is no Inside Debt presently outstanding, except as set forth in Exhibit A.  Prior to incurring any Inside Debt in the future, Borrower shall cause the person to whom such Inside Debt will be owed to execute and deliver to PFG a subordination agreement on PFG's standard form.
(c)
Adjustment for Extraordinary Events. In the event that Borrower engages in a corporate transaction or other restructure that would bear in any non-trivial way on any of the financial covenant thresholds set forth in Section 5 of this Schedule, such as an acquisition that accretes to Revenues or TNW or a change in fiscal year or other periods, then PFG shall be entitled to reset the financial covenant thresholds to reasonably adjust for the effect of such corporate or other restructure transactions.
(d)
Line of Credit Use of Proceeds. Facility A shall be used for general working capital and corporate purposes.
(e)
Senior Debt. Section 8(e) of Schedule 2 is incorporated by reference herein.

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9.  CONDITIONS

In addition to any other conditions to the initial Facility A Loan set out in this Agreement, PFG will not make any Loan until PFG shall have received from Borrower, in form and substance satisfactory to PFG, such documents, and completion of such other matters, as PFG may reasonably deem necessary or appropriate, including that there shall be no discovery of any facts or circumstances which would, as determined by PFG in its sole discretion, negatively affect or be reasonably expected to negatively affect the collectability of the Obligations, PFG's security interest in Borrower's Collateral or the value thereof. Notwithstanding the foregoing, Borrower agrees to deliver to PFG each item required to be delivered to PFG in this Schedule as a condition precedent to any Facility A Loan.  Borrower expressly agrees that any Loan made prior to the receipt by PFG of any such item shall not constitute a waiver by PFG of Borrower's obligation to deliver such item, and the making of any Loan in the absence of a required item shall be in PFG's sole discretion. Without limiting the foregoing, as conditions precedent to the Facility A Loan, Borrower shall provide (without duplication for Schedule 2-provided deliverables and conditions):
(i)
Clause (i) of Schedule 2 is incorporated by reference herein;
(ii)
Clause (ii) of Schedule 2 is incorporated by reference herein;
(iii)
Clause (iii) of Schedule 2 is incorporated by reference herein;
(iv)
Clause (iv) of Schedule 2 is incorporated by reference herein;
(v)
Clause (v) of Schedule 2 is incorporated by reference herein;
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(vi)
Clause (vi) of Schedule 2 is incorporated by reference herein;
(vii)
Clause (vii) of Schedule 2 is incorporated by reference herein;
(viii)
Clause (viii) of Schedule 2 is incorporated by reference herein;
(ix)
Clause (xi) of Schedule 2 is incorporated by reference herein;
(x)
Clause (x) of Schedule 2 is incorporated by reference herein;
(xi)
Clause (xi) of Schedule 2 is incorporated by reference herein;
8
(xii)
Clause (xii) of Schedule 2 is incorporated by reference herein;
(xiii)
Clause (xiii) of Schedule 2 is incorporated by reference herein;
(xiv)
Clause (xiv) of Schedule 2 is incorporated by reference herein;
(xv)
Clause (xv) of Schedule 2 is incorporated by reference herein;
(xvi)
Section 8(f) of Schedule 2 is incorporated by reference herein; and
(xvii)
Clause (xv) of Schedule 2 is incorporated by reference herein.
[Signature Page Follows]
9


Borrower:
ACTIVECARE, INC.
 
By_______________________________
President or Vice President
By_______________________________
Secretary or Ass't Secretary
PFG:
PARTNERS FOR GROWTH IV, L.P.
 
By_______________________________
 
Name:  ___________________________
Title: Manager, Partners for Growth IV, LLC
Its General Partner

 
10
Partners For Growth
Schedule 2 to
Loan and Security Agreement

Borrower:                           ActiveCare, Inc. a Delaware corporation
Address:                               1365 West Business Park Drive, Suite 100, Orem, UT 84058
Date:                                        February 19, 2016
This Schedule 2 forms an integral part of the Loan and Security Agreement between PARTNERS FOR GROWTH IV, L.P. and the above-borrower of even date.
1.  LOAN (Section 1.1):

The Facility B Loan: The Facility B Loan set forth in this Schedule 2 shall consist of a term loan in an amount of up to $3,000,000, which shall be disbursed in three Tranches as follows: (a) Tranche 1: $1,500,000, to be disbursed to Borrower within the later to occur of one (1) Business Day following the Effective Date and the Business Day following the day that the conditions to the Facility B Loan set forth in Section 9 of this Schedule 2; (b) Tranche 2: $500,000, to be disbursed upon Borrower consummating sales of equity and/or Subordinated Debt on and after the Effective Date and before April 30, 2016 of not less than $500,000 (the "Tranche 2 Condition") (of which $350,000 will be deemed to have been consummated on the Effective Date); and (c) Tranche 3: $1,000,000, to be disbursed, subject to Borrower's prior satisfaction of the condition set forth in Section 8(f) of this Schedule, within one (1) Business Day following Borrower's delivery of true and correct Reports demonstrating that it has met or exceeded the Tranche 3 Performance Criteria.
"Tranche 3 Performance Criteria" means Borrower having met or exceeded $5,000,000 in Revenue and $3,000,000 in Recurring Revenue for the six-month period ending March 2016.
Repayment: The principal amount of the each Tranche shall be repaid in 36 equal monthly principal payments, in each case plus interest on outstanding Facility B principal accrued during each month. The first such principal payment (Tranche 1) shall be due on March 1, 2016, and continue on the same day of each month thereafter until the Tranche 1 Maturity Date on which date the entire unpaid principal balance of the Facility B Tranche 1 Loan plus any and all accrued and unpaid interest shall be paid. The first principal payment of Tranche 2 shall be due on the first day of the calendar month following the first full calendar month after Borrower draws Tranche 2, and shall continue on the same day of each month thereafter until the Tranche 2 Maturity Date on which date the entire unpaid principal balance of the Facility B Tranche 2 Loan plus any and all accrued and unpaid interest shall be paid.
Prepayment: The principal of the Facility B Loan may be prepaid at any time, in whole or in part, provided that, concurrently with the prepayment, Borrower pays to PFG a prepayment fee equal to: (i) 3% of all principal prepaid in the first year after the Effective Date, (ii) 2% of all principal prepaid in the second year following the Effective Date and (iii) 1% of all principal prepaid during the third year following the Effective Date. Prepayments shall be applied to principal payments on the Loan in the inverse order of their maturity.

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2. INTEREST.
Interest Rate (Section 1.2):

The Facility B Loan shall bear interest at a per annum rate equal to 12.75%, fixed; provided, however, if Borrower meets its Plan for calendar Q1-2016 and calendar Q2-2016 for Revenues and Adjusted EBITDA, then the Interest Rate shall be reduced to 11.25%, fixed.
Interest shall be calculated on the basis of a 360-day year and a year of twelve months of 30 days each for the actual number of days elapsed. Accrued interest for each month shall be payable monthly, on the first day of each month for interest accrued during the prior month.

3.  FEES (Section 1.3):

Loan Fee: $50,000, payable concurrently herewith, and $25,000 payable upon disbursement of the Tranche 2 Loan.

 
4.  MATURITY DATE
 
(Section 5.1): Tranche 1 Maturity Date: February 19, 2019.
Tranche 2 Maturity Date: February 19, 2019.
Tranche 3 Maturity Date: The end of the calendar month that falls 36 months following the disbursement of Tranche 3.

2
5.  FINANCIAL COVENANTS
 
(Section 4.1): Borrower shall comply with each of the following covenants.  Compliance shall be determined as of the end of each measurement period, except as otherwise specifically provided below:
Minimum Recurring
 
Revenue: Borrower shall meet or exceed quarterly Recurring Revenue (as defined in Section 7) of not less that the amounts set forth below for the periods indicated, measured on a calendar quarterly basis:

Period                                                Minimum Quarterly Recurring Revenue

 
3/31/16
  
$
1,500,000
  
 
6/30/16
  
$
1,750,000
  
 
9/30/16
  
$
2,000,000
  
 
12/31/16
  
$
2,500,000
  
 
3/31/17
  
$
2,500,000
  
 
6/30/17
  
$
2,500,000
  
 
9/30/17
  
$
2,500,000
  
 
FUTURE PERIODS
  
TO BE MUTUALLY AGREED BETWEEN PFG AND BORROWER BASED ON BORROWER'S THEN CURRENT PLAN BUT NOT BELOW PRIOR YEAR PERIOD THRESHOLDS.
  


Adjusted EBITDA: Borrower shall meet or exceed trailing 3-month Adjusted EBITDA (as defined in Section 7), tested monthly, of not less that the amounts set forth below for the periods indicated:

3
  Period Minimum Adjusted EBITDA

 
3/31/16
  
$
(1,250,0000
)
 
4/30/16
  
$
(1,500,000
)
 
5/31/16
  
$
(1,250,000
)
 
6/30/16
  
$
(250,000
)
 
7/31/16
  
$
1.00
  
 
8/30/16
  
$
250,000
  
 
9/30/16
  
$
500,000
  
 
10/31/16
  
$
600,000
  
 
11/30/16
  
$
600,000
  
 
12/31/16
  
$
750,000
  
 
1/31/17
  
$
750,000
  
 
2/28/17
  
$
750,000
  
 
3/31/17
  
$
750,000
  
 
4/30/17
  
$
750,000
  
 
5/31/17
  
$
750,000
  
 
6/30/17
  
$
750,000
  
 
7/31/17
  
$
750,000
  
 
8/30/17
  
$
750,000
  
 
9/30/17
  
$
750,000
  
 
FUTURE PERIODS
  
TO BE MUTUALLY AGREED BETWEEN PFG AND BORROWER BASED ON BORROWER'S THEN CURRENT PLAN BUT NOT BELOW PRIOR YEAR PERIOD THRESHOLDS.
  

4

6.  REPORTING.
      (Section 4.4):
Borrower shall provide PFG with the following:
(a)
Monthly accounts payable, accounts receivable and deferred Revenue schedules, aged by invoice date, and outstanding or held check registers, if any, within twenty (20) days after the end of each month.
(b)
Monthly unaudited consolidated Financial Statements, including detail of Revenues and Recurring Revenues, as soon as available and in any event within twenty (20) days after the end of each month.
(c)
Monthly Compliance Certificates within twenty (20) days after the end of each month, signed by the Chief Financial Officer of Borrower, certifying that as of the end of such month or as at such date of Loan request Borrower was in full compliance with all of the terms and conditions of this Agreement and setting forth calculations showing compliance with the financial covenants set forth in the Schedules and such other information as PFG shall reasonably request.
(d)
Updates to the Representations, as and when required to render the information therein true, correct, accurate and complete as of the date of such date:  (i)  in all respects as to matters addressed in Part A of the Representations (except for the Collateral values set forth in Part A, Section 3(g), which must be true and correct in all material respects) and Part B, Section 11, and (ii) in all material respects with respect to all other sections of the Representations Letter.
(e)
Annual Borrower Board-approved Budgets and Forecasts, within the earlier of five (5) Business Days of approval by Borrower's Board or when available.
(f)
Annual consolidated and consolidating Financial Statements, as soon as available, and in any event within one hundred twenty (120) days following the end of Borrower's fiscal year, certified by, and with an unqualified opinion of, independent certified public accountants acceptable to PFG. If Borrower is required to file and is current in its filings of Form 10-K with the Securities and Exchange Commission and the same is available within said period through EDGAR, this requirement will be deemed satisfied.

5

7.  BORROWER INFORMATION:

Borrower represents and warrants that the information set forth in the Representations and Warranties of Borrower dated February 16, 2016, previously submitted to PFG (the "Representations") is true and correct as of the Effective Date.
8.  ADDITIONAL PROVISIONS

(a)
Collateral Accounts.  Concurrently, Borrower shall cause the banks and other institutions where its Collateral Accounts are maintained to enter into Control Agreements with PFG, in form and substance legally sufficient and otherwise satisfactory to PFG in its good faith business judgment and sufficient to perfect PFG's security interest in said Collateral Accounts.  Said Control Agreements shall permit PFG, upon a Default, to exercise exclusive control over said Collateral Accounts and proceeds thereof.
(b)
Subordination of Inside Debt.  All present and future indebtedness of Borrower to its officers, directors and shareholders ("Inside Debt") shall, at all times, be subordinated to the Lien of PFG in respect of and prior payment of Obligations.  Borrower represents and warrants that there is no Inside Debt presently outstanding, except as set forth in Exhibit A.  Prior to incurring any Inside Debt in the future, Borrower shall cause the person to whom such Inside Debt will be owed to execute and deliver to PFG a subordination agreement on PFG's standard form.
(c)
Adjustment for Extraordinary Events. In the event that Borrower engages in a corporate transaction or other restructure that would bear in any non-trivial way on any of the financial covenant thresholds set forth in Section 5 of this Schedule, such as an acquisition that accretes to Revenues or TNW or a change in fiscal year or other periods, then PFG shall be entitled to reset the financial covenant thresholds to reasonably adjust for the effect of such corporate or other restructure transactions.
(d)
Line of Credit Use of Proceeds. Facility B shall be used for general working capital and corporate purposes and discharge of the Indebtedness and Liens set forth in Section 9(xvi).
6
(e)
Senior Debt. Borrower shall not incur Indebtedness senior or pari passu with the Obligations without PFG's consent, which shall be a matter of its absolute business discretion.
(f)
Equity Financing Condition. It shall be a (i) condition subsequent to the Facility A Loans and Facility B, Tranche 1 and Tranche 3 Loans, and (ii) condition precedent to the Facility B, Tranche 2 Loan, that Borrower consummate sales of its equity securities in an equity financing providing cash proceeds of not less than $850,000 on or after the Effective Date and on or before April 30, 2016, of which PFG acknowledges Borrower's receipt of $350,000 as of the Effective Date (leaving a balance of $500,000 in cash financing proceeds to be received by Borrower by such outside date). The failure of this financing condition to occur shall constitute an immediate Event of Default under the Loan Agreement.

9.  CONDITIONS

In addition to any other conditions to the initial Facility B Loan set out in this Agreement, PFG will not make any Loan until PFG shall have received from Borrower, in form and substance satisfactory to PFG, such documents, and completion of such other matters, as PFG may reasonably deem necessary or appropriate, including that there shall be no discovery of any facts or circumstances which would, as determined by PFG in its sole discretion, negatively affect or be reasonably expected to negatively affect the collectability of the Obligations, PFG's security interest in Borrower's Collateral or the value thereof. Notwithstanding the foregoing, Borrower agrees to deliver to PFG each item required to be delivered to PFG in this Schedule as a condition precedent to any Facility B Loan.  Borrower expressly agrees that any Loan made prior to the receipt by PFG of any such item shall not constitute a waiver by PFG of Borrower's obligation to deliver such item, and the making of any Loan in the absence of a required item shall be in PFG's sole discretion. Without limiting the foregoing, as conditions precedent to the Facility B Loan, Borrower shall provide:
(i)
duly executed original signatures of Borrower to the Loan Documents to which Borrower is a party, including without limitation, this Agreement, the Intellectual Property Security Agreement and related Collateral Agreements and Notices, the PFG Warrant, landlord consents and bailee waivers, and subordination agreements among PFG, Borrower and holders of Subordinated Debt;
(ii)
Each Borrower's respective Constitutional Documents and, where applicable, a good standing certificate of Borrower certified by the Secretary of State or other Governmental Body of the jurisdiction of formation of Borrower, as of a date no earlier than thirty (30) days prior to the date hereof, together with, in the case of Borrower, a foreign qualification certificate from the State of Delaware;
(iii)
A Certificate of Incumbency and a Secretary's Certificate certifying the Constitutional Documents of Borrower and resolutions of the Board of Borrower authorizing the execution, delivery and performance of the Loan Documents to which such Borrower is a party, including the PFG Warrant;
(iv)
Control Agreements as required by Section 8(a) of this Schedule, duly executed by Borrower and each relevant depositary institution in favor of PFG, including from Zions Bank;
7
(v)
certified copies, dated as of a recent date, of Security Instrument searches, as PFG shall request, accompanied by written evidence (including any UCC termination statements) that the Liens indicated in any such Security Instruments either constitute Permitted Liens or have been or, in connection with the Loan, will be terminated or released;
(vi)
the Representations, duly executed by Borrower,
(vii)
landlord consents executed in favor of PFG by Borrower's principal office lessor in respect of its premises in Orem, Utah and, if required by PFG, each other premises where Borrower holds Collateral with a fair value in excess of $10,000, and warehouseman's/bailee waivers in respect of third party premises where Collateral with a fair value in excess of $10,000 is stored or housed, including Borrower's facilities at in Provo, Utah (Propeller, Inc.), Orlando, Florida (Titan Commercial Warehouse) and St. Gabriel, Louisiana (Baton Rouge);
(viii)
duly executed Warrants in favor of PFG and its designees (the "PFG Warrant") to purchase Borrower's common stock, in agreed form;
(ix)
the insurance policies and/or endorsements required pursuant to Section 5.2;
(x)
payment of the Fees specified in Section 3 of this Schedule and Lender Expenses incurred in connection with the Loan;
(xi)
any third party consents required in order for Borrower to enter into and perform the Loan Documents;
(xii)
a Subordination Agreement in agreed form between PFG and Complete Business Solutions Group, Inc.;
8
(xiii)
discharge of any liens in favor of Valera Capital LLC and Azadian Group LLC;
(xiv)
a Subordination Agreement between PFG and the holders of Borrower's Series F Preferred Stock;
(xv)
the Indebtedness disclosed to PFG as the "Meyers debenture", consisting of Indebtedness owing to 9 Borrower investors, shall have been irrevocably converted into the equity securities of Borrower and the evidence of such conversion provided to PFG;
(xvi)
payoff of all Indebtedness and discharge of all Liens of Prestige Financial in the assets of Borrower;
(xvii)
execution, delivery and (as necessary or appropriate) filing of all Security Instruments; and
(xviii)
to the extent that the conditions to this Agreement have not been completed as of the Effective Date, a Post-Closing Obligations Letter Agreement in PFG's customary form by which PFG waives or defers performance of such conditions as PFG is willing to defer in its sole business discretion.
[Signature Page Follows]
9

 
Borrower:
 
ACTIVECARE, INC.
 
By_______________________________
President or Vice President
By_______________________________
Secretary or Ass't Secretary
PFG:
 
PARTNERS FOR GROWTH IV, L.P.
 
By_______________________________
 
Name:  ___________________________
Title: Manager, Partners for Growth IV, LLC
Its General Partner



10
Exhibit A to Loan and Security Agreement

Section 3.4(d) – Fixtures, Etc.
Section 7—"Permitted Investments"—Other Existing Permitted Investments:
Section 7—"Permitted Indebtedness"—Other Existing Permitted Indebtedness:
1.            Gary A Gelbfish, Indebtedness in the approximate principal amount of $64,260, which may be paid in the ordinary course in accordance with its terms so long as no Default or Event of Default has occurred and is continuing.
2.            Indebtedness relating to Greenwire purchase in the approximate principal amount of $303,212, which shall be subject to a Subordination Agreement in favor of PFG by the holder(s) of such Indebtedness.
3.            Indebtedness relating to a settlement with "Advance Technology, Inc." in the approximate principal amount of $300,000, which shall be subject to a Subordination Agreement in favor of PFG by the holder(s) of such Indebtedness.
4.            Mike Acton, a former employee, Indebtedness in the approximate principal amount of $30,000, which may be paid in the ordinary course in accordance with its terms so long as no Default or Event of Default has occurred and is continuing.
5.            William Martin, a former Board member, Indebtedness in the approximate principal amount of $26,720, which may be paid in the ordinary course in accordance with its terms so long as no Default or Event of Default has occurred and is continuing.
6.            Mike Jones, Borrower's former CEO, Indebtedness in the approximate principal amount of $13,643, which may be paid in the ordinary course in accordance with its terms so long as no Default or Event of Default has occurred and is continuing.
7.            ADP Management, Indebtedness of approximately $720,682, which shall be subject to a Subordination Agreement in favor of PFG by the holder(s) of such Indebtedness.
8.            Bluestone Advisors et al, Indebtedness of approximately $3,049,697, which shall be subject to a Subordination Agreement in favor of PFG by the holder(s) of such Indebtedness.
Schedule Section 8 - "Inside Debt":
11
Exhibit B to Loan and Security Agreement – Compliance Certificate
1
Exhibit C to Loan and Security Agreement – Borrowing Base Certificate

1
Exhibit D to Loan and Security Agreement – Borrower "Plan"
 
1



EX-10.2 3 exh102.htm FORM OF EXCHANGE AGREEMENT BY AND AMONG ACTIVECARE, INC. AND THE HOLDERS OF ACTIVECARE SERIES F CONVERTIBLE PREFERRED STOCK
Exhibit 10.2

SECURITIES EXCHANGE AGREEMENT
 
This Securities Exchange Agreement (this "Agreement") is dated as of February 19, 2016, between ActiveCare, Inc., a Delaware corporation (the "Company"), and each holder identified on the signature pages hereto (each, including its successors and assigns, a "Holder" and collectively, the "Holders").
WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 3(a)(9) and 4(a)(2) of the Securities Act of 1933, as amended (the "Securities Act"), the Company desires to exchange and issue to each Holder, and each Holder, severally and not jointly, desires to exchange with the Company, securities of the Company as more fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and each Holder agree as follows:
ARTICLE I.
DEFINITIONS
1.1            Definitions.  In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Debentures (as defined herein), and (b) the following terms have the meanings set forth in this Section 1.1:
"Acquiring Person" shall have the meaning ascribed to such term in Section 4.7.
"Action" shall have the meaning ascribed to such term in Section 3.1(j).
"Affiliate" means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.
"Board of Directors" means the board of directors of the Company.
"Business Day" means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
"Closing" means the closing of the exchange and issuance of the Securities pursuant to Section 2.1.
"Closing Date" means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Holders' obligations to deliver the Preferred Stock and Existing Warrants and (ii) the Company's obligations to deliver the Securities, in each case, have been satisfied or waived.
1
"Commission" means the United States Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par value $0.00001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed.
"Common Stock Equivalents" means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
"Company Counsel" means Durham Jones and Pinegar, P.C., with offices located at 111 East Broadway, Suite 900, P.O. Box 4050, Salt Lake City, Utah  84111.
"Conversion Price" shall have the meaning ascribed to such term in the Debentures.
"Conversion Shares" shall have the meaning ascribed to such term in the Debentures.
"Debentures" means the 10% Convertible Debentures due, subject to the periodic payment terms therein, on November 1, 2018, issued by the Company to the Holders hereunder, in the form of Exhibit A attached hereto.
"Disclosure Schedules" shall have the meaning ascribed to such term in Section 3.1.
"EGS" means Ellenoff Grossman & Schole LLP, with offices located at 1345 Avenue of the Americas, New York, New York 10105-0302.
"Evaluation Date" shall have the meaning ascribed to such term in Section 3.1(s).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

"Exempt Issuance" means the issuance of (a) shares of Common Stock or options to employees, officers, consultants or directors of the Company pursuant to any stock or option plan duly adopted for such purpose, by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose in effect as of the date of this Agreement, (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities (other than in connection with stock splits or combinations) or to extend the term of such securities, (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that any such issuance shall only be to a Person (or to the equityholders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the Company and shall provide to the Company additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities and (d) issuances of restricted shares of Common Stock for gross proceeds of up to $500,000, at a per share price not less than $0.05 per share (subject to adjustment for forward and reverse stock splits and the like), which shares are issued in satisfaction of certain financing covenants required by the PFG financing.
2
"Existing Creditors" means Partners for Growth IV, L.P. ("PFG").
"Existing Debt" means the obligations of the Company under the Loan and Security Agreement between the Company and PFG dated February 19, 2016.
"Existing Warrants" means the common stock purchase warrants, issued on December 16, 2013 and held by the Holders, to purchase up to 5,022,000 shares of Common Stock.
"FCPA" means the Foreign Corrupt Practices Act of 1977, as amended.
"FDA" shall have the meaning ascribed to such term in Section 3.1(ll).
"FDCA" shall have the meaning ascribed to such term in Section 3.1(ll).
"GAAP" shall have the meaning ascribed to such term in Section 3.1(h).
"Holder Party" shall have the meaning ascribed to such term in Section 4.10.
"Indebtedness" means (x) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company's consolidated balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP.  Except as disclosed in Schedule 3.1(bb), neither the Company nor any Subsidiary is in default with respect to any Indebtedness.
"Intellectual Property Rights" shall have the meaning ascribed to such term in Section 3.1(o).
"Legend Removal Date" shall have the meaning ascribed to such term in Section 4.1(c).
3
"Liens" means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.
"Material Adverse Effect" shall have the meaning assigned to such term in Section 3.1(b).
"Material Permits" shall have the meaning ascribed to such term in Section 3.1(m).
"Maximum Rate" shall have the meaning ascribed to such term in Section 5.17.
"Participation Maximum" shall have the meaning ascribed to such term in Section 4.12(a).
"Person" means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
"Pharmaceutical Product" shall have the meaning ascribed to such term in Section 3.1(ll).
"Preferred Stock" means the 5,343 shares of the Company's Series F Variable Rate Convertible Preferred Stock.
"Pre-Notice" shall have the meaning ascribed to such term in Section 4.12(b).
"Primary Holders" means, collectively, Hillair Capital Investments L.P. Alpha Capital Anstalt, and Osher Capital Partners LLC.

"Principal Amount" means, as to each Holder, the amounts set forth below such Holder's signature block on the signature pages hereto next to the heading "Principal Amount," in United States Dollars, which shall equal the stated value of the Preferred Stock exchanged by such Holder as set forth on the Holder's signature page hereto multiplied by 1.10424855, the individual amounts of each Holder's Debenture being set forth on Schedule A hereto.
"Pro Rata Portion" shall have the meaning ascribed to such term in Section 4.12(e).
"Proceeding" means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.
"Required Approvals" shall have the meaning ascribed to such term in Section 3.1(e).
"Required Minimum" means, as of any date, the maximum aggregate number of shares of Common Stock then issued or potentially issuable in the future pursuant to the Transaction Documents, including any Underlying Shares issuable upon exercise in full of all Warrants or conversion in full of all Debentures, ignoring any conversion or exercise limits set forth therein, and assuming that the Conversion Price is at all times on and after the date of determination 75% of the then Conversion Price on the Trading Day immediately prior to the date of determination.
4
"Rule 144" means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.
"SEC Reports" shall have the meaning ascribed to such term in Section 3.1(h).
"Securities" means the Debentures, the Shares, the Warrants, the Warrant Shares and the Underlying Shares.
"Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
"Shares" means the shares of Common Stock issued pursuant to Section 2.2(a).
"Short Sales" means all "short sales" as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include the location and/or reservation of borrowable shares of Common Stock). 
"Subsequent Financing" shall have the meaning ascribed to such term in Section 4.12(a).
"Subsequent Financing Notice" shall have the meaning ascribed to such term in Section 4.12(b).
"Subsidiary" means any subsidiary of the Company as set forth on Schedule 3.1(a) and shall, where applicable, also include any direct or indirect subsidiary of the Company formed or acquired after the date hereof.
"Trading Day" means a day on which the principal Trading Market is open for trading.
"Trading Market" means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, OTCQB or OTCQX (or any successors to any of the foregoing).
"Transaction Documents" means this Agreement, the Debentures, the Warrants, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.
5
"Transfer Agent" means American Stock Transfer, the current transfer agent of the Company, with a mailing address of 6201 15th Avenue, Third Floor, Brooklyn, New York, 11219, c/o Denise Padilla, and a facsimile number of (718) 765-8711, and any successor transfer agent of the Company.

"Underlying Shares" means the Shares, the Warrant Shares and shares of Common Stock issued and issuable pursuant to the terms of the Debentures, including without limitation, shares of Common Stock issued and issuable in lieu of the cash payment of interest on the Debentures in accordance with the terms of the Debentures, in each case without respect to any limitation or restriction on the conversion of the Debentures or the exercise of the Warrants.
"Variable Rate Transaction" shall have the meaning ascribed to such term in Section 4.13(b).
"VWAP" means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b)  if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the "Pink Sheets" published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holders of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.
"Warrants" means, collectively, the Common Stock purchase warrants delivered to the Holders at the Closing in accordance with Section 2.2(a) hereof, which Warrants shall be exercisable immediately and have a term of exercise equal to (x) five (5) years with respect to the Warrants issuable pursuant to Section 2.2(a)(iv) and (y) ten (10) years with respect to the Warrants issuable pursuant to Section 2.2(a)(v), each in the form of Exhibit C attached hereto.
"Warrant Shares" means the shares of Common Stock issuable upon exercise of the Warrants.
ARTICLE II.
EXCHANGE AND ISSUANCE
2.1            Closing.  On the Closing Date, upon the terms and subject to the conditions set forth herein, substantially concurrent with the execution and delivery of this Agreement by the parties hereto, the Company agrees to exchange, and the Holders, severally and not jointly, agree to exchange, up to an aggregate of 5,343 shares of Preferred Stock and Existing Warrants to purchase (i) up to $5,900,000 in principal amount of the Debentures, (ii) up to, in the aggregate, 10,000,000 Shares, and (iii) Warrants to purchase up to, in the aggregate, 5,022,000 Warrant Shares.  Each Holder shall surrender to the Company the number of shares of Preferred Stock and Existing Warrants as set forth on the signature page hereto executed by such Holder, and the Company shall deliver to each Holder its respective Debenture, Shares and Warrant.  Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of EGS or such other location as the parties shall mutually agree.
6
2.2            Deliveries.
(a)
On or prior to the Closing Date, the Company shall deliver or cause to be delivered to each Holder the following:
(i)
this Agreement duly executed by the Company;
(ii)
a legal opinion of Company Counsel, substantially in the form of Exhibit D; including but not limited to an opinion on the availability of an exemption from registration under the Securities Act as it relates to the offer and issuance of the Securities, the tacking of the holding period of the Securities to the holding period of the Preferred Stock under Rule 144 and other matters reasonably requested by the Holders;
(iii)
a Debenture with a principal amount equal to such Holder's respective Principal Amount, registered in the name of such Holder;
(iv)
a Warrant registered in the name of such Holder to purchase up to a number of shares of Common Stock equal to such Holder's Pro-Rata Portion of 5,022,000, with an exercise price equal to $0.30, subject to adjustment therein (such Warrant certificate may be delivered within three (3) Trading Days of the Closing Date);
(v)
a Warrant registered in the name of such Holder to purchase up to a number of shares of Common Stock equal to such Purchaser's Pro-Rata Portion of 8,000,000, with an exercise price equal to $0.001, subject to adjustment therein (such Warrant certificate may be delivered within three Trading Days of the Closing Date), which Warrants shall vest upon the occurrence of certain Events of Default under the Debentures; and
(vi)
A number of shares of Common Stock equal to such Holder's Pro-Rata Portion of 10,000,000, which shall be delivered by crediting the account of the Holder's prime broker with the Depository Trust Company System as directed by such Holder.
(b)
On or prior to the Closing Date, each Holder shall deliver or cause to be delivered to the Company, the following:
(i)
this Agreement duly executed by such Holder;
(ii)
for surrender to the Company, the shares of Preferred Stock and Existing Warrants set forth on such Holder's signature page hereto; and
(iii)
a subordination agreement with the Existing Creditors relating to the Existing Debt, which shall be in form and substance acceptable to the Holder and Existing Creditor.
2.3            Closing Conditions.
(a)
The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:
(i)
the accuracy in all material respects on (or, to the extent representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) the Closing Date of the representations and warranties of the Holders contained herein (unless as of a specific date therein in which case they shall be accurate as of such date);
(ii)
all obligations, covenants and agreements of each Holder required to be performed at or prior to the Closing Date shall have been performed; and
(iii)
the delivery by each Holder of the items set forth in Section 2.2(b) of this Agreement.
(b)
The respective obligations of the Holders hereunder in connection with the Closing are subject to the following conditions being met:
7
(i)
the accuracy in all material respects (or, to the extent representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) when made and on the Closing Date of the representations and warranties of the Company contained herein (unless as of a specific date therein in which case they shall be accurate as of such date);
(ii)
all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed;
(iii)
the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement;
(iv)
there shall have been no Material Adverse Effect with respect to the Company since the date hereof; and
(v)
from the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the Commission or the Company's principal Trading Market and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of such Holder, makes it impracticable or inadvisable to purchase the Securities at the Closing.
8
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1            Representations and Warranties of the Company.  Except as set forth in the Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation or otherwise made herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, the Company hereby makes the following representations and warranties to each Holder:
(a)
Subsidiaries.  All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3.1(a).  The Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.  If the Company has no subsidiaries, all other references to the Subsidiaries or any of them in the Transaction Documents shall be disregarded.
(b)
Organization and Qualification.  The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted.  Neither the Company nor any Subsidiary is in violation nor default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents.  Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company's ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a "Material Adverse Effect") and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.
9
(c)
Authorization; Enforcement.  The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder.  The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company's stockholders in connection herewith or therewith other than in connection with the Required Approvals.  This Agreement and each other Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
(d)
No Conflicts.  The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to which it is a party, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby and thereby do not and will not: (i) conflict with or violate any provision of the Company's or any Subsidiary's certificate or articles of incorporation, bylaws or other organizational or charter documents, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.
(e)
Filings, Consents and Approvals.  The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) the filings required pursuant to Section 4.6 of this Agreement, (ii) the notice and/or application(s) to each applicable Trading Market for the issuance and sale of the Securities and the listing of the Conversion Shares and Warrant Shares for trading thereon in the time and manner required thereby, (iii) the filing of Form D with the Commission and such filings as are required to be made under applicable state securities laws and (iv) the consents set forth on Schedule 3.1(e) (which have been obtained prior to the date hereof) (collectively, the "Required Approvals").
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(f)
Issuance of the Securities.  The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents.  The Underlying Shares, when issued in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents.  The Company has reserved from its duly authorized capital stock a number of shares of Common Stock for issuance of the Underlying Shares at least equal to the Required Minimum on the date hereof.  The offer and issuance by the Company of the Securities in conformity with this Agreement constitute transactions exempt from registration under the Securities Act pursuant to Section 3(a)(9) of the Securities Act.  For the purposes of Rule 144, the Company acknowledges that the holding period of the Securities (assuming cashless exercise of the Warrants) may be tacked onto the holding period of the Preferred Shares and Existing Warrants and the Company agrees not to take a position contrary to this Section 3(f).  As such, the Securities (assuming cashless exercise of the Warrants) will not bear any restrictive legend and, subject to a Holder not becoming an Affiliate of the Company, will be freely tradable without any restrictions or limitations under applicable securities laws, rules and regulations.
(g)
Capitalization.  The capitalization of the Company is as set forth on Schedule 3.1(g), which Schedule 3.1(g) shall also include the number of shares of Common Stock owned beneficially, and of record, by Affiliates of the Company as of the date hereof. The Company has not issued any capital stock since its most recently filed periodic report under the Exchange Act, other than pursuant to the exercise of employee stock options under the Company's stock option plans, the issuance of shares of Common Stock to employees pursuant to the Company's employee stock purchase plans and pursuant to the conversion and/or exercise of Common Stock Equivalents outstanding as of the date of the most recently filed periodic report under the Exchange Act.  No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents.  Except as a result of the Exchange and Issuance of the Securities, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire any shares of Common Stock or the capital stock of any Subsidiary, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents or capital stock of any Subsidiary. The issuance and sale of the Securities will not obligate the Company or any Subsidiary to issue shares of Common Stock or other securities to any Person (other than the Holders) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. There are no outstanding securities or instruments of the Company or any Subsidiary that contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to redeem a security of the Company or such Subsidiary. The company does not have any stock appreciation rights or "phantom stock" plans or any similar plan or agreement. All of the outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities.  No further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities other than those obtained prior to the date hereof.  There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company's capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company's stockholders.
11
(h)
SEC Reports; Financial Statements.  The Company has filed all reports, schedules, forms, statements and other documents required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two (2) years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the "SEC Reports") on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension.  As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.  The Company has never been an issuer subject to Rule 144(i) under the Securities Act. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing.  Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved ("GAAP"), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.
12
(i)
Material Changes; Undisclosed Events, Liabilities or Developments.  Since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in a subsequent SEC Report filed prior to the date hereof or except as disclosed in Schedule 3.1(i): (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company's financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans. The Company does not have pending before the Commission any request for confidential treatment of information.  Except for the issuance of the Securities contemplated by this Agreement or as set forth on Schedule 3.1(i), no event, liability, fact, circumstance, occurrence or development has occurred or exists or is reasonably expected to occur or exist with respect to the Company or its Subsidiaries or their respective businesses, properties, operations, assets or financial condition, that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least one (1) Trading Day prior to the date that this representation is made.
(j)
Litigation.  Except as disclosed in Schedule 3.1(j), there is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an "Action") which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect.  Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty.  There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company.  The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act.
(k)
Labor Relations.  No labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company, which could reasonably be expected to result in a Material Adverse Effect.  None of the Company's or its Subsidiaries' employees is a member of a union that relates to such employee's relationship with the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their employees are good.  To the knowledge of the Company, no executive officer of the Company or any Subsidiary, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters.  The Company and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
13
(l)
Compliance.  Neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any judgment, decree or order of any court, arbitrator or other governmental authority or (iii) is or has been in violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.
(m)
Environmental Laws.    The Company and its Subsidiaries (i) are in compliance with all federal, state, local and foreign laws relating to pollution or protection of human health or the environment (including ambient air, surface water, groundwater, land surface or subsurface strata), including laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes (collectively, "Hazardous Materials") into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands, or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations, issued, entered, promulgated or approved thereunder ("Environmental Laws"); (ii) have received all permits licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses; and (iii) are in compliance with all terms and conditions of any such permit, license or approval where in each clause (i), (ii) and (iii), the failure to so comply could be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.
14
(n)
Regulatory Permits.  The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect ("Material Permits"), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.
(o)
Title to Assets.  The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for (i) Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and (ii) Liens for the payment of federal, state or other taxes, for which appropriate reserves have been made therefor in accordance with GAAP and, the payment of which is neither delinquent nor subject to penalties.  Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in compliance.
(p)
Intellectual Property.  The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights as described in the SEC Reports as necessary or required for use in connection with their respective businesses and which the failure to so have could have a Material Adverse Effect (collectively, the "Intellectual Property Rights").  None of, and neither the Company nor any Subsidiary has received a notice (written or otherwise) that any of, the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, within two (2) years from the date of this Agreement.  Neither the Company nor any Subsidiary has received, since the date of the latest audited financial statements included within the SEC Reports, a written notice of a claim or otherwise has any knowledge that the Intellectual Property Rights violate or infringe upon the rights of any Person, except as could not have or reasonably be expected to not have a Material Adverse Effect.  To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights.  The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(q)
Insurance.  The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but not limited to, directors and officers insurance coverage at least equal to $5,000,000.  Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.
15
(r)
Transactions With Affiliates and Employees.  Except as set forth in the SEC Reports, none of the officers or directors of the Company or any Subsidiary and, to the knowledge of the Company, none of the employees of the Company or any Subsidiary is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from providing for the borrowing of money from or lending of money to, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, stockholder, member or partner, in each case in excess of $120,000 other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock option plan of the Company.
(s)
Sarbanes-Oxley; Internal Accounting Controls.  Except as disclosed in Schedule 3.1(s), the Company and the Subsidiaries are in compliance with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and all applicable rules and regulations promulgated by the Commission thereunder that are effective as of the date hereof and as of the Closing Date.  The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company and the Subsidiaries have established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and the Subsidiaries and designed such disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms.  The Company's certifying officers have evaluated the effectiveness of the disclosure controls and procedures of the Company and the Subsidiaries as of the end of the period covered by the most recently filed periodic report under the Exchange Act (such date, the "Evaluation Date").  The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date.  Since the Evaluation Date, there have been no changes in the internal control over financial reporting (as such term is defined in the Exchange Act) that have materially affected, or is reasonably likely to materially affect, the internal control over financial reporting of the Company and its Subsidiaries.
16
(t)
Certain Fees.  Except as disclosed in Schedule 3.1(s), no brokerage or finder's fees or commissions are or will be payable by the Company or any Subsidiaries to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents.  The Holders shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents.
(u)
Private Placement.  Assuming the accuracy of the Holders' representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Holders as contemplated hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market.
(v)
Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an "investment company" within the meaning of the Investment Company Act of 1940, as amended.  The Company shall conduct its business in a manner so that it will not become an "investment company" subject to registration under the Investment Company Act of 1940, as amended.
(w)
Registration Rights.  Other than each of the Holders, no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company or any Subsidiaries.
(x)
Listing and Maintenance Requirements.  The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration.  The Company has not, in the 12 months preceding the date hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements. The Common Stock is currently eligible for electronic transfer through the Depository Trust Company or another established clearing corporation and the Company is current in payment of the fees to the Depository Trust Company (or such other established clearing corporation) in connection with such electronic transfer.
(y)
Application of Takeover Protections.  The Company and the Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company's certificate of incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Holders as a result of the Holders and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation as a result of the Company's issuance of the Securities and the Holders' ownership of the Securities.
17
 
(z)
Disclosure.  Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company confirms that neither it nor any other Person acting on its behalf has provided any of the Holders or their agents or counsel with any information that it believes constitutes or might constitute material, non-public information.  The Company understands and confirms that the Holders will rely on the foregoing representation in effecting transactions in securities of the Company.  All of the disclosure furnished by or on behalf of the Company to the Holders regarding the Company and its Subsidiaries, their respective businesses and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.  The press releases disseminated by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made and when made, not misleading.  The Company acknowledges and agrees that no Holder makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof.
(aa)
No Integrated Offering. Assuming the accuracy of the Holders' representations and warranties set forth in Section 3.2, neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of (i) the Securities Act which would require the registration of any such securities under the Securities Act, or (ii) any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated.
(bb)
Tax Status.    Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and its Subsidiaries each (i) has made or filed all United States federal, state and local income and all foreign income and franchise tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations and (iii) has set aside on its books provision reasonably adequate for the payment of all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply.  There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company or of any Subsidiary know of no basis for any such claim.
18
 
(cc)
No General Solicitation. Neither the Company nor any Person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising.  The Company has offered the Securities for sale only to the Holders.
(dd)
Foreign Corrupt Practices.  Neither the Company nor any Subsidiary, nor to the knowledge of the Company or any Subsidiary, any agent or other person acting on behalf of the Company or any Subsidiary, has: (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company or any Subsidiary (or made by any person acting on its behalf of which the Company is aware) which is  in violation of law or (iv) violated in any material respect any provision of FCPA.
(ee)
Accountants.  The Company's accounting firm is set forth on Schedule 3.1(ee) of the Disclosure Schedules.  To the knowledge and belief of the Company, such accounting firm: (i) is a registered public accounting firm as required by the Exchange Act and (ii) shall express its opinion with respect to the financial statements to be included in the Company's Annual Report for the fiscal year ending September 30, 2016.
(ff)
Seniority.  Except as disclosed in Schedule 3.1(ff), as of the Closing Date, no Indebtedness or other claim against the Company is senior to the Debentures in right of payment, whether with respect to interest or upon liquidation or dissolution, or otherwise, other than indebtedness secured by purchase money security interests (which is senior only as to underlying assets covered thereby) and capital lease obligations (which is senior only as to the property covered thereby).
(gg)
No Disagreements with Accountants.  There are no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the Company and the accountants formerly or presently employed by the Company and the Company is current with respect to any fees owed to its accountants which could affect the Company's ability to perform any of its obligations under any of the Transaction Documents.
(hh)
Acknowledgment Regarding Holders' Purchase of Securities.  The Company acknowledges and agrees that each of the Holders is acting solely in the capacity of an arm's length holder with respect to the Transaction Documents and the transactions contemplated thereby.  The Company further acknowledges that no Holder is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by any Holder or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Holders' purchase of the Securities.  The Company further represents to each Holder that the Company's decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.
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(ii)
Acknowledgment Regarding Holder's Trading Activity.  Anything in this Agreement or elsewhere herein to the contrary notwithstanding (except for Sections 3.2(f) and 4.15 hereof), it is understood and acknowledged by the Company that: (i) none of the Holders has been asked by the Company to agree, nor has any Holder agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or "derivative" securities based on securities issued by the Company or to hold the Securities for any specified term, (ii) past or future open market or other transactions by any Holder, specifically including, without limitation, Short Sales or "derivative" transactions, before or after the closing of this or future private placement transactions, may negatively impact the market price of the Company's publicly-traded securities, (iii) any Holder, and counter-parties in "derivative" transactions to which any such Holder is a party, directly or indirectly, may presently have a "short" position in the Common Stock and (iv) each Holder shall not be deemed to have any affiliation with or control over any arm's length counter-party in any "derivative" transaction.  The Company further understands and acknowledges that (y) one or more Holders may engage in hedging activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Underlying Shares deliverable with respect to Securities are being determined, and (z) such lawful hedging activities (if any) could reduce the value of the existing stockholders' equity interests in the Company at and after the time that the hedging activities are being conducted.  The Company acknowledges that such aforementioned lawful hedging activities do not constitute a breach of any of the Transaction Documents.
(jj)
Regulation M Compliance.  The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company, other than, in the case of clauses (ii) and (iii), compensation paid to the Company's placement agent in connection with the placement of the Securities.
(kk)
FDA.  As to each product subject to the jurisdiction of the U.S. Food and Drug Administration ("FDA") under the Federal Food, Drug and Cosmetic Act, as amended, and the regulations thereunder ("FDCA") that is manufactured, packaged, labeled, tested, distributed, sold, and/or marketed by the Company or any of its Subsidiaries (each such product, a "Pharmaceutical Product"), such Pharmaceutical Product is being manufactured, packaged, labeled, tested, distributed, sold and/or marketed by the Company in compliance with all applicable requirements under FDCA and similar laws, rules and regulations relating to registration, investigational use, premarket clearance, licensure, or application approval, good manufacturing practices, good laboratory practices, good clinical practices, product listing, quotas, labeling, advertising, record keeping and filing of reports, except where the failure to be in compliance would not have a Material Adverse Effect.  There is no pending, completed or, to the Company's knowledge, threatened, action (including any lawsuit, arbitration, or legal or administrative or regulatory proceeding, charge, complaint, or investigation) against the Company or any of its Subsidiaries, and none of the Company or any of its Subsidiaries has received any notice, warning letter or other communication from the FDA or any other governmental entity, which (i) contests the premarket clearance, licensure, registration, or approval of, the uses of, the distribution of, the manufacturing or packaging of, the testing of, the sale of, or the labeling and promotion of any Pharmaceutical Product, (ii) withdraws its approval of, requests the recall, suspension, or seizure of, or withdraws or orders the withdrawal of advertising or sales promotional materials relating to, any Pharmaceutical Product, (iii) imposes a clinical hold on any clinical investigation by the Company or any of its Subsidiaries, (iv) enjoins production at any facility of the Company or any of its Subsidiaries, (v) enters or proposes to enter into a consent decree of permanent injunction with the Company or any of its Subsidiaries, or (vi) otherwise alleges any violation of any laws, rules or regulations by the Company or any of its Subsidiaries, and which, either individually or in the aggregate, would have a Material Adverse Effect.  The properties, business and operations of the Company have been and are being conducted in all material respects in accordance with all applicable laws, rules and regulations of the FDA.  The Company has not been informed by the FDA that the FDA will prohibit the marketing, sale, license or use in the United States of any product proposed to be developed, produced or marketed by the Company nor has the FDA expressed any concern as to approving or clearing for marketing any product being developed or proposed to be developed by the Company.
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(ll)
Stock Option Plans. Each stock option granted by the Company under the Company's stock option plan was granted (i) in accordance with the terms of the Company's stock option plan and (ii) with an exercise price at least equal to the fair market value of the Common Stock on the date such stock option would be considered granted under GAAP and applicable law. No stock option granted under the Company's stock option plan has been backdated.  The Company has not knowingly granted, and there is no and has been no Company policy or practice to knowingly grant, stock options prior to, or otherwise knowingly coordinate the grant of stock options with, the release or other public announcement of material information regarding the Company or its Subsidiaries or their financial results or prospects.
(mm)
Office of Foreign Assets Control.  Neither the Company nor any Subsidiary nor, to the Company's knowledge, any director, officer, agent, employee or affiliate of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department ("OFAC").
(nn)
U.S. Real Property Holding Corporation.  The Company is not and has never been a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company shall so certify upon Holder's request.
21
(oo)
Bank Holding Company Act.  Neither the Company nor any of its Subsidiaries or Affiliates is subject to the Bank Holding Company Act of 1956, as amended (the "BHCA") and to regulation by the Board of Governors of the Federal Reserve System (the "Federal Reserve").  Neither the Company nor any of its Subsidiaries or Affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.  Neither the Company nor any of its Subsidiaries or Affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.
(pp)
Money Laundering.  The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the "Money Laundering Laws"), and no Action or Proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge of the Company or any Subsidiary, threatened.
(qq)
No Disqualification Events.  With respect to the Securities to be offered and sold hereunder in reliance on Rule 506 under the Securities Act, none of the Company, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of the Company participating in the offering hereunder, any beneficial owner of 20% or more of the Company's outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with the Company in any capacity at the time of sale (each, an "Issuer Covered Person" and, together, "Issuer Covered Persons") is subject to any of the "Bad Actor" disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a "Disqualification Event"), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event. The Company has complied, to the extent applicable, with its disclosure obligations under Rule 506(e), and has furnished to the Holders a copy of any disclosures provided thereunder.
(rr)
Other Covered Persons.  The Company is not aware of any person (other than any Issuer Covered Person) that has been or will be paid (directly or indirectly) remuneration for solicitation of holders in connection with the sale of any Regulation D Securities.
(ss)
Notice of Disqualification Events. The Company will notify the Holders in writing, prior to the Closing Date of (i) any Disqualification Event relating to any Issuer Covered Person and (ii) any event that would, with the passage of time, become a Disqualification Event relating to any Issuer Covered Person.
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(tt)
Fair Consideration.  The Board of Directors of the Company has determined that the value of the Preferred and Existing Warrants is reasonable consideration and value for the Securities.  The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date.
3.2            Representations and Warranties of the Holders.  Each Holder, for itself and for no other Holder, hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows (unless as of a specific date therein, in which case they shall be accurate as of such date):
(a)
Organization; Authority.  Such Holder is either an individual or an entity duly incorporated or formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership, limited liability company or similar power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and performance by such Holder of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate, partnership, limited liability company or similar action, as applicable, on the part of such Holder.  Each Transaction Document to which it is a party has been duly executed by such Holder, and when delivered by such Holder in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Holder, enforceable against it in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
(b)
Own Account.  Such Holder understands that the Securities are "restricted securities" and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities in violation of the Securities Act or any applicable state securities law (this representation and warranty not limiting such Holder's right to sell the Securities in compliance with applicable federal and state securities laws).  Such Holder is acquiring the Securities hereunder in the ordinary course of its business.
(c)
Holder Status.  At the time such Holder was offered the Securities, it was, and as of the date hereof it is, and on each date on which it exercises any Warrants or converts any Debentures it will be an "accredited investor" as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act.
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(d)
Experience of Such Holder.  Such Holder, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment.  Such Holder is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment
(e)
Certain Risk Factors.  Such Holder understands and is aware that an investment in the Securities involves substantial risks, including, but not limited to, the risks as set forth in Item 1A of the Annual Report of the Company on Form 10-K for the Year Ended September 30, 2015 and as filed with the Commission.
(f)
Disclosure; Access to Information.  Such Holder has had access to all documents, records, books and other information pertaining to the Company or the Securities that it has desired to review, including, without limitation, the SEC Reports and the exhibits thereto, and there are no additional materials or documents that have been sought by such Holder that have not been available to such Holder.  Such Holder has had an opportunity to ask questions of and receive answers from the Company's representatives about the Company and the Securities.
(g)
General Solicitation.  Such Holder is not, to such Holder's knowledge, purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.
The Company acknowledges and agrees that the representations contained in this Section 3.2 shall not modify, amend or affect such Holder's right to rely on the Company's representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction Document or any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of the transactions contemplated hereby.

ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1            No Transfer Restrictions.
(a)
Subject to Section 4.1(b) below, the Securities shall have no restrictions on resale by the Holders (assuming cashless exercise of the Warrants).  The Securities, including the Underlying Shares upon issuance, shall not contain any legend and, whether at the closing, upon conversion of the Debentures or upon exercise of the Warrants (assuming cashless exercise) shall be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder's prime broker with the Depository Trust Company System as directed by such Holder.
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(b)
In the event that a Holder becomes an Affiliate of the Company, such Holder agrees to surrender any Securities held by it at such time such that the Company may affix a Securities Act legend on the certificates.
4.2            Acknowledgment of Dilution.  The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions.  The Company further acknowledges that its obligations under the Transaction Documents, including, without limitation, its obligation to issue the Underlying Shares pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Company may have against any Holder and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company.
4.3            Furnishing of Information; Public Information.  Until the earliest of the time that (i) no Holder owns Securities or (ii) the Warrants have expired, the Company covenants to maintain the registration of the Common Stock under Section 12(b) or 12(g) of the Exchange Act and to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act even if the Company is not then subject to the reporting requirements of the Exchange Act.
4.4            Integration.  The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market such that it would require shareholder approval prior to the closing of such other transaction unless shareholder approval is obtained before the closing of such subsequent transaction.
4.5            Conversion and Exercise Procedures.  Each of the form of Notice of Exercise included in the Warrants and the form of Notice of Conversion included in the Debentures set forth the totality of the procedures required of the Holders in order to exercise the Warrants or convert the Debentures.  Without limiting the preceding sentences, no ink-original Notice of Exercise or Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise or Notice of Conversion form be required in order to exercise the Warrants or convert the Debenture.  No additional legal opinion, other information or instructions shall be required of the Holders to exercise their Warrants or convert their Debentures.  The Company shall honor exercises of the Warrants and conversions of the Debentures and shall deliver Underlying Shares in accordance with the terms, conditions and time periods set forth in the Transaction Documents.
4.6            Securities Laws Disclosure; Publicity.  The Company shall (a) by 9:30 a.m. (New York City time) on the Trading Day immediately following the date hereof, issue a press release disclosing the material terms of the transactions contemplated hereby, and (b) file a Current Report on Form 8-K, including the Transaction Documents as exhibits thereto, with the Commission within the time required by the Exchange Act.  From and after the filing of such press release, the Company represents to the Holders that it shall have publicly disclosed all material, non-public information delivered to any of the Holders by the Company or any of its Subsidiaries, or any of their respective officers, directors, employees or agents in connection with the transactions contemplated by the Transaction Documents. In addition, effective upon the filing of such press release, the Company acknowledges and agrees that any and all confidentiality or similar obligations under any agreement, whether written or oral, between the Company, any of its Subsidiaries or any of their respective officers, directors, agents, employees or Affiliates on the one hand, and any of the Holders or any of their Affiliates on the other hand, shall terminate. The Company and each Holder shall consult with each other in issuing any other press releases with respect to the transactions contemplated hereby, and neither the Company nor any Holder shall issue any such press release nor otherwise make any such public statement without the prior consent of the Company, with respect to any press release of any Holder, or without the prior consent of each Holder, with respect to any press release of the Company, which consent shall not unreasonably be withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication.  Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Holder, or include the name of any Holder in any filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of such Holder, except: (a) as required by federal securities law in connection with (i) any registration statement and (ii) the filing of final Transaction Documents with the Commission and (b) to the extent such disclosure is required by law or Trading Market regulations, in which case the Company shall provide the Holders with prior notice of such disclosure permitted under this clause (b).
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4.7            Shareholder Rights Plan.  No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that any Holder is an "Acquiring Person" under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that any Holder could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Holders.
4.8            Non-Public Information.  Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, which shall be disclosed pursuant to Section 4.6, the Company covenants and agrees that neither it, nor any other Person acting on its behalf will provide any Holder or its agents or counsel with any information that constitutes, or the Company reasonably believes constitutes, material non-public information, unless prior thereto such Holder shall have consented to the receipt of such information and agreed with the Company to keep such information confidential.  The Company understands and confirms that each Holder shall be relying on the foregoing covenant in effecting transactions in securities of the Company.  To the extent that the Company delivers any material, non-public information to a Holder without such Holder's consent, the Company hereby covenants and agrees that such holder shall not have any duty of confidentiality to Company, any of its Subsidiaries, or any of their respective officers, directors, agents, employees or Affiliates, or a duty to the Company, and of its Subsidiaries or any of their respective officers, directors, agents, employees or Affiliates not to trade on the basis of, such material, non-public information, provided that the Holder shall remain subject to applicable law. To the extent that any notice provided pursuant to any Transaction Document constitutes, or contains, material, non-public information regarding the Company or any Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.  The Company understands and confirms that each Holder shall be relying on the foregoing covenant in effecting transactions in securities of the Company.
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4.9            [Reserved]
4.10            Indemnification of Holders.  Subject to the provisions of this Section 4.10, the Company will indemnify and hold each Holder and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Holder (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling persons (each, a "Holder Party") harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys' fees and costs of investigation that any such Holder Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against the Holder Parties in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Holder Party, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Holder Party's representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Holder Party may have with any such stockholder or any violations by such  Holder Party of state or federal securities laws or any conduct by such Holder Party which constitutes fraud, gross negligence, willful misconduct or malfeasance).  If any action shall be brought against any Holder Party in respect of which indemnity may be sought pursuant to this Agreement, such Holder Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Holder Party.  Any Holder Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Holder Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of counsel, a material conflict on any material issue between the position of the Company and the position of such Holder Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel.  The Company will not be liable to any Holder Party under this Agreement (y) for any settlement by a Holder Party effected without the Company's prior written consent, which shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Holder Party's breach of any of the representations, warranties, covenants or agreements made by such Holder Party in this Agreement or in the other Transaction Documents.  The indemnification required by this Section 4.10 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or are incurred.  The indemnity agreements contained herein shall be in addition to any cause of action or similar right of any Holder Party against the Company or others and any liabilities the Company may be subject to pursuant to law.
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4.11            Reservation and Listing of Securities.
(a)
The Company shall maintain a reserve of the Required Minimum from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents in such amount as may then be required to fulfill its obligations in full under the Transaction Documents.
(b)
If, on any date, the number of authorized but unissued (and otherwise unreserved) shares of Common Stock is less than the Required Minimum on such date, then the Board of Directors shall use commercially reasonable efforts to amend the Company's certificate or articles of incorporation to increase the number of authorized but unissued shares of Common Stock to at least the Required Minimum at such time, as soon as possible and in any event not later than the 75th day after such date.
(c)
The Company shall, if applicable: (i) in the time and manner required by the principal Trading Market, prepare and file with such Trading Market an additional shares listing application covering a number of shares of Common Stock at least equal to the Required Minimum on the date of such application, (ii) take all steps necessary to cause such shares of Common Stock to be approved for listing or quotation on such Trading Market as soon as possible thereafter, (iii) provide to the Holders evidence of such listing or quotation and (iv) maintain the listing or quotation of such Common Stock on any date at least equal to the Required Minimum on such date on such Trading Market or another Trading Market. The Company agrees to maintain the eligibility of the Common Stock for electronic transfer through the Depository Trust Company or another established clearing corporation, including, without limitation, by timely payment of fees to the Depository Trust Company or such other established clearing corporation in connection with such electronic transfer.
4.12            Participation in Future Financing.
(a)
From the date hereof until the date that is the 12-month anniversary of the Closing Date, upon any issuance by the Company or any of its Subsidiaries of Common Stock, Common Stock Equivalents for cash consideration, Indebtedness or a combination of units hereof (a "Subsequent Financing"), each Holder shall have the right to participate in up to an amount of the Subsequent Financing equal to 100% of the Subsequent Financing (the "Participation Maximum") on the same terms, conditions and price provided for in the Subsequent Financing.
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(b)
At least five (5) Trading Days prior to the closing of the Subsequent Financing, the Company shall deliver to each Holder a written notice of its intention to effect a Subsequent Financing ("Pre-Notice"), which Pre-Notice shall ask such Holder if it wants to review the details of such financing (such additional notice, a "Subsequent Financing Notice").  Upon the request of a Holder, and only upon a request by such Holder, for a Subsequent Financing Notice, the Company shall promptly, but no later than one (1) Trading Day after such request, deliver a Subsequent Financing Notice to such Holder.  The Subsequent Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount of proceeds intended to be raised thereunder and the Person or Persons through or with whom such Subsequent Financing is proposed to be effected and shall include a term sheet or similar document relating thereto as an attachment.
(c)
Any Holder desiring to participate in such Subsequent Financing must provide written notice to the Company by not later than 5:30 p.m. (New York City time) on the fifth (5th) Trading Day after all of the Holders have received the Pre-Notice that such Holder is willing to participate in the Subsequent Financing, the amount of such Holder's participation, and representing and warranting that such Holder has such funds ready, willing, and available for investment on the terms set forth in the Subsequent Financing Notice.  If the Company receives no such notice from a Holder as of such fifth (5th) Trading Day, such Holder shall be deemed to have notified the Company that it does not elect to participate.
(d)
If by 5:30 p.m. (New York City time) on the fifth (5th ) Trading Day after all of the Holders have received the Pre-Notice, notifications by the Holders of their willingness to participate in the Subsequent Financing (or to cause their designees to participate) is, in the aggregate, less than the total amount of the Subsequent Financing, then the Company may effect the remaining portion of such Subsequent Financing on the terms and with the Persons set forth in the Subsequent Financing Notice.
(e)
If by 5:30 p.m. (New York City time) on the fifth (5th) Trading Day after all of the Holders have received the Pre-Notice, the Company receives responses to a Subsequent Financing Notice from Holders seeking to purchase more than the aggregate amount of the Participation Maximum, each such Holder shall have the right to purchase its Pro Rata Portion (as defined below) of the Participation Maximum.  "Pro Rata Portion" means the ratio of (x) the Principal Amount of Debentures issued on the Closing Date to a Holder participating under this Section 4.12 and (y) the sum of the aggregate Principal Amounts of Debentures issued on the Closing Date to all Holders participating under this Section 4.12.
(f)
The Company must provide the Holders with a second Subsequent Financing Notice, and the Holders will again have the right of participation set forth above in this Section 4.12, if the Subsequent Financing subject to the initial Subsequent Financing Notice is not consummated for any reason on the terms set forth in such Subsequent Financing Notice within thirty (30) Trading Days after the date of the initial Subsequent Financing Notice.
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(g)
The Company and each Holder agree that if any Holder elects to participate in the Subsequent Financing, the transaction documents related to the Subsequent Financing shall not include any term or provision whereby such Holder shall be required to agree to any restrictions on trading as to any of the Securities purchased hereunder or be required to consent to any amendment to or termination of, or grant any waiver, release or the like under or in connection with, this Agreement, without the prior written consent of such Holder.
(h)
Notwithstanding anything to the contrary in this Section 4.12 and unless otherwise agreed to by such Holder, the Company shall either confirm in writing to such Holder that the transaction with respect to the Subsequent Financing has been abandoned or shall publicly disclose its intention to issue the securities in the Subsequent Financing, in either case in such a manner such that such Holder will not be in possession of any material, non-public information, by the tenth (10th) Business Day following delivery of the Subsequent Financing Notice.  If by such tenth (10th) Business Day, no public disclosure regarding a transaction with respect to the Subsequent Financing has been made, and no notice regarding the abandonment of such transaction has been received by such Holder, such transaction shall be deemed to have been abandoned and such Holder shall not be deemed to be in possession of any material, non-public information with respect to the Company or any of its Subsidiaries. 
(i)
Notwithstanding the foregoing, this Section 4.12 shall not apply in respect of an Exempt Issuance.
4.13            Subsequent Equity Sales.  From the date hereof until such time as no Holder holds any of the Warrants, the Company shall be prohibited from effecting or entering into an agreement to effect any issuance by the Company or any of its Subsidiaries of Common Stock or Common Stock Equivalents (or a combination of units thereof) involving a Variable Rate Transaction. "Variable Rate Transaction" means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may issue securities at a future determined price.  Any Holder shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.
4.14            Equal Treatment of Holders.  No consideration (including any modification of any Transaction Document) shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of the Transaction Documents unless the same consideration is also offered to all of the parties to such Transaction Documents. Further, the Company shall not make any payment of principal or interest on the Debentures in amounts which are disproportionate to the respective principal amounts outstanding on the Debentures at any applicable time.  For clarification purposes, this provision constitutes a separate right granted to each Holder by the Company and negotiated separately by each Holder, and is intended for the Company to treat the Holders as a class and shall not in any way be construed as the Holders acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise.
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4.15            Certain Transactions and Confidentiality. Each Holder, severally and not jointly with the other Holders, covenants that neither it, nor any Affiliate acting on its behalf or pursuant to any understanding with it will execute any purchases or sales, including Short Sales, of any of the Company's securities during the period commencing with the execution of this Agreement and ending at such time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.6.  Each Holder, severally and not jointly with the other Holders, covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company pursuant to the initial press release as described in Section 4.6, such Holder will maintain the confidentiality of the existence and terms of this transaction and the information included in the Transaction Documents and the Disclosure Schedules.  Notwithstanding the foregoing, and notwithstanding anything contained in this Agreement to the contrary, the Company expressly acknowledges and agrees that (i) no Holder makes any representation, warranty or covenant hereby that it will not engage in effecting transactions in any securities of the Company after the time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.6, (ii) no Holder shall be restricted or prohibited from effecting any transactions in any securities of the Company in accordance with applicable securities laws from and after the time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.7 and (iii) no Holder shall have any duty of confidentiality or duty not to trade in the securities of the Company to the Company or its Subsidiaries after the issuance of the initial press release as described in Section 4.6; provided, however, that each Holder, severally and not jointly with the other Holders, agrees not to execute any sales of the Shares until the earlier of (i) the date that an Event of Default occurs under the Debentures, (ii) the date that, on each of 10 consecutive Trading Days, the trading price of the Common Stock exceeds $0.50 (subject to adjustment for reverse and forward stock splits and the like) and the daily trading volume during such period exceeds $100,000 and (iii) as to 50% of the Shares issued to a Holder, the 12-month anniversary of the Closing Date and as to the balance of the Shares, the 18-month anniversary of the Closing Date, provided further, the restrictions on sales of the Shares shall not apply to transfers whereby the transferee has agreed in writing to be bound by the same terms described in this Agreement to the extent and for the duration that such terms remain in effect at the time of the transfer.   Notwithstanding the foregoing, in the case of a Holder that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Holder's assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Holder's assets, the covenant set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement.
4.16            Form D; Blue Sky Filings.  The Company agrees to timely file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof, promptly upon request of any Holder. The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Holders at the Closing under applicable securities or "Blue Sky" laws of the states of the United States, and shall provide evidence of such actions promptly upon request of any Holder.
31
ARTICLE V.
MISCELLANEOUS
5.1            Termination.  This Agreement may be terminated by any Holder, as to such Holder's obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Holders, by written notice to the other parties, if the Closing has not been consummated on or before February ___, 2016; provided, however, that such termination will not affect the right of any party to sue for any breach by any other party (or parties).
5.2            Fees and Expenses.  At the Closing, the Company has agreed to reimburse Hillair Capital Management LLC ("Hillair") for its legal fees and expenses, not to exceed $25,000 in the aggregate.  Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement.  The Company shall pay all Transfer Agent fees (including, without limitation, any fees required for same-day processing of any instruction letter delivered by the Company and any conversion or exercise notice delivered by a Holder), stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Holders.
5.3            Entire Agreement.  The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.
5.4            Notices.  Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment as set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment as set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second (2nd) Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given.  The address for such notices and communications shall be as set forth on the signature pages attached hereto. To the extent that any notice provided pursuant to any Transaction Document constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.
32
5.5            Amendments; Waivers.  No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and the Primary Holders that own Securities at the time of such amendment (unless, at the time of such amendment, the Primary Holders no longer own any Securities, in which case by a written instrument signed by a majority in interest of the Securities then outstanding) or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought.  No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right
5.6            Headings.  The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.
5.7            Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns.  The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Holder (other than by merger).  Any Holder may assign any or all of its rights under this Agreement to any Person to whom such Holder assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the "Holders."
5.8            No Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.10 and this Section 5.8.
5.9            Governing Law.  All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof.  Each party agrees that all legal Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York.  Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any Action or Proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such Action or Proceeding is improper or is an inconvenient venue for such Proceeding.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such Action or Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.  If any party hereto shall commence an Action or Proceeding to enforce any provisions of the Transaction Documents, then, in addition to the obligations of the Company under Section 4.10, the prevailing party in such Action or Proceeding shall be reimbursed by the non-prevailing party for its reasonable attorneys' fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Action or Proceeding.
33
5.10            Survival.  The representations and warranties contained herein shall survive the Closing and the delivery of the Securities.
5.11            Execution.  This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to each other party, it being understood that the parties need not sign the same counterpart.  In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a ".pdf" format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or ".pdf" signature page were an original thereof.
5.12            Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
5.13            Rescission and Withdrawal Right.  Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever any Holder exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Holder may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights; provided, however, that in the case of a rescission of a conversion of a Debenture or exercise of a Warrant, the applicable Holder shall be required to return any shares of Common Stock subject to any such rescinded conversion or exercise notice concurrently with the return to such Holder of the aggregate exercise price paid to the Company for such shares and the restoration of such Holder's right to acquire such shares pursuant to such Holder's Warrant (including, issuance of a replacement warrant certificate evidencing such restored right).
34
5.14            Replacement of Securities.  If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction.  The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.
5.15            Remedies.  In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Holders and the Company will be entitled to specific performance under the Transaction Documents.  The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive and not to assert in any Action for specific performance of any such obligation the defense that a remedy at law would be adequate.
5.16            Payment Set Aside. To the extent that the Company makes a payment or payments to any Holder pursuant to any Transaction Document or a Holder enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.
5.17            Usury.  To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any Action or Proceeding that may be brought by any Holder in order to enforce any right or remedy under any Transaction Document.  Notwithstanding any provision to the contrary contained in any Transaction Document, it is expressly agreed and provided that the total liability of the Company under the Transaction Documents for payments in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the "Maximum Rate"), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums in the nature of interest that the Company may be obligated to pay under the Transaction Documents exceed such Maximum Rate.  It is agreed that if the maximum contract rate of interest allowed by law and applicable to the Transaction Documents is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective date thereof forward, unless such application is precluded by applicable law.  If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to any Holder with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied by such Holder to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at such Holder's election.
35
5.18            Independent Nature of Holders' Obligations and Rights.  The obligations of each Holder under any Transaction Document are several and not joint with the obligations of any other Holder, and no Holder shall be responsible in any way for the performance or non-performance of the obligations of any other Holder under any Transaction Document.  Nothing contained herein or in any other Transaction Document, and no action taken by any Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Holders are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents.  Each Holder shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Holder to be joined as an additional party in any Proceeding for such purpose.  Each Holder has been represented by its own separate legal counsel in its review and negotiation of the Transaction Documents.  For reasons of administrative convenience only, each Holder and its respective counsel have chosen to communicate with the Company through EGS.  EGS does not represent any of the Holders and only represents Hillair.  The Company has elected to provide all Holders with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by any of the Holders.
5.19            Liquidated Damages.  The Company's obligations to pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled.
5.20            Saturdays, Sundays, Holidays, etc.  If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.
5.21            Construction. The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments thereto. In addition, each and every reference to share prices and shares of Common Stock in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.
5.22            WAIVER OF JURY TRIAL.  IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.

(Signature Pages Follow)
36
IN WITNESS WHEREOF, the parties hereto have caused this Securities Exchange Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
ACTIVECARE, INC.
 
 
Address for Notice:
By:__________________________________________
     Name:
     Title:
 
With a copy to (which shall not constitute notice):
Fax:

 
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR HOLDER FOLLOWS]
37
[HOLDER SIGNATURE PAGES TO ACAR SECURITIES EXCHANGE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Exchange Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Holder: ________________________________________________________
 
Signature of Authorized Signatory of Holder: __________________________________
 
Name of Authorized Signatory: ____________________________________________________
 
Title of Authorized Signatory: _____________________________________________________
 
Email Address of Authorized Signatory: _____________________________________________
 
Facsimile Number of Authorized Signatory: __________________________________________
 
Address for Notice to Holder:




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




Preferred Shares/Stated Value Surrendered: _________shares/$__________ Stated Value
Existing Warrant Surrendered: __________________
Principal Amount of Debentures: _____________
Shares: ___________________
Section 2.2(a)(iv) Warrant Shares: _________________
Section 2.2(a)(v) Warrant Shares: ___________________

[SIGNATURE PAGES CONTINUE]
 
 
 
38
 EX-10.3 4 exh103.htm FORM OF NOTICE OF CONVERSION BY AND AMONG ACTIVECARE, INC. AND THE HOLDERS OF ACTIVECARE 12% SUBORDINATED CONVERTIBLE PROMISSORY NOTES
Exhibit 10.3
NOTICE OF CONVERSION
(2015 Bridge Loan – Promissory Notes)
TO:                            ActiveCare, Inc.
            1365 West Business Park Avenue
             Orem, Utah 84058
Attn:                          James Dalton, Chief Executive Officer

1.            The undersigned noteholder ("Noteholder") is the holder of one or more Promissory Notes ("Notes") in the aggregate principal amount of Three Hundred Fifty Thousand Dollars ($350,000) issued by ActiveCare, Inc., a Delaware corporation (the "Company"), pursuant to that certain Subscription Agreement made as of August 24, 2015, by and among the Company and each subscriber set forth on Schedule 1 attached thereto (as amended or modified, the "Subscription Agreement").  Capitalized terms in this Notice shall have the meaning provided them in the Subscription Agreement.
2.            All principal, interest and other amounts owing under the Notes shall be referred to as the "Outstanding Balance".
3.            Notwithstanding anything to the contrary in the Notes, Noteholder hereby elects to convert all of the Outstanding Balance into Common Stock of the Company at $.04 per share (the "Conversion Shares").  The Closing Date is defined as the date the Company closes on a financing with Partners for Growth IV, L.P. ("PFG").  In the case that the PFG financing does not occur within 30 days from the date herein, then this Notice of Conversion will be null and void.
4.            Please issue the Conversion Shares under this Notice of Conversion in the name of Noteholder as indicated in the attached Schedule I on the Closing Date (the "Exchange Date").  Interest shall be paid on the Notes as provided therein through the Exchange Date.
5.            Noteholder hereby acknowledges and agrees that upon conversion of the Outstanding Balance into the Conversion Shares, all of the Company's obligations under the Notes shall be deemed satisfied in full, the Notes shall be cancelled and the Security Agreement shall be terminated, all rights of Noteholder thereunder shall terminate and any liens granted pursuant to the Notes or the Subscription Agreement shall be terminated an released.
DATED as of February __, 2016

Company:
 
ActiveCare, Inc.
 
 
By:                                                                                
Name:                                                                                
Title:                                                                                
Noteholder:
 
 
 
 
By:                                                                          
Name: -___________________________
Address: _________________________
   

SCHEDULE I



NAME OF HOLDER                                                                                                  NO. OF SHARES TO BE ISSUED
 
 
 
 
 EX-10.4 5 exh104.htm FORM OF MERCHANT AGREEMENT DATED FEBRUARY 11, 2016
Exhibit 10.4
 
MERCHANT AGREEMENT

Agreement dated February 11, 2016 between ________, Inc. ("________" and/or "FUNDER") and the merchant listed below ("the Merchant").
Business Legal Name: ACTIVECARE, INC
D/B/A: VOLU-SOL, REAL TIME HEALTH, GWIRE CORPORATION, ORBIT MEDICAL RESPONSE, RAPID MEDICAL RESPONSE, GREENWIRE
Type of entity (check one) __X__ Corporation ____LLC ___ Limited Partnership __ Limited Liability Partnership ____ Sole Proprietor Physical Address: 1365 WEST BUSINESS PARK DRIVE CITY/STATE: OREM, UT ZIP: 84058
Mailing Address: 1365 WEST BUSINESS PARK DRIVE CITY/STATE: OREM, UT ZIP: 84058 Fed ID#: _______________
PURCHASE AND SALE OF FUTURE RECEIVABLES

Merchant hereby sells, assigns and transfers to ________ (making ________ the absolute owner) in consideration of the funds provided ("Purchase Price") specified below, all of Merchant's future receipts, accounts, contract rights and other obligations arising from or relating to the payment of monies from Merchant's customers' and/or other third party payers (collectively the "Receipts" defined as all payments made by cash, check, credit or debit card, electronic transfer or other form of monetary payment in the ordinary course of the merchant's business) until such time as the " R e c ei pt s Pu rc ha s ed A mou nt" has been delivered by Merchant to ________.

The Purchased Amount shall be paid to ________ by Merchant's irrevocably authorizing only one depositing account acceptable to ________ (the "Account") to remit the percentage specified below (the "Specified Percentage") of the Merchant's receipts, until such time as ________ receives payment in full of the Receipts Purchased Amount. In consideration of servicing the account, the Merchant hereby authorizes ________ to ACH debit the "Specified Daily Amount" from the merchant's bank account as the base payment credited against the Specified Percentage due. It is the Merchant's responsibility to provide bank statements for any and all bank accounts by the Merchant to reconcile the daily payments made against the Specified Percentage permitting ________ to debit or credit the difference to the merchant so that payment equals the Specified Percentage. Failure to provide all of their bank statements in a timely manner or missing a month shall forfeit all rights to future reconciliations. ________ may upon Merchant's request, adjust the amount of any payment due under this Agreement at ________'s sole discretion and as it deems appropriate in servicing this Agreement. Merchant understands that it is responsible for ensuring that funds adequate to cover amount to be debited by ________ remains in the account. Merchant will be held responsible for any fees incurred by ________ resulting from a rejected ACH attempt or an event of default. (See Appendix A). ________ is not responsible for any overdrafts or rejected transactions in the Merchants account which may result from ________'s scheduled ACH debit under the terms of this agreement. Notwithstanding anything to the contrary in this Agreement or any other agreement between ________ and Merchant, upon the violation of any provision contained in Section 1.11 of the MERCHANT AGREEMENT TERMS AND CONDITIONS, the Specified Percentage shall equal 100%. A list of all fees applicable under this agreement is contained in Appendix A.

Purchase Price: $380,000.00 Specified Percentage: 10% Specific Daily Amount: $2,822.86/175 Receipts Purchased Amount: $494,000.00

THE TERMS, DEFINITIONS, CONDITIONS AND INFORMATION SET FORTH ON PAGES 2 THROUGH 12 HEREOF ARE HERBY INCORPORATED HEREIN AND MADE A PART OF THIS MERCHANT AGREEMENT.

FOR THE MERCHANT #1
By: ________                                                                                                                X ____    _    _    _    _    _    _    _    _    _    _    _  __

CFO
OWNER #1
(Print Title)                                                                                                                                                   (Merchant 1 Signature)

By: ________                                                                                                                X ____    _    _    _    _    _    _    _    _    _    _    _  _  

CFO
(Print Title)                                                                                                                                          (Merchant 1 Signature)
FOR THE MERCHANT #2
By: ________                                                                                                                X ____    _    _    _    _    _    _    _    _    _    _    _  __

CEO
OWNER #2
(Print Title)                                                                                                                                                     (Merchant 2 Signature)

By: ________                                                                                                                X ____    _    _    _    _    _    _    _    _    _    _    _  _  

CEO
(Print Title)                                                                                             (Merchant 2 Signature)


________, INC.

By _______    _    _    _    _        _    _    _    _    _    _    _    _    _    _  _   
Company Officer

To the extent set forth herein, each of the parties is obligated upon his, her or its execution of the Agreement to all terms of the Agreement, including the Additional Terms set forth below. Each of above-signed Merchant and Owner(s) represents that he or she is authorized to sign this Agreement for Merchant, legally binding said Merchant to repay this obligation and that the information provided herein and in all of ________ documents, forms and recorded interviews is true, accurate and complete in all respects. If any such information is false or misleading, Merchant shall be deemed in material breach of all agreements between Merchant and ________ and ________ shall be entitled to all remedies available under law. Merchant and each of the above-signed Owners authorizes ________, its agents and representatives and any credit-reporting agency engaged by ________, to (i) investigate any references given or any other statements or data obtained from or about Merchant or any of its Owners for the purpose of this Agreement, and (ii) pull credit report at any time now or for so long as Merchant and/Owner(s) continue to have any obligation owed to ________.

1
ANY MISREPRESENTATION MADE BY MERCHANT OR OWNER IN CONNECTION WITH THIS AGREEMENT MAY CONSTITUTE A
SEPARATE CAUSE OF ACTION FOR FRAUD OR INTENTIONAL MISREPRESENTATION

MERCHANT AGREEMENT TERMS AND CONDITIONS

I.
TERMS OF ENROLLMENT IN PROGRAM
1.1  Electronic Fund Transfer. Upon request from ________ ("FUNDER") Merchant shall execute such forms or agreements acceptable to FUNDER, with Bank acceptable to FUNDER, to obtain electronic fund transfer services. Merchant shall provide FUNDER, and/or its authorized agent with all the information, authorization and passwords necessary for verifying Merchant's receivable, receipts and deposits into the account Merchant shall authorize FUNDER and/or it's agent to deduct the amounts owed to FUNDER for the Receipts as specified herein from settlement amounts which would otherwise be due to Merchant from electronic check transactions and to pay such amounts to FUNDER by permitting FUNDER to withdraw the specified percentages by ACH debiting of the account. The authorization shall be irrevocable without the written consent of FUNDER.
1.2  Merchant Deposit Agreement. Merchant shall execute an agreement (the "Merchant Deposit Agreement") acceptable to FUNDER, with a Bank acceptable to FUNDER, to obtain electronic fund transfer services. Merchant shall provide FUNDER and/or its authorized agent with all of the information, authorizations and passwords necessary for verifying Merchant's receivables, receipts and deposits into the account. Merchant shall authorize FUNDER and/or it's agent to deduct the amounts owed to FUNDER for the Receipts as specified herein from settlement amounts which would otherwise be due to Merchant from electronic check transactions and to pay such amounts to FUNDER by permitting FUNDER to withdraw the specified percentages by ACH debiting of the account. The authorization shall be irrevocable without the written consent of FUNDER.
1.3
  Term of Agreement. This Agreement shall have a term of one year. Upon the expiration of the term, this Agreement shall automatically renew for successive one-year terms, provided, however, that during the renewal term(s) Merchant may terminate this Agreement upon ninety days' prior written notice (effective upon receipt) to FUNDER. The termination of this Agreement shall not affect Merchant's responsibility to satisfy all outstanding obligations to FUNDER at the time of termination.
1.4
  Future Purchases. FUNDER reserves the right to rescind the offer to make any purchase payments hereunder, in its sole discretion.
1.5
  Financial Condition. Merchant and Guarantor(s) authorize FUNDER and its agents to investigate their financial responsibility and history, and will provide to FUNDER any bank or financial statements, tax returns, etc., as FUNDER deems necessary prior to or at any time after execution of this Agreement. A photocopy of this authorization will be deemed as acceptable for release of financial information. FUNDER is authorized to update such information and financial profiles from time to time as it deems appropriate.
1.6
  Transactional History. Merchant authorizes their bank to provide FUNDER with Merchant's banking or processing history to determine qualification or continuation in this program.
1.7
  Indemnification. Merchant and Guarantor(s) jointly and severally indemnify and hold harmless Processor, its officers, directors and shareholders against all losses, damages, claims, liabilities and expenses (including reasonable attorney's fees) incurred by Processor resulting from (a) claims asserted by FUNDER for monies owed to FUNDER from Merchant and (b) actions taken by Processor in reliance upon information or instructions provided by FUNDER.
1.8
  No Liability. In no event will FUNDER be liable for any claims asserted by Merchant under any legal theory for lost profits, lost revenues, lost business opportunities, exemplary, punitive, special, incidental, indirect or consequential damages, each of which is waived by Merchant and Guarantor(s).
1.9
  Reliance on Terms. Section 1.1, 1.7, 1.8 and 2.5 of this Agreement are agreed to for the benefit of Merchant, FUNDER and Processor, and notwithstanding the fact that Processor is not a party of this Agreement, Processor may rely upon their terms and raise them as a defense in any action.
1.10
  Sale of Receipts. Merchant and FUNDER agree that the Purchase Price under this Agreement is in exchange for the Purchased Amount and that such Purchase Price is not intended to be, nor shall it be construed as a loan from FUNDER to Merchant. Merchant agrees that the Purchase Price is in exchange for the Receipts pursuant to this Agreement equals the fair market value of such Receipts. FUNDER has purchased and shall own all the Receipts described in this Agreement up to the full Purchased Amount as the Receipts are created. Payments made to FUNDER in respect to the full amount of the Receipts shall be conditioned upon Merchant's sale of products and services and the payment therefore by Merchant's customers in the manner provided in Section 1.1. In no event shall the aggregate of all amounts be deemed as interest hereunder and charged or collected hereunder exceed the highest rate permissible at law. In the event that a court determines that FUNDER has charged or received interest hereunder in excess of the highest applicable rate, the rate in effect hereunder shall automatically be reduced to the maximum rate permitted by applicable law and FUNDER shall promptly refund to Merchant any interest received by FUNDER in excess of the maximum lawful rate, it being intended that Merchant not pay or contract to pay, and that FUNDER not receive or contract to receive, directly or indirectly in any manner whatsoever, interest in excess of that which may be paid by Merchant under applicable law.
1.11
  Power of Attorney Merchant irrevocably appoints FUNDER as its agent and attorney-in-fact with full authority to take any action or execute any instrument or document to settle all obligations due to FUNDER from Processor, or in the case of a violation by Merchant of Section 1.12 or the occurrence of an Event of Default under Section 4 hereof, from Merchant,  under  this  Agreement,  including without limitation (i) to obtain and adjust insurance; (ii) to collect monies due or to become due under or in respect of any of the Collateral; (iii) to receive, endorse and collect any checks, notes, drafts, instruments, documents or chattel paper in connection with clause
(i)
  or clause (ii) above; (iv) to sign Merchant's name on any invoice, bill of lading, or assignment directing customers or account debtors to make payment directly to FUNDER; and (v) to file any claims or take any action or institute any proceeding which FUNDER may deem necessary for the collection of any of the unpaid Purchased Amount from the Collateral, or otherwise to enforce its rights with respect to payment of the Purchased Amount.
1.12
  Protections Against Default. The following Protections 1 through 7 may be invoked by FUNDER, immediately and without notice to Merchant in the event: (a) Merchant takes any action to discourage the use of electronic check processing that are settled through Processor, or permits any event to occur that could have an adverse effect on the use, acceptance, or authorization of checks for the purchase of Merchant's services and products including but not limited to direct deposit of any checks into a bank account without scanning into the FUNDER electronic check processor;
(b)   Merchant changes its arrangements with Processor in any way that is adverse to FUNDER; (c) Merchant changes the electronic check processor through which the Receipts are settled from Processor to another electronic check processor, or permits any event to occur that could cause diversion of any of Merchant's check transactions to another processor; (d) Merchant interrupts the operation of this business (other than adverse weather, natural disasters or acts of God) transfers, moves, sells, disposes, transfers or otherwise conveys its business or assets without (i) the express prior written consent of FUNDER, and (ii) the written agreement of any purchaser or transferee to the assumption of all of Merchant's obligations under this Agreement pursuant to documentation satisfactory to FUNDER; or (e) Merchant takes any action, fails to take any action, or offers any incentive—economic or otherwise—the result of which will be to induce any customer or customers to pay for Merchant's services with any means other than checks that are settled through Processor. These protections are in addition to any other remedies available to FUNDER at law, in equity or otherwise pursuant to this Agreement. Protection 1. The full uncollected Purchase Amount plus all fees due under this Agreement and the attached Security Agreement become due and payable in full immediately Protection 2. FUNDER may enforce the provisions of the Personal Guarantee of Performance against the Guarantor.  Protection 3. Merchant shall, upon execution of this Agreement, deliver to FUNDER an executed confession of judgment in favor of FUNDER in the amount of the Purchase Amount stated in the Agreement. Upon breach of any provision in this paragraph 1.11, FUNDER may enter that confession of judgment as a judgment with the Clerk of the Court and execute thereon.
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Protection 4. FUNDER may enforce its security interest in the Collateral identified in Article III hereof. Protection 5. The entire Purchase Amount shall become immediately refundable to FUNDER from Merchant. Protection 6. FUNDER may proceed to protect and enforce its rights and remedies by lawsuit. In any such lawsuit, in which FUNDER shall recover judgment against Merchant, Merchant shall be liable for all of FUNDER's costs of lawsuit, including but not limited to all reasonable attorneys' fees and court costs.
Protection 7. Merchant shall, upon execution of this Agreement, deliver to FUNDER an executed assignment of lease of Merchant's premises in favor of FUNDER. Upon breach of any provision in this paragraph 1.12, FUNDER may exercise its rights under such assignment of lease.
Protection 8. FUNDER may debit Merchant's depository accounts wherever situated by means of ACH debit or facsimile signature on a computer- generated check drawn on Merchant's bank account or otherwise.
Protection 9. In the event Merchant changes or permits the change of the Processor approved by ________, or adds an additional Processor, in violation of Section 1.11 above, ________ shall have the right, without waiving any of its rights and remedies and without notice to Merchant, to notify the new or additional Processor of the sale of the Receipts hereunder and to driect such new or additional Processor to make payment directly to ________ of all or any portion of the amount received by such Processor.
1.13
  Protection of Information. Merchant and each person signing this Agreement on behalf of Merchant and/or as Owner, in respect of himself or herself personally, authorizes FUNDER to disclose information concerning Merchant's and each Owner's credit standing (including credit bureau reports that FUNDER obtains) and business conduct only to agents, affiliates, subsidiaries, and credit reporting bureaus. Merchant and each Owner hereby waives to the maximum extent permitted by law any claim for damages against FUNDER or any of its affiliates relating to any (i) investigation undertaken by or on behalf of FUNDER as permitted by this Agreement or
(ii)
  disclosure of information as permitted by this Agreement.
1.14 
  Confidentiality. Merchant understands and agrees that the terms and conditions of the products and services offered by FUNDER, including this Agreement and any other FUNDER documentations (collectively, "Confidential Information") are proprietary and confidential information of FUNDER. Accordingly unless disclosure is required by law or court order, Merchant shall not disclose Confidential Information of FUNDER to any person other than an attorney, accountant, financial advisor or employee of Merchant who needs to know such information for the purpose of advising Merchant ("Advisor"), provided such Advisor uses such information solely for the purpose of advising Merchant and first agrees in writing to be bound by the terms of this Section 1.13.
1.15
  Publicity. Merchant and each Owner only authorizes FUNDER to use its, his or her name in a listing of clients and in advertising and marketing materials with their express written consent.
1.16
  D/B/A's. Merchant hereby acknowledges and agrees that FUNDER may be using "doing business as" or "d/b/a" names in connection with various matters relating to the transaction between FUNDER and Merchant, including the filing of UCC-1 financing statements and other notices or filings.
II.
REPRESENTATIONS, WARRANTIES AND COVENANTS Merchant represents, warrants and covenants that as of this date and during the term of this Agreement:
2.1 
  Financial Condition and Financial Information. Its bank and financial statements, copies of which have been furnished to FUNDER, and future statements which will be furnished hereafter at the discretion of FUNDER, fairly represent the financial condition of Merchant at such dates, and since those dates there has been no material adverse changes, financial or otherwise, in such condition, operation or ownership of Merchant. Merchant has a continuing, affirmative obligation to advise FUNDER of any material adverse change in its financial condition, operation or ownership. FUNDER may request statements at any time during the performance of this Agreement and the Merchant shall provide them to FUNDER within 5 business days. Merchant's failure to do so is a material breach of this Agreement.
2.2
  Governmental Approvals. Merchant is in compliance and shall comply with all laws and has valid permits, authorizations and licenses to own, operate and lease its properties and to conduct the business in which it is presently engaged.
2.3
  Authorization. Merchant, and the person(s) signing this Agreement on behalf of Merchant, have full power and authority to incur and perform the obligations under this Agreement, all of which have been duly authorized.
2.4
  Insurance. Merchant will maintain business- interruption insurance naming ________ as loss payee and additional insured in amounts and against risks as are satisfactory to FUNDER and shall provide FUNDER proof of such insurance upon request.
2.5
  Electronic Check Processing Agreement. Merchant will not change its processor, add terminals, change its financial institution or bank account(s) or take any other action that could have any adverse effect upon Merchant's obligations under this Agreement, without FUNDER's prior written consent. Any such change shall be a material breach of this Agreement.
2.6
  Change of Name or Location. Merchant will not conduct Merchant's businesses under any name other than as disclosed to the Processor and FUNDER or change any of its places of business.
2.7
  Daily Batch Out. Merchant will batch out receipts with the Processor on a daily basis.
2.8
  Estoppel Certificate. Merchant will at any time, and from time to time, upon at least one (1) day's prior notice from FUNDER to Merchant, execute, acknowledge and deliver to FUNDER and/or to any other person, person firm or corporation specified by FUNDER, a statement certifying that this Agreement is unmodified and in full force and effect (or, if there have been modifications, that the same is in full force and effect as modified and stating the modifications) and stating the dates which the Purchased Amount or any portion thereof has been repaid.
2.9
  No Bankruptcy. As of the date of this Agreement, Merchant does not contemplate and has not filed any petition for bankruptcy protection under Title 11 of the United States Code and there has been no involuntary petition brought or pending against Merchant. Merchant further warrants that it does not anticipate filing any such bankruptcy petition and it does not anticipate that an involuntary petition will be filed against it. In the event that the Merchant files for bankruptcy protection or is placed under an involuntary filing Protections 2 and 3 are immediately invoked.
2.10
  Working Capital Funding. Merchant shall not enter into any arrangement, agreement or commitment that relates to or involves the Receipts, whether in the form of a purchase of, a loan against, collateral against or the sale or purchase of credits against, Receipts or future check sales with any party other than FUNDER.
2.11
  Unencumbered Receipts. Merchant has good, complete and marketable title to all Receipts, free and clear of any and all liabilities, liens, claims, changes, restrictions, conditions, options, rights, mortgages, security interests, equities, pledges and encumbrances of any kind or nature whatsoever or any other rights or interests that may be inconsistent with the transactions contemplated with, or adverse to the interests of FUNDER.
2.12
  Business Purpose. Merchant is a valid business in good standing under the laws of the jurisdictions in which it is organized and/or operates, and Merchant is entering into this Agreement for business purposes and not as a consumer for personal, family or household purposes.
2.13
  Default under Other Contracts. Merchant's execution of and/or performance under this Agreement will not cause or create an event of default by Merchant under any contract with another person or entity.
III.
  EVENTS OF DEFAULT AND REMEDIES
3.1
  Events of Default. The occurrence of any of the following events shall constitute an "Event of Default" hereunder: (a) Merchant shall violate any term or covenant in this Agreement; (b) Any representation or warranty by Merchant in this Agreement shall prove to have been incorrect, false or misleading in any material respect when made; (c) Merchant shall admit in writing its inability to pay its debts, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against Merchant seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, or composition of it or its debts; (d) the sending of notice of termination by Guarantor; (e) Merchant shall transport, move, interrupt, suspend, dissolve or terminate its business; (f) Merchant shall transfer or sell all or substantially all of its assets; (h) Merchant shall make or send notice of any intended bulk sale or transfer by Merchant; (i) Merchant shall use multiple depository accounts without the prior written consent of FUNDER; (j) Merchant shall change its depositing account without the prior written consent of FUNDER;
(k) Merchant shall perform any act that reduces the value of any Collateral granted under this Agreement; or (l) Merchant shall default under any of the terms, covenants and conditions of any other agreement with FUNDER.
3.2
  Remedies. In case any Event of Default occurs and is not waived pursuant to Section 4.4.1 hereof, FUNDER may proceed to protect and enforce its rights or remedies by suit in equity or by action at law, or both, whether for the specific performance of any covenant, agreement or other provision contained herein, or to enforce the discharge of Merchant's obligations hereunder (including the Personal Guarantee) or any other legal or equitable right or remedy. FUNDER may also file a Complaint in Confession of Judgment pursuant to the Warrant of Attorney contained herein. All rights, powers and remedies of FUNDER in connection with this Agreement may be exercised at any time by FUNDER after the occurrence of an Event of Default, are cumulative and not exclusive, and shall be in addition to any other rights, powers or remedies provided by law or equity.
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3.3
  WARRANT OF ATTORNEY TO CONFESS JUDGMENT. UPON THE OCCURRENCE OF AN EVENT OF DEFAULT, MERCHANT AND GUARANTOR IRREVOCABLY AUTHORIZE AND EMPOWER ANY ATTORNEY OR ANY CLERK OF ANY COURT OF RECORD, TO APPEAR FOR AND CONFESS JUDGMENT AGAINST MERCHANT AND GUARANTOR FOR SUCH SUMS AS ARE DUE AND/OR MAY BECOME DUE UNDER THIS MERCHANT AGREEMENT OR ANY ACCOMPANYING DOCUMENTS, WITH OR WITHOUT DECLARATION, WITH COSTS OF SUIT, WITHOUT STAY OF EXECUTION AND WITH AN AMOUNT, FOR LIEN PRIORITY PURPOSES, EQUAL TO TEN PERCENT (10%) OF THE AMOUNT OF SUCH JUDGMENT, BUT NOT LESS THAN ONE THOUSAND DOLLARS ($1,000.00), ADDED FOR ATTORNEYS' COLLECTION FEES, WITH THE ACTUAL AMOUNT OF ATTORNEY'S FEES AND COSTS TO BE DETERMINED IN ACCORDANCE WITH THE SECTION OF THIS MERCHANT AGREEMENT "ATTORNEY'S FEES AND COLLECTION COSTS." TO THE EXTENT PERMITTED BY LAW, MERCHANT AND GUARANTOR: (1) WAIVE THE RIGHT OF INQUISITION ON ANY REAL ESTATE LEVIED ON, VOLUNTARILY CONDEMNS THE SAME, AUTHORIZES THE PROTHONOTARY OR CLERK TO ENTER UPON THE WRIT OF EXECUTIONTHISVOLUNTARY CONDEMNATION AND AGREES THAT ANY REAL ESTATE MAY BE SOLD ON A WRIT OF EXECUTION; (2) WAIVE AND RELEASE ALL RELIEF FROM ALL APPRAISEMENT, STAY, EXEMPTION OR APPEAL LAWS OF ANY STATE NOW IN FORCE OR HEREINAFTER ENACTED; AND (3) RELEASE ALL ERRORS IN SUCH PROCEEDINGS. IF A COPY OF THIS MERCHANT AGREEMENT, VERIFIED BY AFFIDAVIT BY OR ON BEHALF OF FUNDER SHALL HAVE BEEN FILED IN SUCH ACTION, IT SHALL NOT BE NECESSARY TO FILE THE ORIGINAL MERCHANT AGREEMENT AS A WARRANT OF ATTORNEY. THE AUTHORITY AND POWER TO APPEAR FOR AND CONFESS JUDGMENT AGAINST MERCHANT AND GUARANTOR SHALL NOT BE EXHAUSTED BY THE INITIAL EXERCISE THEREOF AND MAY BE EXERCISED AS OFTEN AS FUNDER SHALL FIND IT NECESSARY AND DESIRABLE AND THIS BUSINESS CASH ADVANCE AND SECURITY AGREEMENT SHALL BE A SUFFICIENT WARRANT THEREFOR. FUNDER MAY CONFESS ONE OR MORE JUDGMENTS IN THE SAME OR DIFFERENT JURISDICTIONS FOR ALL OR ANY PART OF THE AMOUNTS OWING HEREUNDER, WITHOUT REGARD TO WHETHER JUDGMENT HAS THERETOFORE BEEN CONFESSED ON MORE THAN ONE OCCASION FOR THE SAME AMOUNTS. IN THE EVENT ANY JUDGMENT CONFESSED AGAINST THE MERCHANT OR GUARANTOR HEREUNDER IS STRICKEN OR OPENED UPON APPLICATION BY OR ON MERCHANT'S OR GUARANTOR'S BEHALF FOR ANY REASON, FUNDER IS HEREBY AUTHORIZED AND EMPOWERED TO AGAIN APPEAR FOR AND CONFESS JUDGMENT AGAINST MERCHANT OR GUARANTOR FOR ANY PART OR ALL OF THE AMOUNTS OWED HEREUNDER, AS PROVIDED FOR HEREIN, IF DOING SO WILL CURE ANY ERRORS AND DEFECTS IN SUCH PRIOR PROCEEDINGS.
3.4
  Costs. Merchant shall pay to FUNDER all reasonable costs associated with (a) a breach by Merchant of the Covenants in this Agreement and the enforcement thereof, and (b) the enforcement of FUNDER's remedies set forth in Section 4.2 above, including but not limited to court costs and attorneys' fees.
3.5
  Required Notifications. Merchant is required to give FUNDER written notice within 24 hours of any filing under Title 11 of the United States Code. Merchant is required to give FUNDER seven days' written notice prior to the closing of any sale of all or substantially all of the Merchant's assets or stock.
IV.
MISCELLANEOUS
4.1   
Modifications; Agreements. No modification, amendment, waiver or consent of any provision of this Agreement shall be effective unless the same shall be in writing and signed by FUNDER.
4.2
  Assignment. FUNDER may assign, transfer or sell its rights to receive the Purchased Amount or delegate its duties hereunder, either in whole or in part.
4.3
  Notices. All notices, requests, consent, demands and other communications hereunder shall be delivered by certified mail, return receipt requested, to the respective parties to this Agreement at the addresses set forth in this Agreement and shall become effective only upon receipt.
4.4
  Waiver Remedies. No failure on the part of FUNDER to exercise, and no delay in exercising, any right under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right under this Agreement preclude any other or further exercise thereof or the exercise of any other right. The remedies provided hereunder are cumulative and not exclusive of any remedies provided by law or equity.
4.5
  Binding Effect; Governing Law, Venue and Jurisdiction. This Agreement shall be binding upon and inure to the benefit of Merchant, FUNDER and their respective successors and assigns, except that Merchant shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of FUNDER which consent may be withheld in FUNDER's sole discretion. FUNDER reserves the rights to assign this Agreement with or without prior written notice to Merchant. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without regards to any applicable principals of conflicts of law. Any suit, action or proceeding arising hereunder, or the interpretation, performance or breach hereof, shall, if FUNDER so elects, be instituted in any court sitting in Pennsylvania, (the "Acceptable Forums"). Merchant agrees that the Acceptable Forums are convenient to it, and submits to the jurisdiction of the Acceptable Forums and waives any and all objections to jurisdiction or venue. Should such proceeding be initiated in any other forum, Merchant waives any right to oppose any motion or application made by FUNDER to transfer such proceeding to an Acceptable Forum.
4.6
  Survival of Representation, etc. All representations, warranties and covenants herein shall survive the execution and delivery of this Agreement and shall continue in full force until all obligations under this Agreement shall have been satisfied in full and this Agreement shall have terminated.
4.7
  Severability. In case any of the provisions in this Agreement is found to be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of any other provision contained herein shall not in any way be affected or impaired.
4.8 
  Entire Agreement. Any provision hereof prohibited by law shall be ineffective only to the extent of such prohibition without invalidating the remaining provisions hereof. This Agreement and Security Agreement hereto embody the entire agreement between Merchant and FUNDER and supersede all prior agreements and understandings relating to the subject matter hereof.
4.9
  JURY TRIAL WAIVER. THE PARTIES HERETO WAIVE TRIAL BY JURY IN ANY COURT IN ANY SUIT, ACTION OR PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO THE TRANSACTIONS OF WHICH THIS AGREEMENT IS A PART OR THE ENFORCEMENT HEREOF. THE PARTIES HERETO ACKNOWLEDGE THAT EACH MAKES THIS WAIVER KNOWINGLY, WILLINGLY AND VOLUNTARILY AND WITHOUT DURESS, AND ONLY AFTER EXTENSIVE CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH THEIR ATTORNEYS.
4.10
  CLASS ACTION WAIVER. THE PARTIES HERETO WAIVE ANY RIGHT TO ASSERT ANY CLAIMS AGAINST THE OTHER PARTY AS A REPRESENTATIVE OR MEMBER IN ANY CLASS OR REPRESENTATIVE ACTION, EXCEPT WHERE SUCH WAIVER IS PROHIBITED BY LAW AGAINST PUBLIC POLICY. TO THE EXTENT EITHER PARTY IS PERMITTED BY LAW OR COURT OF LAW TO PROCEED WITH A CLASS OR REPRESENTATIVE ACTION AGAINST THE OTHER, THE PARTIES HEREBY AGREE THAT: (1) THE PREVAILING PARTY SHALL NOT BE ENTITLED TO RECOVER ATTORNEYS' FEES OR COSTS ASSOCIATED WITH PURSUING THE CLASS OR REPRESENTATIVEACTION(NOT WITHSTANDING ANY OTHER PROVISION IN THIS AGREEMENT); AND (2) THE PARTY WHO INITIATES OR PARTICIPATES AS A MEMBER OF THE CLASS WILL NOT SUBMIT A CLAIM OR OTHERWISE PARTICIPATE IN ANY RECOVERY SECURED THROUGH THE CLASS OR REPRESENTATIVE ACTION.
4.11
  Counterparts & Facsimile/Email Signatures. This Agreement may be executed in any number of counterparts each of which shall be deemed to be an original, all of which together shall be deemed one and the same instrument. Further, facsimile and email signatures shall be deemed to be originals for all purposes.

 
4
SECURITY AGREEMENT AND GUARANTY

Merchant's Legal Name:  ACTIVECARE, INC
D/B/A: VOLU-SOL, REAL TIME HEALTH, GWIRE CORPORATION, ORBIT MEDICAL RESPONSE, RAPID MEDICAL RESPONSE, GREENWIRE:

Guarantor's Legal Name: ________ SS # (Guarantor): _______________

Guarantor's Legal Name: ________ SS # (Guarantor): _______________
Physical Address: 1365 WEST BUSINESS PARK DRIVE CITY/STATE: OREM, UT ZIP: 84058 FED ID # (Merchant): _______________
 
SECURITY AGREEMENT

Security Interest. To secure Merchant's payment and performance obligations to FUNDER under the Merchant Agreement (the "Factoring Agreement"), Merchant hereby grants to FUNDER a security interest in (a) all accounts, chattel paper, documents, equipment, general intangibles, instruments, and inventory, as those terms are defined in Article 9 of the Uniform Commercial Code (the "UCC"), now or hereafter owned or acquired by Merchant; and (b) all proceeds, as that term is defined in Article 9 of the UCC (a and b collectively, the "Collateral").

Cross-Collateral. To secure Guarantor's payment and performance obligations to FUNDER under this Security Agreement and Guaranty (the "Agreement"), Guarantor hereby grants FUNDER a security interest in __ (the "Additional Collateral"). Guarantor understands that FUNDER will have a security interest in the aforesaid Additional Collateral upon execution of this Agreement.

Merchant and Guarantor each acknowledge and agree that any security interest granted to FUNDER under any other agreement between Merchant or Guarantor and FUNDER (the "Cross-Collateral") will secure the obligations hereunder and under the Merchant Agreement.

Merchant and Guarantor each agrees to execute any documents or take any action in connection with this Agreement as FUNDER deems necessary to perfect or maintain FUNDER's first priority security interest in the Collateral, the Additional Collateral and the Cross-Collateral, including the execution of any account control agreements. Merchant and Guarantor each hereby authorizes FUNDER to file any financing statements deemed necessary by FUNDER to perfect or maintain FUNDER's security interest, which financing statement may contain notification that Merchant and Guarantor have granted a negative pledge to FUNDER with respect to the Collateral, the Additional Collateral and the Cross-Collateral, and that any subsequent lien or may be tortuously interfering with FUNDER's rights. Merchant and Guarantor shall be liable for and FUNDER may charge and collect all costs and expenses, including but not limited to attorney's fees, which may be incurred by FUNDER in protecting, preserving and enforcing FUNDER's security interest and rights.

Negative Pledge. Merchant and Guarantor each agrees not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of the Collateral , the Additional Collateral or the Cross-Collateral, as applicable.

Consent to Enter Premises and Assign Lease. FUNDER shall have the right to cure Merchant's default in the payment of rent on the following terms. In the event Merchant is served with papers in an action against Merchant for nonpayment of rent or for summary eviction, FUNDER may execute its rights and remedies under the Assignment of Lease. Merchant also agrees that FUNDER may enter into an agreement with Merchant's landlord giving FUNDER the right: (a) to enter Merchant's premises and to take possession of the fixtures and equipment therein for the purpose of protecting and preserving same; and (b) to assign Merchant's lease to another qualified Merchant capable of operating a business comparable to Merchant's at such premises.

Remedies. Upon any Event of Default, FUNDER may pursue any remedy available at law (including those available under the provisions of the UCC), or in equity to collect, enforce, or satisfy any obligations then owing, whether by acceleration or otherwise.

GUARANTY

Personal Guaranty of Performance. The undersigned Guarantor(s) hereby guarantees to FUNDER, Merchant's performance of all of the representations, warranties, covenants made by Merchant in this Agreement and the Merchant Agreement, as each agreement may be renewed, amended, extended or otherwise modified (the "Guaranteed Obligations"). Guarantor's obligations are due (i) at the time of any breach by Merchant of any representation, warranty, or covenant made by Merchant in this Agreement and the Merchant Agreement, and (ii) at the time Merchant admits its inability to pay its debts, or makes a general assignment for the benefit of creditors, or any proceeding shall be instituted by or against Merchant seeking to adjudicate it bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, or composition of it or its debts.

Guarantor Waivers. In the event that Merchant fails to make a payment or perform any obligation when due under the Merchant Agreement, FUNDER may enforce its rights under this Agreement without first seeking to obtain payment from Merchant, any other guarantor, or any Collateral, Additional Collateral or Cross-Collateral FUNDER may hold pursuant to this Agreement or any other guaranty.

FUNDER does not have to notify Guarantor of any of the following events and Guarantor will not be released from its obligations under this Agreement if it is not notified of: (i) Merchant's failure to pay timely any amount owed under the Merchant Agreement; (ii) any adverse change in Merchant's financial condition or business; (iii) any sale or other disposition of any collateral securing the Guaranteed Obligations or any other guarantee of the Guaranteed Obligations; (iv) FUNDER's acceptance of this Agreement ; and (v) any renewal, extension or other modification of the Merchant Agreement or Merchant's other obligations to FUNDER. In addition, FUNDER may take any of the following actions without releasing Guarantor from any of its obligations under this Agreement : (i) renew, extend or otherwise modify the Merchant Agreement or Merchant's other obligations to FUNDER; (ii) release Merchant from its obligations to FUNDER; (iii) sell, release, impair, waive or otherwise fail to realize upon any collateral securing the Guaranteed Obligations or any other guarantee of the Guaranteed Obligations; and (iv) foreclose on any collateral securing the Guaranteed Obligations or any other guarantee of the Guaranteed Obligations in a manner that impairs or precludes the right of Guarantor to obtain reimbursement for payment under this Agreement. Until the Merchant Amount plus any accrued but unpaid interest and Merchant's other obligations to FUNDER under the Merchant Agreement and this Agreement are paid in full, Guarantor shall not seek reimbursement from Merchant or any other guarantor for any amounts paid by it under this Agreement. Guarantor permanently waives and shall not seek to exercise any of the following rights that it may have against Merchant, any other guarantor, or any collateral provided by Merchant or any other guarantor, for any amounts paid by it, or acts performed by it, under this Agreement: (i) subrogation ; (ii) reimbursement;
5
(iii)
performance; (iv) indemnification; or (v) contribution. In the event that FUNDER must return any amount paid by Merchant or any other guarantor of the Guaranteed Obligations because that person has become subject to a proceeding under the United States Bankruptcy Code or any similar law, Guarantor's obligations under this Agreement shall include that amount.

GUARANTOR ACKNOWLEDGEMENT. Guarantor acknowledges that: (i) He/She understands the seriousness of the provisions of this Agreement; (ii) He/She has had a full opportunity to consult with counsel of his/her choice; and (iii) He/She has consulted with counsel of its choice or has decided not to avail himself/herself of that opportunity.

JOINT AND SEVERAL LIABILITY. The obligations hereunder of the persons or entities constituting Guarantor under this Agreement are joint and several.


MERCHANT
By: ________

___    _

_    _  _

_    _    _    _  _
(Signature)
 
 

EIN# _______________

OWNER/GUARANTOR
BY: ________ SS#
Driver's License Number: _______________

___    _    _    _    _    _    _    _    _    _  _
                    (Signature)

Driver's License Number: _______________

 


MERCHANT
By: ________

___    _

_    _  _

_    _    _    _  _(Signature)




EIN#

OWNER/GUARANTOR
BY:  ________
Driver's License Number:


___    _    _    _    _    _    _    _    _    _  _
(Signature)


 


SS#
Driver's License Number: _______________


THE TERMS, DEFINITIONS, CONDITIONS AND INFORMATION SET FORTH IN THE "MERCHANT AGREEMENT", INCLUDING THE "TERMS AND CONDITIONS", ARE HEREBY INCORPORATED IN AND MADE A PART OF THIS SECURITY AGREEMENT AND GUARANTY.

CAPITALIZED TERMS NOT DEFINED IN THIS SECURITY AGREEMENT AND GUARANTY, SHALL HAVE THE MEANING SET FORTH IN THE MERCHANT AGREEMENT, INCLUDING THE TERMS AND CONDITIONS.
6

DISCLOSURE FOR CONFESSION OF JUDGMENT

AFFIANT: ________ ________


OBLIGEE:                          ________, Inc. d/b/a ________

The undersigned has executed, and/or is executing, on even date herewith, one or more of the following instruments under which the undersigned is obligated to repay monies to Obligee:

1.
Merchant Agreement dated February 11, 2016; and

A.
THE UNDERSIGNED ACKNOWLEDGES AND AGREES THAT THE ABOVE DOCUMENTS CONTAIN PROVISIONS UNDER WHICH OBLIGEE MAY ENTER JUDGMENT BY CONFESSION AGAINST THE UNDERSIGNED. BEING FULLY AWARE OF THE UNDERSIGNED'S RIGHTS TO PRIOR NOTICE AND A HEARING ON THE VALIDITY OF ANY JUDGMENT OR OTHER CLAIMS THAT MAY BE ASSERTED AGAINST THE UNDERSIGNED BY OBLIGEE THEREUNDER BEFORE JUDGMENT IS ENTERED, THE UNDERSIGNED HEREBY FREELY, KNOWINGLY, AND INTELLIGENTLY WAIVES THESE RIGHTS AND EXPRESSLY AGREES AND CONSENTS TO OBLIGEE'S ENTERING JUDGMENT AGAINST THE UNDERSIGNED BY CONFESSION PURSUANT TO THE TERMS THEREOF.

B.
THE UNDERSIGNED ALSO ACKNOWLEDGES AND AGREES THAT THE ABOVE DOCUMENTS CONTAIN PROVISIONS UNDER WHICH OBLIGEE MAY, AFTER ENTRY OF JUDGMENT AND WITHOUT EITHER NOTICE OR A HEARING, FORECLOSE UPON, ATTACH, LEVY, OR OTHERWISE SEIZE PROPERTY OR PROCEED AGAINST THE INTERESTS OF THE UNDERSIGNED IN PROPERTY (REAL OR PERSONAL) IN FULL OR PARTIAL PAYMENT OR SATISFACTION OF THE JUDGMENT OR JUDGMENTS. BEING FULLY AWARE OF THE UNDERSIGNED'S RIGHTS AFTER JUDGMENT IS ENTERED (INCLUDING THE RIGHT TO MOVE TO OPEN OR STRIKE THE JUDGMENT OR JUDGMENTS), THE UNDERSIGNED HEREBY FREELY, KNOWINGLY AND INTELLIGENTLY WAIVES THESE RIGHTS AND EXPRESSLY AGREES AND CONSENTS TO OBLIGEE'S TAKING SUCH ACTIONS AS MAY BE PERMITTED UNDER APPLICABLE STATE AND FEDERAL LAW WITHOUT PRIOR NOTICE TO THE UNDERSIGNED.

C.
The undersigned hereby certifies that the financial accommodations being provided by the Obligee are for a business purpose, and not for personal, family or household use.

D.
The statements made in this Disclosure for Confession of Judgment are made subject to the penalties of 18 Pa.C.S.A. § 4904 relating to unsworn falsification to authorities.


MERCHANT
By_______________

___    _

_    _  _

_    _    _    _  _
(Signature)
 
EIN#

OWNER/GUARANTOR
BY: ______________
SS#
Driver's License Number:

___    _    _    _    _    _    _    _    _    _  _
(Signature)

Driver's License Number:
 

MERCHANT
By_______________

___    _

_    _  _

_    _    _    _  _              (Signature)

 


EIN#

OWNER/GUARANTOR
BY:  _______________
Driver's License Number:


___    _    _    _    _    _    _    _    _    _  _
(Signature)
 

SS#
Driver's License Number:

7
AUTHORIZATION AGREEMENT FOR DIRECT DEPOSIT (ACH CREDIT) AND DIRECT PAYMENTS (ACH DEBITS)

This Authorization Agreement for Direct Deposit (ACH Credit) and Direct Payments (ACH Debits) is part of (and incorporated by reference into) the Merchant Agreement. You should keep this important legal document for your records.

DISBURSEMENT OF BUSINESS CASH ADVANCE PROCEEDS: By signing below, Merchant authorizes Funder to disburse the Cash Advance Proceeds less the amount of any applicable fees upon approval by initiating an ACH credit to the checking account indicated below (or a substitute checking account Merchant later identifies and is acceptable to Funder) (hereinafter referred to as the "Designated Checking Account") in the disbursal amount set forth in the accompanying documents. This authorization is to remain in full force and effect until Funder has received written notification from Merchant of its termination in such time and in such manner as to afford Funder and Merchant's depository bank a reasonable opportunity to act on it.

AUTOMATIC PAYMENT PLAN: Enrollment in Funder's Automatic Payment Plan is required for approval. By signing below, Merchant agrees to enroll in the Automatic Payment Plan and authorizes Funder to collect payments required under the terms of Merchant Agreement by initiating ACH debit entries to the Designated Checking Account in the amounts and on the dates provided in the payment schedule set forth in the accompanying Merchant Agreement. Merchant authorizes Funder to increase the amount of any scheduled ACH debit entry or assess multiple ACH debits for the amount of any previously scheduled payment(s) that was not paid as provided in the payment schedule and any unpaid Fees. This authorization is to remain in full force and effect until Funder has received written notification from Merchant of its termination in such time and in such manner as to afford Funder and Merchant's depository bank a reasonable opportunity to act on it. Funder may suspend or terminate Merchant's enrollment in the Automatic Payment Plan immediately if Merchant fails to keep Merchant's designated checking account in good standing or if there are insufficient funds in Merchant's checking account to process any payment.

If Merchant revokes the authorization or Funder suspends or terminates Merchant's enrollment in the Automatic Payment Plan, Merchant still will be responsible for making timely payments pursuant to the alternative payment methods described in the Merchant Agreement.

BUSINESS PURPOSE ACCOUNT: By signing below, Merchant attests that the Designated Checking Account was established for business purposes and not primarily for personal, family or household purposes.

ACCOUNT CHANGES: Merchant agrees to notify Funder promptly if there are any changes to the account and routing numbers of the Designated Checking Account

MISCELLANEOUS: Funder is not responsible for any fees charged by Merchant's bank as the result of credits or debits initiated under this agreement. The origination of ACH transactions to Merchant's account must comply with the provisions of U.S. law.

Signature: ____________________________                                                                                                Date: _______________

Bank Name: _______________


City: ________________State: ______________Zip: _______________


Routing Number: _______________
Account Number: _______________
Business Name on Account: _______________
Address on Account: _______________

Merchant Phone #:__________ Tax ID Number: ________ _ Signature_______________

Title: _____

 
8
BANK ACCOUNT DISCLOSURE AFFIDAVIT

For the purpose of obtaining the Business Cash Advance evidence by the Merchant Agreement of this same date herewith (the "Business Cash Advance") from ________, Inc., the undersigned Merchant hereby makes the following statement under penalty of law:

PLEASE SIGN OPTION 1 OR TWO

OPTION 1 – DISCLOSURE AND AUTHORIZATION FOR ADDITIONAL ACCOUNTS:

The Merchant hereby declares that in addition to the designated for ACH debit, the Merchant also has the following additional account(s) which he authorizes us to use in the event we are unable to debit from the designated account:

Bank Name Name on Account Account Number Routing Number
Fed ID number associated with this account Name associated with this account
Phone number of person whose name is associated with this account

Bank Name Name on Account Account Number Routing Number
Fed ID number associated with this account Name associated with this account
Phone number of person whose name is associated with this account

Bank Name Name on Account Account Number Routing Number
Fed ID number associated with this account Name associated with this account
Phone number of person whose name is associated with this account

Bank Name Name on Account Account Number Routing Number
Fed ID number associated with this account Name associated with this account
Phone number of person whose name is associated with this account
**attach additional pages if necessary**

Merchant Signature_____    _    _    _    _    _    _    __   Dated _____  _  __    _    _  __ Merchant Signature_____    _    _    _    _    _    _    __   Dated _____  _  __    _    _  __
 
OPTION 2 - By signing below, the merchant swears, under penalty of law, that he has no accounts in any lending institution in addition to the one provided for ACH debit

Merchant Signature_____    _    _    _    _    _    _    __   Dated _____  _  __    _    _  __ Merchant Signature_____    _    _    _    _    _    _    __   Dated _____  _  __    _    _  __
9
CUSTOMER AUTHORIZATION TO RESUME ACH DEBITING FORM

NAME OF MERCHANT: _______________

CUSTOMER INFORMATION (To be filled out by the customer)

I authorize Company (as sown above) to resume electronically debiting my bank account as detailed below, including a non-sufficient fund fee if applicable, until the debt to the company is paid in full.

Full Name on Account: _________________
Account #: _________________ Routing #: _______________

Account Type (select one):                                                        CheckingX
Savings


Account Class (select one):                                                                                    Consumer Account                                                    Business Account

Payment amount:                                                                      _______________Number of Payments:    _______________


Date of next payment: _______________
Frequency of payments: _______________


I understand that I may cancel this authorization by contacting the company at least five (5) business days prior to the payment due date. I further understand that canceling my ACH authorizations does not relieve me of the responsibility of paying my account in full, and that if I cancel or revoke this authorization before the debt is paid in full, the Company may take additional actions including legal actions to secure the debt.


Customer signature: _______________                                                                                                Date: _______________
Customer Printed Name_______________
Customer contact Telephone #: _______________
 
10



Dear Merchant,

Thank you for accepting this offer from ________ D/b/a ________. We look forward to being your funding partner for as long as you need. Daily ACH Program:
________ will require viewing access to your bank account prior to funding as part of our underwriting process, as well as during the time you have a balance with our company.

Please be assured that we carefully safeguard your confidential information and only essential top level personnel will have access to it. Please fill out the form below with the information necessary to access your account.
**Be sure to indicate capital or lower case letters.

NAME OF BANK; _______   _   _   _   _   _   _   _   _    _    _    _    _    __    _  _ BANK PORTAL WEBSITE: _____  _  _  _  _  _  _  _  _   _   _   __   _  _ USERNAME: ______    _    _    _    _    _    _    _        _    _    _    _    _    _      __ _   
PASSWORD: ______    _    _    _    _    _    _    _    _    _    _    _    _    _    _    __  _                                                                                                                                                                                      

SECURITY QUESTION/ANSWER 1: _______  _  _  _  _  _  _  _  __  _  _ SECURITY QUESTION/ANSWER 2: _______  _  _  _  _  _  _  _  __  _  _ SECURITY QUESTION/ANSWER 3: _______   _   _   _   _   _   _   _    __    _  _
 
ANY OTHER INFORMATION NECESSARY TO ACCESS YOUR ACCOUNTS:

11
 

APPENDIX A:  THE FEE STRUCTURE

1.
Origination Fee: $295.00 to cover underwriting and related expenses

2.
ACH Program Fee - $399.00 – The ACH program is labor intensive and is not an automated process, requiring us to charge this fee to cover related costs;

3.
NSF Fee - $75.00 (each) - Up to FOUR TIMES ONLY before a default is declared;

4.
Rejected ACH - $100.00 – If a merchant directs the bank to reject our debit ACH;

5.
Bank Change Fee - $50.00 – If a merchant requires a change of account to be debited requiring us to adjust our system;

6.
Blocked Account - $2,500.00 – If a merchant blocks ________'s ACH debit of the Account, bounces more than 4 debits of the Account or simultaneously uses multiple bank accounts or credit-card processors to process its receipts;

7.
Default Fee - $5,000 default fee and 30% collection costs – If a merchant changes bank accounts or switches to another credit card processor without ________'s consent, or commits another default pursuant to the Agreement;

8.
Miscellaneous Service Fees – Merchant shall pay certain fees for services related to the origination and maintenance of accounts. Each Merchant shall receive their funding electronically to their designated bank account and will be charged $30.00 for a Fed Wire. The current charge for the underwriting, UCC, ACH Program and origination of each Merchant will be paid from the funded amount. Merchant will be charged $25.00 for every additional change of their operating bank account once they are active with ________. Additional copies of prior monthly statements will incur a fee of $10.00 each.

9.
Risk Assessment Fee - $249.00

10.    UCC Fee – 195.00



Merchant Signature:  _____    _    _    _    _    _    _    __ Name: _______________

Guarantor Signature:  ______    _    _    _    _    _    _    _ Name: _______________
 

12


 
 
 EX-10.5 6 exh105.htm FORM OF SETTLEMENT AGREEMENT DATED FEBRUARY 9, 2016
Exhibit 10.5
SETTLEMENT AGREEMENT

This Settlement Agreement ("Agreement") is made effective this 9th day of February, 2016 by and between ActiveCare, Inc., a Delaware corporation (the "Company"), and ______________, an individual (the "Investor").

WHEREAS, the Company and Investor entered into an Account Receivable Purchase Agreement dated September 5, 2014 ("A/R Agreement") wherein Investor invested $________; and

WHEREAS, the Company is in default under the terms of the A/R Agreement and the Company owes Investor $________ (the "Obligation"); and

WHEREAS, the Company is currently in the process of completing a financing with Partners for Growth IV, L.P. ("PFG") in which PFG is requiring debt holders including Investor to subordinate their debt to the PFG financing; and

WHEREAS, the Company and Investor desire to settle the Obligation and terminate the A/R Agreement.

NOW, THEREFORE, in consideration of the foregoing, and the agreements set forth below, the parties agree as follows:

1.            Termination of A/R Agreement.  This agreement replaces and terminates the A/R Agreement.

2.            Conversion of Obligation.  Investor hereby elects to convert all of the Obligation into Common Stock of the Company at $.04 per share (the "Conversion Shares").  The Conversion Shares will be delivered within 14 days of the execution date of this Agreement.
3.            Other Provisions.
3.1            Notices.  Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally, telegraphed, telexed, sent by facsimile transmission or sent by certified, registered or express mail, postage prepaid.  Any such notice shall be deemed given when so delivered personally, telegraphed, telexed, or sent by facsimile transmission or, if mailed, five (5) days after the date of deposit in the United States Mail, as follows:


(i)
If to the Company, to:
ActiveCare, Inc.
1365 West Business Park Dr., Suite 100
Orem, Utah 84058

With a copy (which shall not constitute notice hereunder) to:

Durham, Jones & Pinegar, P.C.
Attention:  Kevin R. Pinegar, Esq.
111 East Broadway, Suite 900
Salt Lake City, Utah 84111

(ii)
If to Investor:
______________
______________
______________
 
Any party may change its address for notice hereunder by notice to the other parties hereto.

3.2            Entire Agreement.  This agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, written or oral, with respect thereto.

3.3              Governing Law: Venue.  The parties submit themselves to the jurisdiction of the Federal and State courts located in Utah and agree to commence any lawsuit arising under or relating to this Agreement in such courts.

3.4              Assignment.  This Agreement and any rights and obligations hereunder, may not be assigned by any party hereto without the prior written consent of the other party.

3.5            Headings.  The headings of this Agreement are for reference only and shall not in any way affect the meaning or interpretation of this Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the Date first above-written.


ActiveCare, Inc.                                                                                                  Investor:

By: __________________________                                                                   __________________________
__________________________
Its: __________________________





 EX-10.6 7 exh106.htm FORM OF ADDENDUM #1 TO SETTLEMENT AGREEMENT BY AND AMONG ACTIVECARE, INC. AND BLUESTONE ADVISORS, LLC
Exhibit 10.6
Addendum #1 to the Settlement Agreement
Between ActiveCare, Inc. and Bluestone Advisors
Dated September 23, 2015


On this day of February 16, 2016, this Addendum#1 associated with the Settlement Agreement dated September 23, 2015 by and between ActiveCare, Inc. (Borrower) and Bluestone Advisors (Lender) is agreed to be altered in the following to points:

1)
Lender agrees to subordinate said debt to PFG;

2)
Lender will be able to convert such loan at $0.06 per common share, up to a maximum of 20 million common shares associated with such note.  Borrower will provide 10 business days' notice to Lender of intent to pay loan wherein Lender shall have the right to convert such payment to shares of common stock at such conversion as noted herein.

3)
Should the Borrower be unable to make agreed upon payment of such notes to Lender on January 1, 2017 because of PFG unwillingness, inability due to cash position, or unwillingness for reasons unknown at this time, then penalty shares shall be issued amounting to 4,477,780 within 10 business days after such time.


It is noted that the outstanding principal and interest of said notes associated with the Settlement Agreement dated September 23, 2015 as of this day of February 16, 2016 is $3,302,363.10.  Further, all covenants, collateral, provision, definitions, and in summary, all items contained within the agreements are unchanged and are in full force and effect with the exception of Paragraphs 1, 2 and 3 provided above in Addendum #1.



Borrower:                                                                      ACTIVECARE, INC.
A Delaware Corporation


By _______________________________
     James Dalton, CEO



The Lender:                                                                      Bluestone Advisors, LLC



By _______________________________
     Jeffrey Peterson, Manager


 
 EX-10.7 8 exh107.htm FORM OF SECURED CONVERTIBLE PROMISSORY NOTE BY AND AMONG ACTIVECARE, INC. AND ADP MANAGEMENT CORPORATION
Exhibit 10.7

PROMISSORY NOTE


U.S. $ 541,685.37                                                                                    February 18, 2016


FOR VALUE RECEIVED, the undersigned, ActiveCare, Inc. ("Borrower") promises to pay ADP Management Corp. ("Lender") 1401 North 1075 West, Suite 240, Farmington, UT 84025 or at other place as Lender may designate in writing, the original principal sum of Five Hundred Forty One Thousand, Six Hundred Eight Five Dollars and Thirty Seven Cents ($541,685.37) as referenced in LOAN AGREEMENT dated February 18, 2016, together with interest which shall accrue and other amounts which may become due in accordance with the following provisions of the Promissory Note (the "Note"):
1.
Loan Delineation.  The loan of $542,004.94 is contributed from the following notes:
a.
7/23/13 – There is outstanding interest payable of $315.62
b.
11/25/14 – This loan was bifurcated on February 18, 2016 wherein the balance owed to ADP Management, along with applicable interest amounting to $190,509.73 as of the date hereof.  The bifurcated portion which was assigned to Toniquant Partners is $263,081.70
c.
9/2/15 – This loan has principle and interest of $351,179.59 as of the date hereof.
2.
Interest Rate.  Interest shall accrue at 18% annually.
3.
Payment of Principal and Interest and Maturity Date.  This Note shall be due and payable, both principle and interest on January 1, 2017 (the "Maturity Date").

4.
Conversion Option.  At the Lenders option, said note shall be convertible into $0.06 per common share, and up to a maximum of 9,250,000 common shares.

5.
Ownership Limitation. If at any time Lender shall or would be issued shares of Common Stock, but such issuance would cause Lender (together with its affiliates) to beneficially own a number of shares exceeding 4.99% of the number of shares of Common Stock outstanding on such date (including for such purpose the shares of Common Stock issuable upon such issuance) (the "Maximum Percentage"), then Borrower must not issue to Lender shares of Common Stock which would exceed the Maximum Percentage. For purposes of this section, beneficial ownership of Common Stock will be determined pursuant to Section 13(d) of the Securities Exchange Act of 1934 (as amended, the "1934 Act"). The shares of Common Stock issuable to Lender that would cause the Maximum Percentage to be exceeded are referred to herein as the "Ownership Limitation Shares". Borrower will reserve the Ownership Limitation Shares for the exclusive benefit of Lender.

6.
Default.  Should Borrower be unable to make agreed upon payments of such notes to Lender on January 1, 2017 because of PFG unwillingness, inability due to cash position, or unwillingness for reasons unknown at this time, then penalty shares shall be issued amounting to 734,489 common shares within 10 business days after such time.
5. Prepayment.  Borrower shall provide Ten (10) business days' notice of payment, wherein Lender shall have the right to convert all or any portion of said note into common stock as prescribed within paragraph 4 above.
6.  Subordination.  Lender agrees to subordinate said debt to PFG.
7.  Severability.  If any term or condition of this Note shall be held to be invalid or unenforceable, the rest of the Note shall be enforced without the invalid or the unenforceable provision.
              8.    Notice.  Notices which are given pursuant to this Note shall be as follows:

Lender:

ADP Management Corp
1401 North 1075 West
Suite 240
Farmington, UT 84025

Borrower:

ActiveCare, Inc.
1365 West Business Park Drive
Suite 100
Orem, UT 84058
9.   References.    Whenever used herein, the words "Borrower" and "Lender" shall be deemed to include their respective heirs, devisees, personal representatives, successors and assigns.
10.  Governing Law.   This Note shall be construed according to and governed by the laws of the State of Utah. The parties consent to the exclusive jurisdiction of any court of competent jurisdiction located in the State of Utah.

**The rest of this page intentionally left blank**


Borrower:                                        ActiveCare, Inc.
By _____________________________
James Dalton, CEO

Lender:                                        ADP Management Corp

By _____________________________

David Derrick, Secretary
 
 
 EX-10.8 9 exh108.htm FORM OF SECURED CONVERTIBLE PROMISSORY NOTE BY AND AMONG ACTIVECARE, INC. AND TONAQUINT, INC.
Exhibit 10.8
 
THIS SECURED CONVERTIBLE PROMISSORY NOTE IS ISSUED IN EXCHANGE FOR (WITHOUT ANY ADDITIONAL CONSIDERATION) A CERTAIN PROMISSORY NOTE IN THE PRINCIPAL AMOUNT OF $243,081.70 ORIGINALLY ISSUED BY BORROWER (AS DEFINED BELOW) TO LENDER (AS DEFINED BELOW) AS OF NOVEMBER 25, 2014, BUT WHICH NOTE WAS SUBSEQUENTLY EXCHANGED FOR A NEW PROMISSORY NOTE ON JANUARY 13, 2015.  HOWEVER, FOR ALL PURPOSES, THIS NOTE SHALL BE DEEMED TO HAVE AN EFFECTIVE DATE OF NOVEMBER 25, 2014.

THE INDEBTEDNESS EVIDENCED HEREBY IS SUBORDINATED IN ACCORDANCE WITH AND SUBJECT TO THE TERMS OF THAT CERTAIN SUBORDINATION AGREEMENT (AS AMENDED, THE "SUBORDINATION AGREEMENT"), DATED AS OF THE DATE HEREOF, BY AND AMONG LENDER, BORROWER, AND GROWTH IV, L.P., A DELAWARE LIMITED PARTNERSHIP, AND EACH HOLDER AND TRANSFEREE OF THIS NOTE, BY ITS ACCEPTANCE HEREOF, IRREVOCABLY AGREES TO BE BOUND BY THE PROVISIONS OF THE SUBORDINATION AGREEMENT.

SECURED CONVERTIBLE PROMISSORY NOTE
"Original Issue Date": November 25, 2014                                                                              U.S. $263,081.70
Exchange Date: February 18, 2016

FOR VALUE RECEIVED, ActiveCare, Inc., a Delaware corporation ("Borrower"), promises to pay to Tonaquint, Inc., a Utah corporation, or its successors or assigns ("Lender"), $263,081.70 and any interest, fees, charges, and late fees on the date that is sixteen (16) months after the Exchange Date (the "Maturity Date") in accordance with the terms set forth herein and to pay interest on the Outstanding Balance at the rate of eighteen percent (18%) per annum from the Exchange Date until the same is paid in full. This Secured Convertible Promissory Note (this "Note") is issued and made effective as of February 18, 2016 (the "Effective Date"). This Note is issued pursuant to that certain Exchange Agreement dated as of February 18, 2016 (the "Exchange Date"), by and between Borrower and Lender, as the same may be amended from time to time (the "Exchange Agreement"), pursuant to which Lender exchanged Bifurcated Note #1 (as defined in the Exchange Agreement) for this Note, pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended. All interest calculations hereunder shall be computed on the basis of a 360-day year comprised of twelve (12) thirty (30) day months, shall compound daily and shall be payable in accordance with the terms of this Note. Certain capitalized terms used herein are defined in Attachment 1 attached hereto and incorporated herein by this reference.
1.            Payment; Prepayment. Provided there is an Outstanding Balance, on each Installment Date (as defined below), Borrower shall pay to Lender an amount equal to the Installment Amount due on such Installment Date in accordance with Section 8. All payments owing hereunder shall be in lawful money of the United States of America or Conversion Shares (as defined below), as provided for herein, and delivered to Lender at the address furnished to Borrower for that purpose. All payments shall be applied first to (a) costs of collection, if any, then to (b) fees and charges, if any, then to (c) accrued and unpaid interest, and thereafter, to (d) principal. Notwithstanding the foregoing, Borrower shall have the right to prepay the Outstanding Balance of this Note, in full, in accordance with this Section 1. Early payments of less than all of the Outstanding Balance will not, unless agreed to by Lender in writing, relieve Borrower of any of Borrower's obligations hereunder. If Borrower elects to prepay all or any portion of the Conversion Eligible Outstanding Balance, Borrower shall make payment to Lender of an amount in cash equal to 125% (the "Prepayment Premium") multiplied by the portion of the Conversion Eligible Outstanding Balance Borrower elects to prepay. For the avoidance of doubt, Borrower shall not be required to pay the Prepayment Premium for any portion of the Outstanding Balance it elects to prepay that is not part of the Conversion Eligible Outstanding Balance.
1
2.            Security. This Note is secured by the following:
2.1.             A Security Agreement of even date herewith (the "Security Agreement") executed by ADP Management Corporation, a Utah corporation ("ADP"), in favor of Lender encumbering all of the assets of ADP, as more specifically set forth in the Security Agreement, all the terms and conditions of which are hereby incorporated into and made a part of this Note.
2.2.            ADP's pledge of the certain shares of Borrower's Common Stock, $0.00001 par value per share ("Common Stock"), pursuant to that certain Stock Pledge Agreement of even date herewith (the "Pledge Agreement") executed by ADP in favor of Lender, as more specifically set forth in the Pledge Agreement, all the terms and conditions of which are hereby incorporated into and made a part of this Note.
2.3.            Guaranties by each of ADP and David Derrick, an individual ("Derrick"), (collectively, the "Guaranties," and together with this Note, the Security Agreement, the Pledge Agreement, the Exchange Agreement, and all other documents entered into in conjunction herewith or therewith, as amended, the "Transaction Documents").
3.            Lender Optional Conversion.
3.1.            Conversion Price. Subject to the adjustments set forth herein, the conversion price for each Conversion (as defined below) (the "Conversion Price") shall be the Market Price.
3.2.            Conversions. Lender has the right at any time after the Exchange Date until the Outstanding Balance has been paid in full, at its election, to convert (each instance of conversion is referred to herein as a "Conversion") all or any part of the Conversion Eligible Outstanding Balance into shares ("Conversion Shares") of fully paid and non-assessable Common Stock of Borrower as per the following conversion formula: the number of Conversion Shares equals the amount being converted (the "Conversion Amount") divided by the Conversion Price. Conversion notices in the form attached hereto as Exhibit A (each, a "Conversion Notice") may be effectively delivered to Borrower by any method of Lender's choice (including but not limited to facsimile, email, mail, overnight courier, or personal delivery), and all Conversions shall be cashless and not require further payment from Lender. Borrower shall deliver the Conversion Shares from any Conversion to Lender in accordance with Section 9 below.
4.            Defaults and Remedies.
4.1.            Defaults. The following are events of default under this Note (each, an "Event of Default"): (a) Borrower (or a third party on behalf of Borrower) shall fail to pay any principal, interest, fees, charges, or any other amount when due and payable hereunder; (b) Borrower shall fail to deliver any Conversion Shares or True-Up Shares (as defined below) in accordance with the terms hereof; (c) a receiver, trustee or other similar official shall be appointed over Borrower or a material part of its assets and such appointment shall remain uncontested for twenty (20) days or shall not be dismissed or discharged within sixty (60) days; (d) Borrower shall become insolvent or generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any; (e) Borrower shall make a general assignment for the benefit of creditors; (f) Borrower shall file a petition for relief under any bankruptcy, insolvency or similar law (domestic or foreign); (g) an involuntary proceeding shall be commenced or filed against Borrower; (h) Borrower, ADP, or Derrick shall default or otherwise fail to observe or perform any covenant, obligation, condition or agreement of Borrower contained herein or in any other Transaction Document, other than those specifically set forth in this Section 4.1 and Section 6 of the Exchange Agreement; (i) any representation, warranty or other statement made or furnished by or on behalf of Borrower, ADP, or Derrick, to Lender herein, in any Transaction Document, or otherwise in connection with the issuance of this Note shall be false, incorrect, incomplete or misleading in any material respect when made or furnished; (j) the occurrence of a Fundamental Transaction without Lender's prior written consent; (k) Borrower shall fail to maintain the Share Reserve as required under Section 13 below; (l) Borrower effectuates a reverse split of its Common Stock without twenty (20) Trading Days prior written notice to Lender; (m) any money judgment, writ or similar process shall be entered or filed against Borrower or any subsidiary of Borrower or any of its property or other assets for more than $100,000.00, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) calendar days unless otherwise consented to by Lender; (n) Borrower shall fail to be DWAC Eligible; or (o) Borrower shall fail to observe or perform any covenant set forth in Section 6 of the Exchange Agreement. Notwithstanding anything herein to the contrary, the occurrence of an event described in Section 4(a) above shall not be considered an Event of Default if at the time of such occurrence the Subordination Agreement is still in effect.
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4.2.            Remedies. At any time and from time to time after Lender becoming aware of the occurrence of any Event of Default, Lender may accelerate this Note by written notice to Borrower, with the Outstanding Balance becoming immediately due and payable in cash at the Mandatory Default Amount. Notwithstanding the foregoing, at any time following the occurrence of any Event of Default, Lender may, at its option, elect to increase the Outstanding Balance by applying the Default Effect (subject to the limitation set forth below) via written notice to Borrower without accelerating the Outstanding Balance, in which event the Outstanding Balance shall be increased as of the date of the occurrence of the applicable Event of Default pursuant to the Default Effect, but the Outstanding Balance shall not be immediately due and payable unless so declared by Lender (for the avoidance of doubt, if Lender elects to apply the Default Effect pursuant to this sentence, it shall reserve the right to declare the Outstanding Balance immediately due and payable at any time and no such election by Lender shall be deemed to be a waiver of its right to declare the Outstanding Balance immediately due and payable as set forth herein unless otherwise agreed to by Lender in writing). Notwithstanding the foregoing, upon the occurrence of any Event of Default described in clauses (d), (e), (f), (g) or (h) of Section 4.1, the Outstanding Balance as of the date of acceleration shall become immediately and automatically due and payable in cash at the Mandatory Default Amount, without any written notice required by Lender. At any time following the occurrence of any Event of Default, upon written notice given by Lender to Borrower, interest shall accrue on the Outstanding Balance beginning on the date the applicable Event of Default occurred at an interest rate equal to the lesser of 24% per annum or the maximum rate permitted under applicable law ("Default Interest"). In connection with acceleration described herein, Lender need not provide, and Borrower hereby waives, any presentment, demand, protest or other notice of any kind, and Lender may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Lender at any time prior to payment hereunder and Lender shall have all rights as a holder of the Note until such time, if any, as Lender receives full payment pursuant to this Section 4.2. No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon. Nothing herein shall limit Lender's right to pursue any other remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to Borrower's failure to timely deliver Conversion Shares upon Conversion (as defined below) of the Note as required pursuant to the terms hereof.
4.3.            Cross Default. A breach or default by Borrower, ADP, or Derrick of any covenant or other term or condition contained in any Other Agreements shall, at the option of Lender, be considered an Event of Default under this Note, in which event Lender shall be entitled (but in no event required) to apply all rights and remedies of Lender under the terms of this Note.
5.            Unconditional Obligation; No Offset. Borrower acknowledges that this Note is an unconditional, valid, binding and enforceable obligation of Borrower not subject to offset, deduction or counterclaim of any kind. Borrower hereby waives any rights of offset it now has or may have hereafter against Lender, its successors and assigns, and agrees to make the payments or Conversions called for herein in accordance with the terms of this Note.
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6.            Waiver. No waiver of any provision of this Note shall be effective unless it is in the form of a writing signed by the party granting the waiver. No waiver of any provision or consent to any prohibited action shall constitute a waiver of any other provision or consent to any other prohibited action, whether or not similar. No waiver or consent shall constitute a continuing waiver or consent or commit a party to provide a waiver or consent in the future except to the extent specifically set forth in writing.
7.            Rights Upon Issuance of Securities.
7.1.            Subsequent Equity Sales. Except with respect to Excluded Securities, if Borrower or any subsidiary thereof, as applicable, at any time this Note is outstanding, shall sell, issue or grant any Common Stock, option to purchase Common Stock, right to reprice, preferred shares convertible into Common Stock, or debt, warrants, options or other instruments or securities to Lender or any third party which are convertible into or exercisable for shares of Common Stock (collectively, the "Equity Securities"), including without limitation any Deemed Issuance, at an effective price per share less than the then effective Conversion Price (as defined below) (such issuance is referred to herein as a "Dilutive Issuance"), then, the Conversion Price shall be automatically reduced and only reduced to equal such lower effective price per share. If the holder of any Equity Securities so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options, or rights per share which are issued in connection with such Dilutive Issuance, be entitled to receive shares of Common Stock at an effective price per share that is less than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on the date of such Dilutive Issuance, and the then effective Conversion Price shall be reduced and only reduced to equal such lower effective price per share. Such adjustments described above to the Conversion Price shall be permanent (subject to additional adjustments under this section), and shall be made whenever such Equity Securities are issued. Borrower shall notify Lender, in writing, no later than the Trading Day following the issuance of any Equity Securities subject to this Section 7.1, indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price, or other pricing terms (such notice, the "Dilutive Issuance Notice"). For purposes of clarification, whether or not Borrower provides a Dilutive Issuance Notice pursuant to this Section 7.1, upon the occurrence of any Dilutive Issuance, on the date of such Dilutive Issuance the Conversion Price shall be lowered to equal the applicable effective price per share regardless of whether Borrower or Lender accurately refers to such lower effective price per share in any Conversion Notice. The foregoing restrictions shall not apply to Exempt Issuances.  "Exempt Issuance" means the issuance of (a) shares of Common Stock or options to employees, officers, consultants or directors of Borrower pursuant to any stock or option plan duly adopted for such purpose, by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose in effect as of the date of this Note, (b) securities upon the exercise or exchange of or conversion of any securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Note, provided that such securities have not been amended since the date of this Note to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities (other than in connection with stock splits or combinations) or to extend the term of such securities, (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of Borrower, provided that any such issuance shall only be to a Person (or to the equityholders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of Borrower and shall provide to Borrower additional benefits in addition to the investment of funds, but shall not include a transaction in which Borrower is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities, and (d) issuance of securities in regards to the Partners for Growth IV, L.P. financing (the "PFG Financing") including an equity or subordinated debt raise required by the PFG Financing for $850,000.00.
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7.2.            Adjustment of Conversion Price upon Subdivision or Combination of Common Stock. Without limiting any provision hereof, if Borrower at any time on or after the Effective Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. Without limiting any provision hereof, if Borrower at any time on or after the Effective Date combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will be proportionately increased. Any adjustment pursuant to this Section 7.2 shall become effective immediately after the effective date of such subdivision or combination. If any event requiring an adjustment under this Section 7.2 occurs during the period that a Conversion Price is calculated hereunder, then the calculation of such Conversion Price shall be adjusted appropriately to reflect such event.
7.3.            Other Events. In the event that Borrower (or any subsidiary) shall take any action to which the provisions hereof are not strictly applicable, or, if applicable, would not operate to protect Lender from dilution or if any event occurs of the type contemplated by the provisions of this Section 7 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then Borrower's board of directors shall in good faith determine and implement an appropriate adjustment in the Conversion Price so as to protect the rights of Lender, provided that no such adjustment pursuant to this Section 7.3 will increase the Conversion Price as otherwise determined pursuant to this Section 7, provided further that if Lender does not accept such adjustments as appropriately protecting its interests hereunder against such dilution, then Borrower's board of directors and Lender shall agree, in good faith, upon an independent investment bank of nationally recognized standing to make such appropriate adjustments, whose determination shall be final and binding and whose fees and expenses shall be borne by Borrower.
8.            Borrower Installments. Beginning on May 15, 2016 and on the same day of each month thereafter until the Maturity Date (each, an "Installment Date"), Borrower shall pay to Lender the applicable Installment Amount due on such Installment Date. Payment of each Installment Amount shall be made in cash. Notwithstanding the foregoing, in the event Borrower is unable to pay any applicable Installment Amount in cash (whether as result of restrictions in the Subordination Agreement or otherwise), it shall take such actions and make such arrangements with a third party as are necessary to cause a third party to pay the applicable Installment Amount in cash to Lender on or before the applicable Installment Date.
9.            Method of Conversion Share Delivery. On or before the close of business on the third (3rd) Trading Day following the date of delivery of a Conversion Notice (the "Delivery Date"), Borrower shall, provided it is DWAC Eligible at such time, deliver or cause its transfer agent to deliver the applicable Conversion Shares electronically via DWAC to the account designated by Lender in the applicable Conversion Notice. If Borrower is not DWAC Eligible, it shall deliver to Lender or its broker (as designated in the Conversion Notice), via reputable overnight courier, a certificate representing the number of shares of Common Stock equal to the number of Conversion Shares to which Lender shall be entitled, registered in the name of Lender or its designee. For the avoidance of doubt, Borrower has not met its obligation to deliver Conversion Shares by the Delivery Date unless Lender or its broker, as applicable, has actually received the certificate representing the applicable Conversion Shares no later than the close of business on the relevant Delivery Date pursuant to the terms set forth above. Moreover, and notwithstanding anything to the contrary herein or in any other Transaction Document, in the event Borrower or its transfer agent refuses to deliver any Conversion Shares to Lender on grounds that such issuance is in violation of Rule 144 under the Securities Act of 1933, as amended ("Rule 144"), Borrower shall deliver or cause its transfer agent to deliver the applicable Conversion Shares to Lender with a restricted securities legend, but otherwise in accordance with the provisions of this Section 9. In conjunction therewith, Borrower will also deliver to Lender a written opinion from its counsel or its transfer agent's counsel opining as to why the issuance of the applicable Conversion Shares violates Rule 144.
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10.            Conversion Delays. If Borrower fails to deliver Conversion Shares or True-Up Shares in accordance with the timeframes stated in Sections 9 or 11, as applicable, Lender, at any time prior to selling all of those Conversion Shares or True-Up Shares, as applicable, may rescind in whole or in part that particular Conversion attributable to the unsold Conversion Shares or True-Up Shares, with a corresponding increase to the Outstanding Balance (any returned amount will tack back to the Original Issue Date for purposes of determining the holding period under Rule 144). In addition, for each Conversion, in the event that Conversion Shares or True-Up Shares are not delivered by the fourth Trading Day (inclusive of the day of the Conversion or the True-Up Date, as applicable), a late fee equal to the greater of (a) $500.00 and (b) 2% of the applicable Conversion Share Value rounded to the nearest multiple of $100.00 (but in any event the cumulative amount of such late fees for each Conversion shall not exceed 200% of the applicable Conversion Share Value) will be assessed for each day after the third Trading Day (inclusive of the day of the Conversion) until Conversion Share or True-Up Share delivery is made; and such late fee will be added to the Outstanding Balance (such fees, the "Conversion Delay Late Fees"). For illustration purposes only, if Lender delivers a Conversion Notice to Borrower pursuant to which Borrower is required to deliver 100,000 Conversion Shares to Lender and on the Delivery Date such Conversion Shares have a Conversion Share Value of $20,000.00 (assuming a Closing Trade Price on the Delivery Date of $0.20 per share of Common Stock), then in such event a Conversion Delay Late Fee in the amount of $500.00 per day (the greater of $500.00 per day and $20,000.00 multiplied by 2%, which is $400.00) would be added to the Outstanding Balance of the Note until such Conversion Shares are delivered to Lender. For purposes of this example, if the Conversion Shares are delivered to Lender twenty (20) days after the applicable Delivery Date, the total Conversion Delay Late Fees that would be added to the Outstanding Balance would be $10,000.00 (20 days multiplied by $500.00 per day). If the Conversion Shares are delivered to Lender one hundred (100) days after the applicable Delivery Date, the total Conversion Delay Late Fees that would be added to the Outstanding Balance would be $40,000.00 (100 days multiplied by $500.00 per day, but capped at 200% of the Conversion Share Value).
11.            True-Up. On the date that is twenty (20) Trading Days (a "True-Up Date") from each date that the Conversion Shares delivered by Borrower to Lender become Free Trading, there shall be a true-up where Borrower shall deliver to Lender additional Conversion Shares ("True-Up Shares") if the Conversion Price as of the True-Up Date is less than the Conversion Price used in the applicable Conversion Notice. In such event, Borrower shall deliver to Lender within three (3) Trading Days of the True-Up Date (the "True-Up Share Delivery Date") a number of True-Up Shares equal to the difference between the number of Conversion Shares that would have been delivered to Lender on the True-Up Date based on the Conversion Price as of the True-Up Date and the number of Conversion Shares originally delivered to Lender pursuant to the applicable Conversion Notice. For the avoidance of doubt, if the Conversion Price as of the True-Up Date is higher than the Conversion Price set forth in the applicable Conversion Notice, then Borrower shall have no obligation to deliver True-Up Shares to Lender, nor shall Lender have any obligation to return any excess Conversion Shares to Borrower under any circumstance. For the convenience of Borrower only, Lender may, in its sole discretion, deliver to Borrower a notice (pursuant to a form of notice substantially in the form attached hereto as Exhibit B) informing Borrower of the number of True-Up Shares it is obligated to deliver to Lender as of any given True-Up Date, provided that if Lender does not deliver any such notice, Borrower shall not be relieved of its obligation to deliver True-Up Shares pursuant to this Section 11. Notwithstanding the foregoing, if Borrower fails to deliver any required True-Up Shares on or before any applicable True-Up Share Delivery Date, then in such event the Outstanding Balance of this Note will automatically increase by a sum equal to the number of True-Up Shares deliverable as of the applicable True-Up Date multiplied by the Market Price for the Common Stock as of the applicable True-Up Date (under Lender's and Borrower's expectations that any such increase will tack back to the Original Issue Date for purposes of determining the holding period under Rule 144).
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12.            Ownership Limitation. Notwithstanding anything to the contrary contained in this Note or the other Transaction Documents, if at any time Lender shall or would be issued shares of Common Stock under any of the Transaction Documents, but such issuance would cause Lender (together with its affiliates) to beneficially own a number of shares exceeding 4.99% of the number of shares of Common Stock outstanding on such date (including for such purpose the shares of Common Stock issuable upon such issuance) (the "Maximum Percentage"), then Borrower must not issue to Lender shares of Common Stock which would exceed the Maximum Percentage. For purposes of this section, beneficial ownership of Common Stock will be determined pursuant to Section 13(d) of the Securities Exchange Act of 1934 (as amended, the "1934 Act"). The shares of Common Stock issuable to Lender that would cause the Maximum Percentage to be exceeded are referred to herein as the "Ownership Limitation Shares". Borrower will reserve the Ownership Limitation Shares for the exclusive benefit of Lender. From time to time, Lender may notify Borrower in writing of the number of the Ownership Limitation Shares that may be issued to Lender without causing Lender to exceed the Maximum Percentage. Upon receipt of such notice, Borrower shall be unconditionally obligated to immediately issue such designated shares to Lender, with a corresponding reduction in the number of the Ownership Limitation Shares.
13.            Reservation of Shares. At all times during which this Note is convertible, Borrower will reserve from its authorized and unissued Common Stock to provide for the issuance of Common Stock upon the full conversion of this Note at least three (3) times the number of shares of Common Stock obtained by dividing the Outstanding Balance by the Conversion Price (the "Share Reserve"), but in any event not less than 10,000,000 shares of Common Stock shall be reserved at all times for such purpose (the "Transfer Agent Reserve"). Borrower further agrees that it will cause its transfer agent (the "Transfer Agent") to immediately add shares of Common Stock to the Transfer Agent Reserve in increments of 500,000 shares as and when requested by Lender in writing from time to time, provided that such incremental increases do not cause the Transfer Agent Reserve to exceed the Share Reserve. In furtherance thereof, from and after the date hereof and until such time that this Note has been paid in full, Borrower shall require the Transfer Agent to reserve for the purpose of issuance of Conversion Shares hereunder, a number of shares of Common Stock equal to the Transfer Agent Reserve. Borrower shall further require the Transfer Agent to hold such shares of Common Stock exclusively for the benefit of Lender and to issue such shares to Lender promptly upon Lender's delivery of a Conversion Notice hereunder. Finally, Borrower shall require the Transfer Agent to issue shares of Common Stock pursuant to this Note to Lender out of its authorized and unissued shares, and not the Transfer Agent Reserve, to the extent shares of Common Stock have been authorized, but not issued, and are not included in the Transfer Agent Reserve. The Transfer Agent shall only issue shares out of the Transfer Agent Reserve to the extent there are no other authorized shares available for issuance and then only with Lender's written consent.
14.            Payment of Collection Costs. If this Note is placed in the hands of an attorney for collection or enforcement prior to commencing arbitration or legal proceedings, or is collected or enforced through any arbitration or legal proceeding, or Lender otherwise takes action to collect amounts due under this Note or to enforce the provisions of this Note, then Borrower shall pay the costs incurred by Lender for such collection, enforcement or action including, without limitation, attorneys' fees and disbursements. Borrower also agrees to pay for any costs, fees or charges of its transfer agent that are charged to Lender pursuant to any Conversion or issuance of shares pursuant to this Note.
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15.            Opinion of Counsel. In the event that an opinion of counsel is needed for any matter related to this Note, Lender has the right to have any such opinion provided by its counsel. Lender also has the right to have any such opinion provided by Borrower's counsel.
16.            Arbitration of Claims. Borrower and Lender shall submit all Claims (as defined in Exhibit C) arising under this Note or any other Transaction Document or any other agreement between Borrower and Lender and their affiliates to binding arbitration pursuant to the arbitration provisions set forth in Exhibit C attached hereto (the "Arbitration Provisions"). Borrower and Lender hereby acknowledge and agree that the Arbitration Provisions are unconditionally binding on Borrower and Lender and are severable from all other provisions of this Note. By executing this Note, Borrower represents, warrants and covenants that Borrower has reviewed the Arbitration Provisions carefully, consulted with legal counsel about such provisions (or waived its right to do so), understands that the Arbitration Provisions are intended to allow for the expeditious and efficient resolution of any dispute hereunder, agrees to the terms and limitations set forth in the Arbitration Provisions, and that Borrower will not take a position contrary to the foregoing representations. Borrower acknowledges and agrees that Lender may rely upon the foregoing representations and covenants of Borrower regarding the Arbitration Provisions.
17.            Governing Law; Venue. This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Note shall be governed by, the internal laws of the State of Utah, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Utah or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Utah. Each party consents to and expressly agrees that exclusive venue for arbitration of any dispute arising out of or relating to any Transaction Document or the relationship of Borrower and Lender or their affiliates shall be in Salt Lake County or Utah County, Utah. Without modifying Borrower's and Lender's obligations to resolve disputes hereunder pursuant to the Arbitration Provisions, for any litigation arising in connection with any of the Transaction Documents, each party hereto hereby (i) consents to and expressly submits to the exclusive personal jurisdiction of any state or federal court sitting in Salt Lake County, Utah, (ii) expressly submits to the exclusive venue of any such court for the purposes hereof, (iii) agrees to not bring any such action outside of any state or federal court sitting in Salt Lake County, Utah, and (iv) waives any claim of improper venue and any claim or objection that such courts are an inconvenient forum or any other claim or objection to the bringing of any such proceeding in such jurisdiction or to any claim that such venue of the suit, action or proceeding is improper. Finally, Borrower covenants and agrees to name Lender as a party in interest in, and provide written notice to Lender in accordance with Section 22 below prior to bringing or filing, any action (including without limitation any filing or action against any person or entity that is not a party to this Note) that is related in any way to the Transaction Documents or any transaction contemplated herein or therein, and further agrees to name Lender as a party to any such action. Borrower acknowledges that the governing law and venue provisions set forth in this Section 17 are material terms to induce Lender to enter into the Transaction Documents and that but for Borrower's agreements set forth in this Section 17 Lender would not have entered into the Transaction Documents.
18.            Cancellation. After repayment or conversion of the entire Outstanding Balance (including without limitation delivery of True-Up Shares pursuant to all Conversion Notices submitted to Lender, if applicable), this Note shall be deemed paid in full, shall automatically be deemed canceled, and shall not be reissued.
19.            Amendments. The prior written consent of both parties hereto shall be required for any change or amendment to this Note.
20.            Assignments. Borrower may not assign this Note without the prior written consent of Lender. This Note and any shares of Common Stock issued upon conversion of this Note may be offered, sold, assigned or transferred by Lender without the consent of Borrower.
21.            Time is of the Essence. Time is expressly made of the essence with respect to each and every provision of this Note and the documents and instruments entered into in connection herewith.
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22.            Notices. Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance with the subsection of the Exchange Agreement titled "Notices."
23.            Liquidated Damages. Lender and Borrower agree that in the event Borrower fails to comply with any of the terms or provisions of this Note, Lender's damages would be uncertain and difficult (if not impossible) to accurately estimate because of the parties' inability to predict future interest rates, future share prices, future trading volumes and other relevant factors. Accordingly, Lender and Borrower agree that any fees, balance adjustments, Default Interest or other charges assessed under this Note are not penalties but instead are intended by the parties to be, and shall be deemed, liquidated damages (under Lender's and Borrower's expectations that any such liquidated damages will tack back to the Original Issue Date for purposes of determining the holding period under Rule 144).
24.            Waiver of Jury Trial. EACH OF LENDER AND BORROWER IRREVOCABLY WAIVES ANY AND ALL RIGHTS SUCH PARTY MAY HAVE TO DEMAND THAT ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY RELATED TO THIS NOTE OR THE RELATIONSHIPS OF THE PARTIES HERETO BE TRIED BY JURY. THIS WAIVER EXTENDS TO ANY AND ALL RIGHTS TO DEMAND A TRIAL BY JURY ARISING UNDER COMMON LAW OR ANY APPLICABLE STATUTE, LAW, RULE OR REGULATION. FURTHER, EACH PARTY HERETO ACKNOWLEDGES THAT SUCH PARTY IS KNOWINGLY AND VOLUNTARILY WAIVING SUCH PARTY'S RIGHT TO DEMAND TRIAL BY JURY.
25.            Voluntary Agreement. Borrower has carefully read this Note and has asked any questions needed for Borrower to understand the terms, consequences and binding effect of this Note and fully understand them. Borrower has had the opportunity to seek the advice of an attorney of Borrower's choosing, or has waived the right to do so, and is executing this Note voluntarily and without any duress or undue influence by Lender or anyone else.
26.            Severability. If any part of this Note is construed to be in violation of any law, such part shall be modified to achieve the objective of Borrower and Lender to the fullest extent permitted by law and the balance of this Note shall remain in full force and effect.
 [Remainder of page intentionally left blank; signature page follows]
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IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed as of the Effective Date.
BORROWER:
ActiveCare, Inc.


By:                                                                      
Name:                                                                                    
Title:                                                                      

ACKNOWLEDGED, ACCEPTED AND AGREED:
LENDER:
Tonaquint, Inc.


By:                                                                                                                                                                                      
John M. Fife, President

 
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ATTACHMENT 1
DEFINITIONS

For purposes of this Note, the following terms shall have the following meanings:
A1.            "Approved Stock Plan" means any stock option plan which has been approved by the board of directors of Borrower and is in effect as of the Exchange Date, pursuant to which Borrower's securities may be issued to any employee, officer or director for services provided to Borrower.
A2.            "Bloomberg" means Bloomberg L.P. (or if that service is not then reporting the relevant information regarding the Common Stock, a comparable reporting service of national reputation selected by Lender and reasonably satisfactory to Borrower).
A3.            "Closing Bid Price" and "Closing Trade Price" means the last closing bid price and last closing trade price, respectively, for the Common Stock on its principal market, as reported by Bloomberg, or, if its principal market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price (as the case may be) then the last bid price or last trade price, respectively, of the Common Stock prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if its principal market is not the principal securities exchange or trading market for the Common Stock, the last closing bid price or last trade price, respectively, of the Common Stock on the principal securities exchange or trading market where the Common Stock is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of the Common Stock in the over-the-counter market on the electronic bulletin board for the Common Stock as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for the Common Stock by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for the Common Stock as reported by OTC Markets Group, Inc., and any successor thereto. If the Closing Bid Price or the Closing Trade Price cannot be calculated for the Common Stock on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Trade Price (as the case may be) of the Common Stock on such date shall be the fair market value as mutually determined by Lender and Borrower. If Lender and Borrower are unable to agree upon the fair market value of the Common Stock, then such dispute shall be resolved in accordance with the Arbitration Provisions. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period.
A4.            "Conversion Eligible Outstanding Balance" means (i) the sum of all Installment Amounts that have not been paid to Lender in cash on or before the applicable Installment Date, less (ii) all prior Conversion Amounts previously converted by Lender pursuant to Section 3 hereof and for which Lender has received the applicable Conversion Shares. For illustration purposes only, if Borrower pays (or causes a third party to make on its behalf) the Installment Amounts payable to Lender on each of May 15, 2016 and June 15, 2016 then the Conversion Eligible Outstanding Balance as of July 1, 2016 would be equal to $0.00. However, if Borrower fails to pay the Installment Amount payable to Lender on May 15, 2016, then in such event the Conversion Eligible Outstanding Balance would be equal to $25,000.00 as of such date. If, on June 1, 2016, Lender converts $15,000.00 of the Conversion Eligible Outstanding Balance and receives the Conversion Shares applicable to such Conversion on June 4, 2016, then in such event the Conversion Eligible Outstanding Balance would be reduced to $10,000.00 as of June 4, 2016.
A5.            "Conversion Factor" means 75%, subject to the following adjustments. If at any time after the Effective Date, Borrower is not DWAC Eligible, then the then-current Conversion Factor will automatically be reduced by 5% for all future Conversions. If at any time after the Effective Date, the Conversion Shares are not DTC Eligible, then the then-current Conversion Factor will automatically be reduced by an additional 5% for all future Conversions. Finally, in addition to the Default Effect, if any Major Default occurs after the Effective Date, the Conversion Factor shall automatically be reduced for all future Conversions by an additional 5% for each of the first three (3) Major Defaults that occur after the Effective Date (for the avoidance of doubt, each occurrence of any Major Default shall be deemed to be a separate occurrence for purposes of the foregoing reductions in Conversion Factor, even if the same Major Default occurs three (3) separate times). For example, the first time Borrower is not DWAC Eligible, the Conversion Factor for future Conversions thereafter will be reduced from 75% to 70% for purposes of this example. Following such event, the first time the Conversion Shares are no longer DTC Eligible, the Conversion Factor for future Conversions thereafter will be reduced from 70% to 65% for purposes of this example. If, thereafter, there are three (3) separate occurrences of a Major Default pursuant to Section 4.1(b), then for purposes of this example the Conversion Factor would be reduced by 5% for the first such occurrence, and so on for each of the second and third occurrences of such Major Default.
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A6.            "Conversion Share Value" means the product of the number of Conversion Shares deliverable pursuant to any Conversion multiplied by the Closing Trade Price of the Common Stock on the Delivery Date for such Conversion.
A7.            "Deemed Issuance" means an issuance of Common Stock that shall be deemed to have occurred on the latest possible permitted date pursuant to the terms hereof in the event Borrower fails to deliver Conversion Shares as and when required pursuant to Section 9 of the Note.
A8.            "Default Effect" means multiplying the Outstanding Balance as of the date the applicable Event of Default occurred by (a) 15% for each occurrence of any Major Default, or (b) 5% for each occurrence of any Minor Default, and then adding the resulting product to the Outstanding Balance as of the date the applicable Event of Default occurred, with the sum of the foregoing then becoming the Outstanding Balance under this Note as of the date the applicable Event of Default occurred; provided that the Default Effect may only be applied three (3) times hereunder with respect to Major Defaults and three (3) times hereunder with respect to Minor Defaults; and provided further that the Default Effect shall not apply to any Event of Default pursuant to Section 4.1(b) hereof.
A9.            "DTC" means the Depository Trust Company or any successor thereto.
A10.            "DTC Eligible" means, with respect to the Common Stock, that such Common Stock is eligible to be deposited in certificate form at the DTC, cleared and converted into electronic shares by the DTC and held in the name of the clearing firm servicing Lender's brokerage firm for the benefit of Lender.
A11.            "DTC/FAST Program" means the DTC's Fast Automated Securities Transfer program.
A12.            "DWAC" means the DTC's Deposit/Withdrawal at Custodian system.
A13.            "DWAC Eligible" means that (a) Borrower's Common Stock is eligible at the DTC for full services pursuant to DTC's operational arrangements, including without limitation transfer through DTC's DWAC system, (b) Borrower has been approved (without revocation) by the DTC's underwriting department, (c) Borrower's transfer agent is approved as an agent in the DTC/FAST Program, (d) the Conversion Shares are otherwise eligible for delivery via DWAC; (e) Borrower has previously delivered all Conversion Shares to Lender via DWAC; and (f) Borrower's transfer agent does not have a policy prohibiting or limiting delivery of the Conversion Shares via DWAC.
A14.            "Excluded Securities" means any shares of Common Stock or options to purchase Common Stock issued or issuable in connection with any Approved Stock Plan; provided that the option term, exercise price or similar provisions of any issuances pursuant to such Approved Stock Plan are not amended, modified or changed on or after the Exchange Date.
A15.            "Free Trading" means that (a) the shares or certificate(s) representing the applicable shares of Common Stock have been cleared and approved for public resale by the compliance departments of Lender's brokerage firm and the clearing firm servicing such brokerage, and (b) such shares are held in the name of the clearing firm servicing Lender's brokerage firm and have been deposited into such clearing firm's account for the benefit of Lender.
A16.             "Fundamental Transaction" means that (a) (i) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, consolidate or merge with or into (whether or not Borrower or any of its subsidiaries is the surviving corporation) any other person or entity, or (ii) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of its respective properties or assets to any other person or entity, or (iii) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, allow any other person or entity to make a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of voting stock of Borrower (not including any shares of voting stock of Borrower held by the person or persons making or party to, or associated or affiliated with the persons or entities making or party to, such purchase, tender or exchange offer), or (iv) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with any other person or entity whereby such other person or entity acquires more than 50% of the outstanding shares of voting stock of Borrower (not including any shares of voting stock of Borrower held by the other persons or entities making or party to, or associated or affiliated with the other persons or entities making or party to, such stock or share purchase agreement or other business combination), or (v) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, reorganize, recapitalize or reclassify the Common Stock, other than an increase in the number of authorized shares of Borrower's Common Stock, or (b) any "person" or "group" (as these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act and the rules and regulations promulgated thereunder) is or shall become the "beneficial owner" (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding voting stock of Borrower.
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A17.            "Installment Amount" means $25,000.00, provided that the Installment Amount payable on the Maturity Date shall be equal to the then-current Outstanding Balance of this Note.
A18.            "Major Default" means any Event of Default occurring under Sections 4.1(a) (payments), 4.1(k) (Share Reserve), or 4.1(o) (breach of certain covenants) of this Note.
A19.            "Mandatory Default Amount" means the greater of (a) the Outstanding Balance divided by the Conversion Price on the date the Mandatory Default Amount is demanded, multiplied by the VWAP on the date the Mandatory Default Amount is demanded, or (b) the Outstanding Balance following the application of the Default Effect.
A20.            "Market Price" means the Conversion Factor multiplied by the average of the three (3) lowest Closing Bid Prices in the ten (10) Trading Days immediately preceding the applicable Conversion.
A21.            "Minor Default" means any Event of Default that is not a Major Default.
A22.            "Other Agreements" means, collectively, (a) all existing and future agreements and instruments between, among or by Borrower (or an affiliate, including without limitation ADP and Derrick), on the one hand, and Lender (or an affiliate), on the other hand, and (b) any financing agreement or a material agreement that affects Borrower's ongoing business operations.
A23.            "Outstanding Balance" means as of any date of determination, the initial principal amount of this Note, as reduced or increased, as the case may be, pursuant to the terms hereof for payment, Conversion, offset, or otherwise, plus accrued but unpaid interest, collection and enforcements costs (including attorneys' fees) incurred by Lender, transfer, stamp, issuance and similar taxes and fees related to Conversions, and any other fees or charges (including without limitation Conversion Delay Late Fees) incurred under this Note.
A24.            "Trading Day" means any day on which the New York Stock Exchange is open for trading.
A25.            "VWAP" means the volume weighted average price of the Common stock on the principal market for a particular Trading Day or set of Trading Days, as the case may be, as reported by Bloomberg.
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EXHIBIT A
Tonaquint, Inc.
303 East Wacker Drive, Suite 1040
Chicago, Illinois 60601


Date: _____________
ActiveCare, Inc.
1365 West Business Park Drive
Orem, Utah 84058

CONVERSION NOTICE

The above-captioned Lender hereby gives notice to ActiveCare, Inc., a Delaware corporation (the "Borrower"), pursuant to that certain Secured Convertible Promissory Note made by Borrower in favor of Lender on February 18, 2016 (the "Note"), that Lender elects to convert the portion of the Conversion Eligible Outstanding Balance set forth below into fully paid and non-assessable shares of Common Stock of Borrower as of the date of conversion specified below. Said conversion shall be based on the Conversion Price set forth below. In the event of a conflict between this Conversion Notice and the Note, the Note shall govern, or, in the alternative, at the election of Lender in its sole discretion, Lender may provide a new form of Conversion Notice to conform to the Note. Capitalized terms used in this notice without definition shall have the meanings given to them in the Note.
A.       Date of Conversion:                                                       ____________
B.       Conversion #:                                         ____________
C.       Conversion Amount:                                                       ____________
D. Conversion Price:  _______________
E. Conversion Shares:  _______________ (C divided by D)
F. Remaining Conversion Eligible Outstanding Balance of Note:  ____________*
* Subject to adjustments for corrections, defaults, interest and other adjustments permitted by the Transaction Documents, the terms of which shall control in the event of any dispute between the terms of this Conversion Notice and such Transaction Documents.

Please transfer the Conversion Shares electronically (via DWAC) to the following account:
Broker:                                                                                                Address:                                                                                
DTC#:                                                                                                                                                                                  
Account #:                                                                                                                                                                                  
Account Name:                                                                      

To the extent the Conversion Shares are not able to be delivered to Lender electronically via the DWAC system, deliver all such certificated shares to Lender via reputable overnight courier after receipt of this Conversion Notice (by facsimile transmission or otherwise) to:
_____________________________________
_____________________________________
_____________________________________
Sincerely,
Lender:
Tonaquint, Inc.

By:                                                                                                                                                                                      
John M. Fife, President
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EXHIBIT B

Tonaquint, Inc.
303 East Wacker Drive, Suite 1040
Chicago, Illinois 60601

ActiveCare, Inc.Date: __________________                                                                                                                                                                                        
1365 West Business Park Drive
Orem, Utah 84058
TRUE-UP NOTICE
The above-captioned Lender hereby gives notice to ActiveCare, Inc., a Delaware corporation (the "Borrower"), pursuant to that certain Secured Convertible Promissory Note made by Borrower in favor of Lender on February 18, 2016 (the "Note"), of True-Up Conversion Shares related to a Conversion dated _____________, 201_ (the "Conversion Date"). In the event of a conflict between this True-Up Notice and the Note, the Note shall govern, or, in the alternative, at the election of Lender in its sole discretion, Lender may provide a new form of True-Up Notice to conform to the Note. Capitalized terms used in this notice without definition shall have the meanings given to them in the Note.
TRUE-UP CONVERSION SHARES AND CERTIFICATIONS
AS OF THE TRUE-UP DATE

TRUE-UP CONVERSION SHARES
A.
Conversion Date: ____________, 201_
B.
True-Up Date: ____________, 201_
C.
Conversion Amount:                                                         _____________
D.
True-Up Conversion Price:  _______________ (Market Price as of True-Up Date)
E.
True-Up Conversion Shares:  _______________ (C divided by D)
F.
Conversion Shares Delivered: ________________
G.
True-Up Conversion Shares to be Delivered: ________________ (only applicable if E minus F is greater than zero)
Sincerely,

Lender:                          

Tonaquint, Inc.

By: Fife Trading, Inc., Manager


By:                                                                                                                                                                              
John M. Fife, President

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ARBITRATION PROVISIONS

1.    Dispute Resolution. For purposes of this Exhibit C, the term "Claims" means any disputes, claims, demands, causes of action, requests for injunctive relief, requests for specific performance, liabilities, damages, losses, or controversies whatsoever arising from, related to, or connected with the transactions contemplated in the Transaction Documents and any communications between the parties related thereto, including without limitation any claims of mutual mistake, mistake, fraud, misrepresentation, failure of formation, failure of consideration, promissory estoppel, unconscionability, failure of condition precedent, rescission, and any statutory claims, tort claims, contract claims, or claims to void, invalidate or terminate the Note (or these Arbitration Provisions (defined below)) or any of the other Transaction Documents. The term "Claims" specifically excludes a dispute over Calculations. The parties to the Transaction Documents (the "parties") hereby agree that the arbitration provisions set forth in this Exhibit C ("Arbitration Provisions") are binding on each of them. As a result, any attempt to rescind any Transaction Document (or these Arbitration Provisions) or declare any Transaction Document (or these Arbitration Provisions) invalid or unenforceable for any reason is subject to these Arbitration Provisions. These Arbitration Provisions shall also survive any termination or expiration of the Transaction Documents. Any capitalized term not defined in these Arbitration Provisions shall have the meaning set forth in the Note.
2.    Arbitration. Except as otherwise provided herein, all Claims must be submitted to arbitration ("Arbitration") to be conducted exclusively in Salt Lake County or Utah County, Utah and pursuant to the terms set forth in these Arbitration Provisions. Subject to the arbitration appeal right provided for in Paragraph 5 below (the "Appeal Right"), the parties agree that the award of the arbitrator rendered pursuant to Paragraph 4 below (the "Arbitration Award") shall be (a) final and binding upon the parties, (b) the sole and exclusive remedy between them regarding any Claims, counterclaims, issues, or accountings presented or pleaded to the arbitrator, and (c) promptly payable in United States dollars free of any tax, deduction or offset (with respect to monetary awards). Subject to the Appeal Right, any costs or fees, including without limitation attorneys' fees, incurred in connection with or incident to enforcing the Arbitration Award shall, to the maximum extent permitted by law, be charged against the party resisting such enforcement. The Arbitration Award shall include default interest (as defined or otherwise provided for in the Note ("Default Interest") (with respect to monetary awards) at the rate specified in the Note for Default Interest both before and after the Arbitration Award. Judgment upon the Arbitration Award will be entered and enforced by any state or federal court sitting in Salt Lake County, Utah.
3.    The Arbitration Act. The parties hereby incorporate herein the provisions and procedures set forth in the Utah Uniform Arbitration Act, U.C.A. § 78B-11-101 et seq. (as amended or superseded from time to time, the "Arbitration Act"). Notwithstanding the foregoing, pursuant to, and to the maximum extent permitted by, Section 105 of the Arbitration Act, in the event of conflict or variation between the terms of these Arbitration Provisions and the provisions of the Arbitration Act, the terms of these Arbitration Provisions shall control and the parties hereby waive or otherwise agree to vary the effect of all requirements of the Arbitration Act that may conflict with or vary from these Arbitration Provisions.
4.    Arbitration Proceedings. Arbitration between the parties will be subject to the following:
4.1        Initiation of Arbitration. Pursuant to Section 110 of the Arbitration Act, the parties agree that a party may initiate Arbitration by giving written notice to the other party ("Arbitration Notice") in the same manner that notice is permitted under the Note; provided, however, that the Arbitration Notice may not be given by email or fax. Arbitration will be deemed initiated as of the date that the Arbitration Notice is deemed delivered to such other party under the Note (the "Service Date"). After the Service Date, information may be delivered, and notices may be given, by email or fax pursuant to the Note or any other method permitted thereunder. The Arbitration Notice must describe the nature of the controversy, the remedies sought, and the election to commence Arbitration proceedings. All Claims in the Arbitration Notice must be pleaded consistent with the Utah Rules of Civil Procedure.
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4.2        Selection and Payment of Arbitrator.
(a) Within ten (10) calendar days after the Service Date, Lender shall select and submit to Borrower the names of three (3) arbitrators that are designated as "neutrals" or qualified arbitrators by Utah ADR Services (http://www.utahadrservices.com) (such three (3) designated persons hereunder are referred to herein as the "Proposed Arbitrators"). For the avoidance of doubt, each Proposed Arbitrator must be qualified as a "neutral" with Utah ADR Services. Within five (5) calendar days after Lender has submitted to Borrower the names of the Proposed Arbitrators, Borrower must select, by written notice to Lender, one (1) of the Proposed Arbitrators to act as the arbitrator for the parties under these Arbitration Provisions. If Borrower fails to select one of the Proposed Arbitrators in writing within such 5-day period, then Lender may select the arbitrator from the Proposed Arbitrators by providing written notice of such selection to Borrower.
(b) If Lender fails to submit to Borrower the Proposed Arbitrators within ten (10) calendar days after the Service Date pursuant to subparagraph (a) above, then Borrower may at any time prior to Lender so designating the Proposed Arbitrators, identify the names of three (3) arbitrators that are designated as "neutrals" or qualified arbitrators by Utah ADR Service by written notice to Lender. Lender may then, within five (5) calendar days after Borrower has submitted notice of its Proposed Arbitrators to Lender, select, by written notice to Borrower, one (1) of the Proposed Arbitrators to act as the arbitrator for the parties under these Arbitration Provisions. If Lender fails to select in writing and within such 5-day period one (1) of the three (3) Proposed Arbitrators selected by Borrower, then Borrower may select the arbitrator from its three (3) previously selected Proposed Arbitrators by providing written notice of such selection to Lender.
(c) If a Proposed Arbitrator chosen to serve as arbitrator declines or is otherwise unable to serve as arbitrator, then the party that selected such Proposed Arbitrator may select one (1) of the other three (3) Proposed Arbitrators within three (3) calendar days of the date the chosen Proposed Arbitrator declines or notifies the parties he or she is unable to serve as arbitrator. If all three (3) Proposed Arbitrators decline or are otherwise unable to serve as arbitrator, then the arbitrator selection process shall begin again in accordance with this Paragraph 4.2.
(d) The date that the Proposed Arbitrator selected pursuant to this Paragraph 4.2 agrees in writing (including via email) delivered to both parties to serve as the arbitrator hereunder is referred to herein as the "Arbitration Commencement Date".  If an arbitrator resigns or is unable to act during the Arbitration, a replacement arbitrator shall be chosen in accordance with this Paragraph 4.2 to continue the Arbitration.  If Utah ADR Services ceases to exist or to provide a list of neutrals, then the arbitrator shall be selected under the then prevailing rules of the American Arbitration Association.
(e) Subject to Paragraph 4.10 below, the cost of the arbitrator must be paid equally by both parties. Subject to Paragraph 4.10 below, if one party refuses or fails to pay its portion of the arbitrator fee, then the other party can advance such unpaid amount (subject to the accrual of Default Interest thereupon), with such amount being added to or subtracted from, as applicable, the Arbitration Award.
4.3        Applicability of Certain Utah Rules. The parties agree that the Arbitration shall be conducted generally in accordance with the Utah Rules of Civil Procedure and the Utah Rules of Evidence. More specifically, the Utah Rules of Civil Procedure shall apply, without limitation, to the filing of any pleadings, motions or memoranda, the conducting of discovery, and the taking of any depositions. The Utah Rules of Evidence shall apply to any hearings, whether telephonic or in person, held by the arbitrator. Notwithstanding the foregoing, it is the parties' intent that the incorporation of such rules will in no event supersede these Arbitration Provisions. In the event of any conflict between the Utah Rules of Civil Procedure or the Utah Rules of Evidence and these Arbitration Provisions, these Arbitration Provisions shall control.
4.4        Answer and Default. An answer and any counterclaims to the Arbitration Notice shall be required to be delivered to the party initiating the Arbitration within twenty (20) calendar days after the Arbitration Commencement Date. If an answer is not delivered by the required deadline, the arbitrator must provide written notice to the defaulting party stating that the arbitrator will enter a default award against such party if such party does not file an answer within five (5) calendar days of receipt of such notice. If an answer is not filed within the five (5) day extension period, the arbitrator must render a default award, consistent with the relief requested in the Arbitration Notice, against a party that fails to submit an answer within such time period.
4.5        Related Litigation. The party that delivers the Arbitration Notice to the other party shall have the option to also commence concurrent legal proceedings with any state or federal court sitting in Salt Lake County, Utah ("Litigation Proceedings"), subject to the following: (a) the complaint in the Litigation Proceedings is to be substantially similar to the claims set forth in the Arbitration Notice, provided that an additional cause of action to compel arbitration will also be included therein, (b) so long as the other party files an answer to the complaint in the Litigation Proceedings and an answer to the Arbitration Notice, the Litigation Proceedings will be stayed pending an Arbitration Award (or Appeal Panel Award (defined below), as applicable) hereunder, (c) if the other party fails to file an answer in the Litigation Proceedings or an answer in the Arbitration proceedings, then the party initiating Arbitration shall be entitled to a default judgment consistent with the relief requested, to be entered in the Litigation Proceedings, and (d) any legal or procedural issue arising under the Arbitration Act that requires a decision of a court of competent jurisdiction may be determined in the Litigation Proceedings. Any award of the arbitrator (or of the Appeal Panel (defined below)) may be entered in such Litigation Proceedings pursuant to the Arbitration Act.
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4.6        Discovery. Pursuant to Section 118(8) of the Arbitration Act, the parties agree that discovery shall be conducted as follows:
(a) Written discovery will only be allowed if the likely benefits of the proposed written discovery outweigh the burden or expense thereof, and the written discovery sought is likely to reveal information that will satisfy a specific element of a claim or defense already pleaded in the Arbitration. The party seeking written discovery shall always have the burden of showing that all of the standards and limitations set forth in these Arbitration Provisions are satisfied. The scope of discovery in the Arbitration proceedings shall also be limited as follows:
(i)        To facts directly connected with the transactions contemplated by the Transaction Documents.
(ii)        To facts and information that cannot be obtained from another source or in another manner that is more convenient, less burdensome or less expensive than in the manner requested.
(b) No party shall be allowed (i) more than fifteen (15) interrogatories (including discrete subparts), (ii) more than fifteen (15) requests for admission (including discrete subparts), (iii) more than ten (10) document requests (including discrete subparts), or (iv) more than three (3) depositions (excluding expert depositions) for a maximum of seven (7) hours per deposition. The costs associated with depositions will be borne by the party taking the deposition. The party defending the deposition will submit a notice to the party taking the deposition of the estimated attorneys' fees that such party expects to incur in connection with defending the deposition. If the party defending the deposition fails to submit an estimate of attorneys' fees within five (5) calendar days of its receipt of a deposition notice, then such party shall be deemed to have waived its right to the estimated attorneys' fees.  The party taking the deposition must pay the party defending the deposition the estimated attorneys' fees prior to taking the deposition, unless such obligation is deemed to be waived as set forth in the immediately preceding sentence. If the party taking the deposition believes that the estimated attorneys' fees are unreasonable, such party may submit the issue to the arbitrator for a decision.  All depositions will be taken in Utah.
(c) All discovery requests (including document production requests included in deposition notices) must be submitted in writing to the arbitrator and the other party. The party submitting the written discovery requests must include with such discovery requests a detailed explanation of how the proposed discovery requests satisfy the requirements of these Arbitration Provisions and the Utah Rules of Civil Procedure. The receiving party will then be allowed, within five (5) calendar days of receiving the proposed discovery requests, to submit to the arbitrator an estimate of the attorneys' fees and costs associated with responding to such written discovery requests and a written challenge to each applicable discovery request. After receipt of an estimate of attorneys' fees and costs and/or challenge(s) to one or more discovery requests, consistent with subparagraph (c) above, the arbitrator will within three (3) calendar days make a finding as to the likely attorneys' fees and costs associated with responding to the discovery requests and issue an order that (i) requires the requesting party to prepay the attorneys' fees and costs associated with responding to the discovery requests, and (ii) requires the responding party to respond to the discovery requests as limited by the arbitrator within twenty-five (25) calendar days of the arbitrator's finding with respect to such discovery requests. If a party entitled to submit an estimate of attorneys' fees and costs and/or a challenge to discovery requests fails to do so within such 5-day period, the arbitrator will make a finding that (A) there are no attorneys' fees or costs associated with responding to such discovery requests, and (B) the responding party must respond to such discovery requests (as may be limited by the arbitrator) within twenty-five (25) calendar days of the arbitrator's finding with respect to such discovery requests. Any party submitting any written discovery requests, including without limitation interrogatories, requests for production subpoenas to a party or a third party, or requests for admissions, must prepay the estimated attorneys' fees and costs, before the responding party has any obligation to produce or respond to the same, unless such obligation is deemed waived as set forth above.
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(d) In order to allow a written discovery request, the arbitrator must find that the discovery request satisfies the standards set forth in these Arbitration Provisions and the Utah Rules of Civil Procedure. The arbitrator must strictly enforce these standards. If a discovery request does not satisfy any of the standards set forth in these Arbitration Provisions or the Utah Rules of Civil Procedure, the arbitrator may modify such discovery request to satisfy the applicable standards, or strike such discovery request in whole or in part.
(e) Each party may submit expert reports (and rebuttals thereto), provided that such reports must be submitted within sixty (60) days of the Arbitration Commencement Date. Each party will be allowed a maximum of two (2) experts. Expert reports must contain the following: (i) a complete statement of all opinions the expert will offer at trial and the basis and reasons for them; (ii) the expert's name and qualifications, including a list of all the expert's publications within the preceding ten (10) years, and a list of any other cases in which the expert has testified at trial or in a deposition or prepared a report within the preceding ten (10) years; and (iii) the compensation to be paid for the expert's report and testimony. The parties are entitled to depose any other party's expert witness one (1) time for no more than four (4) hours. An expert may not testify in a party's case-in-chief concerning any matter not fairly disclosed in the expert report.
4.6        Dispositive Motions.  Each party shall have the right to submit dispositive motions pursuant Rule 12 or Rule 56 of the Utah Rules of Civil Procedure (a "Dispositive Motion"). The party submitting the Dispositive Motion may, but is not required to, deliver to the arbitrator and to the other party a memorandum in support (the "Memorandum in Support") of the Dispositive Motion. Within seven (7) calendar days of delivery of the Memorandum in Support, the other party shall deliver to the arbitrator and to the other party a memorandum in opposition to the Memorandum in Support (the "Memorandum in Opposition"). Within seven (7) calendar days of delivery of the Memorandum in Opposition, as applicable, the party that submitted the Memorandum in Support shall deliver to the arbitrator and to the other party a reply memorandum to the Memorandum in Opposition ("Reply Memorandum"). If the applicable party shall fail to deliver the Memorandum in Opposition as required above, or if the other party fails to deliver the Reply Memorandum as required above, then the applicable party shall lose its right to so deliver the same, and the Dispositive Motion shall proceed regardless.
4.7        Confidentiality. All information disclosed by either party (or such party's agents) during the Arbitration process (including without limitation information disclosed during the discovery process or any Appeal (defined below) shall be considered confidential in nature. Each party agrees not to disclose any confidential information received from the other party (or its agents) during the Arbitration process (including without limitation during the discovery process or any Appeal) unless (a) prior to or after the time of disclosure such information becomes public knowledge or part of the public domain, not as a result of any inaction or action of the receiving party or its agents, (b) such information is required by a court order, subpoena or similar legal duress to be disclosed if such receiving party has notified the other party thereof in writing and given it a reasonable opportunity to obtain a protective order from a court of competent jurisdiction prior to disclosure, or (c) such information is disclosed to the receiving party's agents, representatives and legal counsel on a need to know basis who each agree in writing not to disclose such information to any third party. Pursuant to Section 118(5) of the Arbitration Act, the arbitrator is hereby authorized and directed to issue a protective order to prevent the disclosure of privileged information and confidential information upon the written request of either party.
4.8        Authorization; Timing; Scheduling Order. Subject to all other portions of these Arbitration Provisions, the parties hereby authorize and direct the arbitrator to take such actions and make such rulings as may be necessary to carry out the parties' intent for the Arbitration proceedings to be efficient and expeditious. Pursuant to Section 120 of the Arbitration Act, the parties hereby agree that an Arbitration Award must be made within one hundred twenty (120) calendar days after the Arbitration Commencement Date. The arbitrator is hereby authorized and directed to hold a scheduling conference within ten (10) calendar days after the Arbitration Commencement Date in order to establish a scheduling order with various binding deadlines for discovery, expert testimony, and the submission of documents by the parties to enable the arbitrator to render a decision prior to the end of such 120-day period.
4
4.9        Relief. The arbitrator shall have the right to award or include in the Arbitration Award (or in a preliminary ruling) any relief which the arbitrator deems proper under the circumstances, including, without limitation, specific performance and injunctive relief, provided that the arbitrator may not award exemplary or punitive damages.
4.10        Fees and Costs. As part of the Arbitration Award, the arbitrator is hereby directed to require the losing party (the party being awarded the least amount of money by the arbitrator, which, for the avoidance of doubt, shall be determined without regard to any statutory fines, penalties, fees, or other charges awarded to any party) to (a) pay the full amount of any unpaid costs and fees of the Arbitration, and (b) reimburse the prevailing party for all reasonable attorneys' fees, arbitrator costs and fees, deposition costs, other discovery costs, and other expenses, costs or fees paid or otherwise incurred by the prevailing party in connection with the Arbitration.
5.    Arbitration Appeal.
5.1        Initiation of Appeal.  Following the entry of the Arbitration Award, either party (the "Appellant") shall have a period of thirty (30) calendar days in which to notify the other party (the "Appellee"), in writing, that the Appellant elects to appeal (the "Appeal") the Arbitration Award (such notice, an "Appeal Notice") to a panel of arbitrators as provided in Paragraph 5.2 below.  The date the Appellant delivers an Appeal Notice to the Appellee is referred to herein as the "Appeal Date". The Appeal Notice must be delivered to the Appellee in accordance with the provisions of Paragraph 4.1 above with respect to delivery of an Arbitration Notice.  In addition, together with delivery of the Appeal Notice to the Appellee, the Appellant must also pay for (and provide proof of such payment to the Appellee together with delivery of the Appeal Notice) a bond in the amount of 110% of the sum the Appellant owes to the Appellee as a result of the Arbitration Award the Appellant is appealing.  In the event an Appellant delivers an Appeal Notice to the Appellee (together with proof of payment of the applicable bond) in compliance with the provisions of this Paragraph 5.1, the Appeal will occur as a matter of right and, except as specifically set forth herein, will not be further conditioned.  In the event a party does not deliver an Appeal Notice (along with proof of payment of the applicable bond) to the other party within the deadline prescribed in this Paragraph 5.1, such party shall lose its right to appeal the Arbitration Award.  If no party delivers an Appeal Notice (along with proof of payment of the applicable bond) to the other party within the deadline described in this Paragraph 5.1, the Arbitration Award shall be final.  The parties acknowledge and agree that any Appeal shall be deemed part of the parties' agreement to arbitrate for purposes of these Arbitration Provisions and the Arbitration Act.
5.2        Selection and Payment of Appeal Panel.  In the event an Appellant delivers an Appeal Notice to the Appellee (together with proof of payment of the applicable bond) in compliance with the provisions of Paragraph 5.1 above, the Appeal will be heard by a three (3) person arbitration panel (the "Appeal Panel").
(a)        Within ten (10) calendar days after the Appeal Date, the Appellee shall select and submit to the Appellant the names of five (5) arbitrators that are designated as "neutrals" or qualified arbitrators by Utah ADR Services (http://www.utahadrservices.com) (such five (5) designated persons hereunder are referred to herein as the "Proposed Appeal Arbitrators"). For the avoidance of doubt, each Proposed Appeal Arbitrator must be qualified as a "neutral" with Utah ADR Services, and shall not be the arbitrator who rendered the Arbitration Award being appealed (the "Original Arbitrator"). Within five (5) calendar days after the Appellee has submitted to the Appellant the names of the Proposed Appeal Arbitrators, the Appellant must select, by written notice to the Appellee, three (3) of the Proposed Appeal Arbitrators to act as the members of the Appeal Panel. If the Appellant fails to select three (3) of the Proposed Appeal Arbitrators in writing within such 5-day period, then the Appellee may select such three (3) arbitrators from the Proposed Appeal Arbitrators by providing written notice of such selection to the Appellant.
(b)        If the Appellee fails to submit to the Appellant the names of the Proposed Appeal Arbitrators within ten (10) calendar days after the Appeal Date pursuant to subparagraph (a) above, then the Appellant may at any time prior to the Appellee so designating the Proposed Appeal Arbitrators, identify the names of five (5) arbitrators that are designated as "neutrals" or qualified arbitrators by Utah ADR Service (none of whom may be the Original Arbitrator) by written notice to the Appellee.  The Appellee may then, within five (5) calendar days after the Appellant has submitted notice of its selected arbitrators to the Appellee, select, by written notice to the Appellant, three (3) of such selected arbitrators to serve on the Appeal Panel. If the Appellee fails to select in writing within such 5-day period three (3) of the arbitrators selected by the Appellant to serve as the members of the Appeal Panel, then the Appellant may select the three (3) members of the Appeal Panel from the Appellant's list of five (5) arbitrators by providing written notice of such selection to the Appellee.
5
(c)        If a selected Proposed Appeal Arbitrator declines or is otherwise unable to serve, then the party that selected such Proposed Appeal Arbitrator may select one (1) of the other five (5) designated Proposed Appeal Arbitrators within three (3) calendar days of the date a chosen Proposed Appeal Arbitrator declines or notifies the parties he or she is unable to serve as an arbitrator. If at least three (3) of the five (5) designated Proposed Appeal Arbitrators decline or are otherwise unable to serve, then the Proposed Appeal Arbitrator selection process shall begin again in accordance with this Paragraph 5.2; provided, however, that any Proposed Appeal Arbitrators who have already agreed to serve shall remain on the Appeal Panel.
(d)        The date that all three (3) Proposed Appeal Arbitrators selected pursuant to this Paragraph 5.2 agree in writing (including via email) delivered to both the Appellant and the Appellee to serve as members of the Appeal Panel hereunder is referred to herein as the "Appeal Commencement Date".  No later than five (5) calendar days after the Appeal Commencement Date, the Appellee shall designate in writing (including via email) to the Appellant and the Appeal Panel the name of one (1) of the three (3) members of the Appeal Panel to serve as the lead arbitrator in the Appeal proceedings. Each member of the Appeal Panel shall be deemed an arbitrator for purposes of these Arbitration Provisions and the Arbitration Act, provided that, in conducting the Appeal, the Appeal Panel may only act or make determinations upon the approval or vote of no less than the majority vote of its members, as announced or communicated by the lead arbitrator on the Appeal Panel.  If an arbitrator on the Appeal Panel ceases or is unable to act during the Appeal proceedings, a replacement arbitrator shall be chosen in accordance with Paragraph 5.2 above to continue the Appeal as a member of the Appeal Panel.  If Utah ADR Services ceases to exist or to provide a list of neutrals, then the arbitrators for the Appeal Panel shall be selected under the then prevailing rules of the American Arbitration Association.
(d)        Subject to Paragraph 5.7 below, the cost of the Appeal Panel must be paid entirely by the Appellant.
5.3        Appeal Procedure.  The Appeal will be deemed an appeal of the entire Arbitration Award. In conducting the Appeal, the Appeal Panel shall conduct a de novo review of all Claims described or otherwise set forth in the Arbitration Notice.  Subject to the foregoing and all other provisions of this Paragraph 5, the Appeal Panel shall conduct the Appeal in a manner the Appeal Panel considers appropriate for a fair and expeditious disposition of the Appeal, may hold one or more hearings and permit oral argument, and may review all previous evidence and discovery, together with all briefs, pleadings and other documents filed with the Original Arbitrator (as well as any documents filed with the Appeal Panel pursuant to Paragraph 5.4(a) below).  Notwithstanding the foregoing, in connection with the Appeal, the Appeal Panel shall not permit the parties to conduct any additional discovery or raise any new Claims to be arbitrated, shall not permit new witnesses or affidavits, and shall not base any of its findings or determinations on the Original Arbitrator's findings or the Arbitration Award.
5.4        Timing.
 (a)        Within seven (7) calendar days of the Appeal Commencement Date, the Appellant (i) shall deliver or cause to be delivered to the Appeal Panel copies of the Appeal Notice, all discovery conducted in connection with the Arbitration, and all briefs, pleadings and other documents filed with the Original Arbitrator (which material Appellee shall have the right to review and supplement if necessary), and (ii) may, but is not required to, deliver to the Appeal Panel and to the Appellee a Memorandum in Support of the Appellant's arguments concerning or position with respect to all Claims, counterclaims, issues, or accountings presented or pleaded in the Arbitration. Within seven (7) calendar days of the Appellant's delivery of the Memorandum in Support, as applicable, the Appellee shall deliver to the Appeal Panel and to the Appellant a Memorandum in Opposition to the Memorandum in Support. Within seven (7) calendar days of the Appellee's delivery of the Memorandum in Opposition, as applicable, the Appellant shall deliver to the Appeal Panel and to the Appellee a Reply Memorandum to the Memorandum in Opposition. If the Appellant shall fail to substantially comply with the requirements of clause (i) of this subparagraph (a), the Appellant shall lose its right to appeal the Arbitration Award, and the Arbitration Award shall be final.  If the Appellee shall fail to deliver the Memorandum in Opposition as required above, or if the Appellant shall fail to deliver the Reply Memorandum as required above, then the Appellee or the Appellant, as the case may be, shall lose its right to so deliver the same, and the Appeal shall proceed regardless.
6
(b)        Subject to subparagraph (a) above, the parties hereby agree that the Appeal must be heard by the Appeal Panel within thirty (30) calendar days of the Appeal Commencement Date, and that the Appeal Panel must render its decision within thirty (30) calendar days after the Appeal is heard (and in no event later than sixty (60) calendar days after the Appeal Commencement Date).
5.5        Appeal Panel Award.  The Appeal Panel shall issue its decision (the "Appeal Panel Award") through the lead arbitrator on the Appeal Panel.  Notwithstanding any other provision contained herein, the Appeal Panel Award shall (a) supersede in its entirety and make of no further force or effect the Arbitration Award (provided that any protective orders issued by the Original Arbitrator shall remain in full force and effect), (b) be final and binding upon the parties, with no further rights of appeal, (c) be the sole and exclusive remedy between the parties regarding any Claims, counterclaims, issues, or accountings presented or pleaded in the Arbitration, and (d) be promptly payable in United States dollars free of any tax, deduction or offset (with respect to monetary awards).  Any costs or fees, including without limitation attorneys' fees, incurred in connection with or incident to enforcing the Appeal Panel Award shall, to the maximum extent permitted by law, be charged against the party resisting such enforcement. The Appeal Panel Award shall include Default Interest (with respect to monetary awards) at the rate specified in the Note for Default Interest both before and after the Arbitration Award. Judgment upon the Appeal Panel Award will be entered and enforced by a state or federal court sitting in Salt Lake County, Utah.
5.6        Relief.  The Appeal Panel shall have the right to award or include in the Appeal Panel Award any relief which the Appeal Panel deems proper under the circumstances, including, without limitation, specific performance and injunctive relief, provided that the Appeal Panel may not award exemplary or punitive damages.
5.7        Fees and Costs.  As part of the Appeal Panel Award, the Appeal Panel is hereby directed to require the losing party (the party being awarded the least amount of money by the arbitrator, which, for the avoidance of doubt, shall be determined without regard to any statutory fines, penalties, fees, or other charges awarded to any party) to (a) pay the full amount of any unpaid costs and fees of the Arbitration and the Appeal Panel, and (b) reimburse the prevailing party (the party being awarded the most amount of money by the Appeal Panel,  which, for the avoidance of doubt, shall be determined without regard to any statutory fines, penalties, fees, or other charges awarded to any part) the reasonable attorneys' fees, arbitrator and Appeal Panel costs and fees, deposition costs, other discovery costs, and other expenses, costs or fees paid or otherwise incurred by the prevailing party in connection with the Arbitration (including without limitation in connection with the Appeal).
6.    Miscellaneous.
6.1        Severability. If any part of these Arbitration Provisions is found to violate or be illegal under applicable law, then such provision shall be modified to the minimum extent necessary to make such provision enforceable under applicable law, and the remainder of the Arbitration Provisions shall remain unaffected and in full force and effect.
6.2        Governing Law.  These Arbitration Provisions shall be governed by the laws of the State of Utah without regard to the conflict of laws principles therein.
6.3        Interpretation.  The headings of these Arbitration Provisions are for convenience of reference only and shall not form part of, or affect the interpretation of, these Arbitration Provisions.
6.4        Waiver. No waiver of any provision of these Arbitration Provisions shall be effective unless it is in the form of a writing signed by the party granting the waiver.
6.5        Time is of the Essence. Time is expressly made of the essence with respect to each and every provision of these Arbitration Provisions.

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7

 EX-10.9 10 exh109.htm FORM OF ASSET PURCHASE AND SALE AGREEMENT DATED NOVEMBER 2, 2015
Exhiibit 10.9
 
Purchase and Sale Agreement ("Agreement")


1.
ASSIGNMENT. ______________ ("______________") hereby buys and ACTIVECARE, INC. D/B/A 4G BIOMETRICS AND/OR REAL TIME HEALTH ("Seller") hereby sells, transfers and assigns all of Seller's right, title and interest in and to those specific accounts receivable owing to Seller as set forth on the assignment forms provided by ______________ (the "Assignments") together with all rights of action accrued or to accrue thereon, including without limitation, full power to collect, sue for, compromise, assign or in any other manner enforce collection thereof in ______________'s name or otherwise. All of Seller's accounts receivable and contract rights which are presently or at any time hereafter assigned by Seller, and accepted by ______________, are collectively referred to as (the "Accounts").

2.
ADVANCE. Upon ______________'s receipt and acceptance of each Assignment, ______________ shall pay to Seller EIGHTY percent (80%) of the face value of the Accounts therein described (the "Down Payment"). Notwithstanding anything to the contrary contained in this Agreement, the maximum outstanding balance of Seller to ______________ shall be $2,000,000 ("Maximum Advance").

3.
RESERVE. ______________ will hold in reserve the difference between the Purchase Price (hereinafter defined) and the Down Payment (the "Reserve") and provided there are no outstanding chargebacks or disputes, will pay to Seller, the Reserve, less any sums due ______________ hereunder, five (5) business days from the date on which the Accounts have been collected in good funds, charged back and/or deemed collected by ______________ due to an account debtor's insolvency. For purposes of this Agreement, the term "Purchase Price" shall mean the net face value of Accounts, less; ______________'s discount fee described in paragraph 4 below, returns, credits, allowances and discounts; and less all other sums charged or chargeable to Seller's Accounts.

4.
DISCOUNT. ______________'s purchase of the Accounts from Seller shall be at a discount fee which is deducted from the face value of each Account upon collection. The discount fee, which shall be based on the number of days an Account is outstanding from the date of the Down Payment, shall be as follows: If paid within 30 days a discount fee of TWO AND ONE-QUARTER percent (2.25%); if paid within 40 days a discount fee of THREE percent (3%); if paid within 50 days a discount fee of THREE AND THREE-QUARTERS percent (3.75%); if paid within 60 days a discount fee of FOUR AND ONE-HALF percent (4.50%); if paid within 70 days a discount fee of FIVE AND ONE QUARTER percent (5.25%); if paid within 80 days a discount fee of SIX percent (6%); if paid within 90 days a discount fee of SIX AND THREE-QUARTERS percent (6.75%); and an additional ONE AND ONE-HALF percent (1.50%) for each 10 day period thereafter until the account is paid.

5.
WARRANTIES, REPRESENTATION AND COVENANTS. As an inducement for ______________'s entering into this Agreement and with full knowledge that the truth and accuracy of the warranties, representations and covenants in this Agreement are being relied upon by ______________, instead of the delay of a complete credit investigation, Seller warrants, represents and covenants that:

(a)
Seller is properly licensed and authorized to operate the business of chronic illness monitoring;
(b)
Seller is the sole and absolute owner of the Accounts and has the full legal right to make said sale, assignment and transfer;
(c)
The correct amount of each Account will be set forth on the Assignments;
(d)
Each Account is an accurate and undisputed statement of indebtedness from an account debtor for a sum certain, without offset or counterclaim and which is due and payable in ninety days or less;
(e)
Each Account is an accurate statement of a bona fide sale, delivery and acceptance of merchandise or performance of service by Seller to an account debtor;
(f)
Seller does not own, control or exercise dominion in any way whatsoever, over the business of any account debtor;
(g)
All financial records, statements, books or other documents shown to ______________ by Seller at any time either before or after the signing of this Agreement are true and accurate;
 

(h)
Seller will not under any circumstance or in any manner whatsoever, interfere with any of ______________'s rights under this Agreement;
(i)
Seller has not and will not, at any time, permit any lien, security interest or encumbrance to be created upon any of its accounts receivable and/or its inventory without the prior written consent of ______________;
(j)
Seller will not change or modify the terms of the Accounts with any account debtor unless ______________ first consents, in writing;
 
(k)
Seller will notify ______________, in writing, in advance of: any change in Seller's place of business; Seller having or acquiring more than one place of business; any change in Seller's chief executive office; and/or any change in the office or offices where Seller's books and records concerning accounts receivable are kept;
(l)
Seller will immediately notify ______________ of any proposed or actual change of the Seller's and/or any account debtor's identity, legal entity or corporate structure;
(m)
Unless otherwise agreed to, in writing, by ______________, all invoices will state plainly on their face that the Accounts represented thereby have been assigned to ______________ and are payable directly to ______________; and
(n)
No Account shall be on a bill-and-hold, guaranteed sale, sale-and-return, sale on approval, consignment or any other repurchase or return basis;
The warranties, representations and covenants contained in this paragraph 5 shall be continuous and be deemed to be renewed each time Seller assigns Accounts to ______________. Notwithstanding the provisions contained in paragraph 6 of this Agreement, ______________ shall have recourse against the Seller in the event that any of the warranties, representations and covenants set forth in this paragraph 5 are breached.

6.
    NO RECOURSE. ______________ shall have no recourse against Seller if payments are not received due to the "Insolvency" of an account debtor within 90 days of invoice date. For purposes of the foregoing, Insolvency shall be deemed to have occurred only when: (a) a voluntary or involuntary bankruptcy proceeding for the relief of an account debtor under either Chapter 7 or Chapter 11 shall have been instituted in a United States Bankruptcy Court; (b) a receiver is appointed for the whole or any part of the property of an account debtor;
(c) an account debtor's assets shall have been sold under a writ of execution or attachments, or a writ of execution shall have been returned unsatisfied; (d) an account debtor shall have absconded; or (e) an account debtor's assets shall have been sold under levy by any taxing authority or by a landlord.

7.
    CHARGE-BACK. In the event that any Account is not paid within 90 days of invoice date for any reason whatsoever (other than as a result of an account debtor's Insolvency), including, without limitation, any alleged defense, counterclaim, offset, dispute or other claim (real or merely asserted) whether arising from or relating to the sale of goods or rendition of services or arising from or relating to any other transaction or occurrence, then in any such event ______________ shall have the right to chargeback such Account to Seller. No chargeback shall be deemed a reassignment to Seller of the Account involved. Seller acknowledges that all amounts chargeable to Seller's account under this Agreement shall be payable by Seller on demand.

8.
        NOTICE OF DISPUTE. Seller must immediately notify ______________ of any disputes between any account debtor and Seller.

9.
    SETTLEMENT OF DISPUTE. ______________ may, at its option, settle any dispute with any account debtor. Such settlement does not relieve Seller of any of its obligations under this Agreement.

10.
SOLE PROPERTY. Once ______________ has purchased the Accounts, the payment from account debtors relative to the Accounts is the sole property of ______________. Any interference by Seller with this payment will result in civil and/or criminal liability.

11.
SECURITY INTEREST. As a further inducement for ______________ to enter into this Agreement, and as security for the prompt performance, observance and payment of all obligations owing by Seller to ______________, Seller hereby grants to ______________ a continuing security interest in and lien upon the following (herein collectively referred to as the "Collateral"): all accounts, inventory, machinery and equipment, instruments, documents, chattel paper and general intangibles (as such terms are defined in the Uniform Commercial Code), whether now owned or hereafter created or acquired by Seller, wherever located, and all replacements and substitutions therefore, accessions thereto, and products and proceeds thereof, and all property of Seller at any time in ______________'s possession.
12.
FINANCING STATEMENTS. Seller will, at its expense perform all acts and execute all documents requested by ______________ at any time to evidence, perfect, maintain and enforce ______________'s security interest and other rights in the Collateral and the priority thereof.

13.
HOLD IN TRUST. Seller will hold in trust and safekeeping, as the property of ______________ and immediately turn over to ______________, the identical check or other form of payment received by Seller if payment on the Accounts comes into Seller's possession. Should Seller come into possession of a check comprising payments owing to both Seller and ______________, Seller shall turn over said check to ______________. In the event a payment belonging to ______________ is improperly deposited into Seller's bank account, ______________ reserves the right to impose liquidated damages upon Seller of up to 20% of the face amount of any check so improperly deposited.

14.
FINANCIAL RECORDS. Seller will furnish to ______________ financial statements and such other information as is, from time to time, requested by ______________.

15.
BOOK ENTRY. Seller will immediately, upon the sale of the Accounts, make the proper entry on its books and records disclosing the absolute sale of the Accounts to ______________.

16.
POWER OF ATTORNEY. In order to implement this Agreement, Seller irrevocably appoints ______________ its special attorney in fact or agent with power to:
(a)
Strike out Seller's address on any correspondence to any account debtor and put on ______________'s address;
(b)
Receive and open all mail addressed to Seller via ______________'s address;
(c ) Endorse the name of Seller or Seller's trade name on any checks or other evidences of payment that may come into the possession of ______________ in connection with the Accounts;
(d)
In Seller's name, or otherwise, demand, sue for, collect any and all monies due in connection with the Accounts; and
(e)
Compromise, prosecute or defend any action, claim or proceeding relative to the Accounts;

The authority granted to ______________ shall remain in full force and effect until the Accounts are paid in full and the entire indebtedness of Seller to ______________ is discharged.

17.
NOTIFICATION; VERIFICATION OF ACCOUNTS
(a)
Without in any way limiting the terms and provisions of paragraph 5 (m) hereinabove, ______________ may at any time and from time to time, in its sole discretion, notify any account debtor to make payment on any of Seller's open invoices to ______________; and
(b)
______________, may at any time verify the Accounts utilizing an audit control company, any agent of ______________ or any other means deemed appropriate by ______________.

18.
NO ASSUMPTION. Nothing contained in this Agreement shall be deemed to impose any duty or obligation upon ______________ in favor of any account debtor and/or any other party in connection with the Accounts.

19.
FUTURE ASSIGNMENTS. Seller may from time to time, at Seller's option, sell, transfer and assign different Accounts to ______________. The future sale of any Accounts shall be subject to and governed by this Agreement and such Accounts shall be identified by separate and subsequent Assignments.

20.
DISCRETION. Nothing contained in this Agreement shall be construed to impose any obligation upon ______________ to purchase Accounts from Seller. ______________ shall at its sole discretion determine which Accounts it shall purchase. Further, ______________ shall have the absolute right at any time to cease accepting any further Assignments from Seller.

21.
LEGAL FEES; EXPENSES. Seller will pay on demand any and all collection expenses and reasonable outside legal counsel's fees that ______________ incurs in the event it should become necessary for ______________ to enforce its rights under this Agreement. In addition, Seller will pay on demand all costs and expenses incurred by ______________ in any way relating to the transactions contemplated by this Agreement, including, without limitation, all reasonable attorneys' fees, Federal Express costs (or similar expenses), wire transfer costs, certified mail costs, facsimile transmission costs and lien search costs.

22.
BINDING ON FUTURE PARTIES. This Agreement shall inure to the benefit of and is binding upon the heirs, executors, administrators, successors and assigns of the parties hereto, except that Seller may not assign or transfer any or all of its rights and obligations under this Agreement to any party without the prior written consent of ______________.
 

23.
WAIVER; ENTIRE AGREEMENT. No failure or delay on ______________'s part in exercising any right, power or remedy granted to ______________ herein, will constitute or operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right set forth herein. This Agreement contains the entire agreement and understanding of the parties hereto and no amendment, modification or waiver of, or consent with respect to, any provision of this Agreement, will in any event be effective unless the same is in writing and signed and delivered by ______________.

24.
NEW JERSEY LAW. This Agreement shall be deemed executed in the State of New Jersey and, in all respects shall be governed and construed in accordance with the laws of the State of New Jersey.

25.
INDEMNITY. Seller shall hold ______________ harmless from and against any action or other proceeding brought by any account debtor against ______________ arising from ______________'s collecting or attempting to collect any of the Accounts.

26.
TERM. This Agreement will remain in effect for one year from the date that this Agreement becomes effective (the "Term"). Thereafter, the Term will be automatically extended for successive periods of one (1) year each unless either party provides the other with a written notice of cancellation of at least sixty (60) days prior to the expiration of the initial Term or any renewal Term; provided, however, ______________ may cancel this Agreement at any time upon sixty (60) days notice to Seller. In the event of a breach by Seller of any term or provision of this Agreement or upon Seller's insolvency or the insolvency of any guarantor of Seller's obligations herein, ______________ shall have the right to cancel this Agreement without notice to Seller, and all of Seller's obligations to ______________ herein shall be immediately due  and  payable.   In  the  event  of  cancellation,  the  provisions  of  this  Agreement  shall  remain  in  full  force  and  effect  until all                      of the Accounts have been paid in full.

27.
EARLY TERMINATION. In the event that Seller wishes to terminate the Agreement prior to the expiration of the Term, then in addition to paying ______________ all other obligations due under this Agreement, Seller shall also pay ______________ an early termination fee equal to $5,500 per month for each month remaining under the Term.

28.
INVALID PROVISIONS. If any provision of this Agreement shall be declared illegal or contrary to law, it is agreed that such provision shall be disregarded and this Agreement shall continue in force as though said provision had not been incorporated herein.

29.
EFFECTIVE. This Agreement shall become effective when it is accepted and executed by an authorized officer of ______________. Facsimile machine or PDF copies of an original signature by either party on this Agreement shall be binding as if said copies were original signatures.

 

INTENTIONALLY LEFT BLANK
 
30.
JURY WAIVER. The parties hereto hereby mutually waive trial by jury in the event of any litigation with respect to any matter connected with this Agreement.
 
Accepted:

ACTIVECARE, INC.                                                                                                              ______________



By:

By:
__________________  __________________


This day of , 2015  This day of  , 2015


In consideration of the foregoing Agreement, each of the undersigned hereby personally agrees to be jointly and severally liable for any damages suffered by ______________ by virtue of the breach of any warranty, representation or covenant made by Seller in paragraph 5 above.
 
Date:
By:
__________________, Individually

On this  day of in the year  before me, the undersigned, a notary public in and for the said state, personally appeared , personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me, he/she/they executed the same in his/her capacity, and that by his/her signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

State:
Notary Public (Signature)                                                                Notary- Print Name                                                            Commission Expires:



Date:
By:
__________________, Individually

 
On this day of  in the year  before me, the undersigned, a notary public in and for he said state, personally appeared, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me, he/she/they executed the same in his/her capacity, and that by his/her signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

State:
Notary Public (Signature)                                                                Notary- Print Name                                                            Commission Expires:




Date:
By:
__________________, Individually

On this day of  in the year  before me, the undersigned, a notary public in and for he said state, personally appeared, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me, he/she/they executed the same in his/her capacity, and that by his/her signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.
State:
Notary Public (Signature)                                                                Notary- Print Name                                                            Commission Expires:
 
 
 
 
 
 EX-10.10 11 exh1010.htm FORM OF ADDENDUM TO NOTE PAYABLE DATED FEBRUARY 16, 2016
Exhibit 10.10
Addendum #1 to the Settlement Agreement
Between ActiveCare, Inc. and Advance Technology Investors
Dated May 20, 2015


On this day of February 16, 2016, this Addendum#1 associated with the Promissory Note dated May 20, 2015 by and between ActiveCare, Inc. (Borrower) and Advance Technology Investors (Lender) is agreed to be altered in the following to points:

1)
Lender agrees to subordinate said debt to PFG;

2)
Lender will be able to convert such loan at $0.06 per common share.  Borrower will provide 10 business days' notice to Lender of intent to pay loan.  During such time, Lender shall have the right to convert said loan at the conversion price of $0.06.  Notification shall be sent to steven.weidman@mlp.com and Lender will respond affirmatively receiving notice.  Should no notice be received with 2 business days, Borrower shall send via certified mail such notice to 154 Rock Hill Road, Spring Valley, NY  10977.

Further, all covenants, collateral, provision, definitions, and in summary, all items contained within the agreements are unchanged and are in full force and effect with the exception of Paragraphs 1, and 2 provided above in Addendum #1.



Borrower:                                                                      ACTIVECARE, INC.
A Delaware Corporation


By _______________________________
     James Dalton, CEO



The Lender:                                                                      Advance Technology Investors



By    _______________________________

ITS   _______________________________


 EX-10.11 12 exh1011.htm FORM OF DEBENTURE AGREEMENT BY AND AMONG ACTIVECARE, INC. AND THE HOLDERS OF ACTIVECARE SERIES F CONVERTIBLE PREFERRED STOCK
Exhibit 10.11


Original Issue Date: February ___, 2016
Original Conversion Price (subject to adjustment herein): $0.30

$_______________


10% CONVERTIBLE DEBENTURE
DUE NOVEMBER 1, 2018

THIS 10% CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued 10% Convertible Debentures of ActiveCare, Inc., a Delaware corporation, (the "Company"), having its principal place of business at 1365 West Business Park Avenue, Orem, Utah 84058, designated as its 10% Convertible Debenture due November 1, 2018 (this debenture, the "Debenture" and, collectively with the other debentures of such series, the "Debentures").  This Debenture is being issued in exchange for certain Series F Variable Rate Convertible Preferred Stock of the Company issued to the original Holder on December 16, 2013.  Pursuant to Rule 144, the holding period of this Debenture, the Conversion Shares issuable upon conversion and redemption hereof and in satisfaction of interest payments shall tack back to December 16, 2013.

FOR VALUE RECEIVED, the Company promises to pay to ________________________ or its registered assigns (the "Holder"), or shall have paid pursuant to the terms hereunder, the principal sum of $_______________ on November 1, 2018 (the "Maturity Date") or such earlier date as this Debenture is required or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture in accordance with the provisions hereof.  This Debenture is subject to the following additional provisions:

Section 1.                          Definitions.  For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Exchange Agreement and (b) the following terms shall have the following meanings:

"Alternate Consideration" shall have the meaning set forth in Section 5(e).

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

"Base Conversion Price" shall have the meaning set forth in Section 5(b).

"Beneficial Ownership Limitation" shall have the meaning set forth in Section 4(d).

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

"Buy-In" shall have the meaning set forth in Section 4(c)(v).

"Change of Control Transaction" means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 33% of the voting securities of the Company (other than by means of conversion or exercise of the Debentures and the Securities issued together with the Debentures), (b) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 66% of the aggregate voting power of the Company or the successor entity of such transaction, (c) the Company sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less than 66% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a three-year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Original Issue Date (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the date hereof), or (e) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.
2

"Conversion" shall have the meaning ascribed to such term in Section 4.

"Conversion Date" shall have the meaning set forth in Section 4(a).

"Conversion Price" shall have the meaning set forth in Section 4(b).

"Conversion Schedule" means the Conversion Schedule in the form of Schedule 1 attached hereto.

"Conversion Shares" means, collectively, the shares of Common Stock issuable upon conversion of this Debenture in accordance with the terms hereof.

"Debenture Register" shall have the meaning set forth in Section 2(c).

"Dilutive Issuance" shall have the meaning set forth in Section 5(b).

"Dilutive Issuance Notice" shall have the meaning set forth in Section 5(b).

"Equity Conditions" means, during the period in question, (a) the Company shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all liquidated damages and other amounts owing to the Holder in respect of this Debenture, (c)(i) there is an effective registration statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the shares of Common Stock issuable pursuant to the Transaction Documents (and the Company believes, in good faith, that such effectiveness will continue uninterrupted for the foreseeable future) or (ii) all of the Conversion Shares issuable pursuant to the Transaction Documents (and shares issuable in lieu of cash payments of interest) may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions or current public information requirements as determined by the counsel to the Company as set forth in a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the Holder, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the shares then issuable pursuant to the Transaction Documents, (f) there is no existing Event of Default and no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default, (g) the issuance of the shares in question (or, in the case of an Periodic Redemption, the shares issuable upon conversion in full of the Periodic Redemption Amount) to the Holder would not violate the limitations set forth in Section 4(d) and 4(e) herein, (h) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated, (i) the applicable Holder is not in possession of any information provided by the Company that constitutes, or may constitute, material non-public information and (j) for each Trading Day in a period of fifteen (15) consecutive Trading Days prior to the applicable date in question, the daily dollar trading volume for the Common Stock on the principal Trading Market exceeds $100,000 per Trading Day.
3

"Exchange Agreement" means the Securities Exchange Agreement, dated as of February ___, 2016 among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

"Event of Default" shall have the meaning set forth in Section 8(a).

"Fundamental Transaction" shall have the meaning set forth in Section 5(e).

"Interest Conversion Rate" means the lesser of (a) the Conversion Price or (b) 85% of the lesser of (i) the average of the VWAPs for the 10 consecutive Trading Days ending on the Trading Day that is immediately prior to the applicable Interest Payment Date or (ii) the average of the VWAPs for the 10 consecutive Trading Days ending on the Trading Day that is immediately prior to the date the applicable Interest Conversion Shares are issued and delivered if such delivery is after the Interest Payment Date.

"Interest Conversion Shares" shall have the meaning set forth in Section 2(a).

"Interest Notice Period" shall have the meaning set forth in Section 2(a).

"Interest Payment Date" shall have the meaning set forth in Section 2(a).

"Interest Share Amount" shall have the meaning set forth in Section 2(a).

"Mandatory Default Amount" means the sum of (a) the greater of (i) the outstanding principal amount of this Debenture, plus all accrued and unpaid interest hereon, divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or notice is required to create an Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or (ii) 130% of the outstanding principal amount of this Debenture, plus 100% of accrued and unpaid interest hereon, and (b) all other amounts, costs, expenses and liquidated damages due in respect of this Debenture.

"New York Courts" shall have the meaning set forth in Section 9(d).

"Notice of Conversion" shall have the meaning set forth in Section 4(a).
4

"Optional Redemption" shall have the meaning set forth in Section 6(b).

"Optional Redemption Amount" means the sum of (a) 100% of the then outstanding principal amount of the Debenture, (b) accrued but unpaid interest and (c) all liquidated damages and other amounts due in respect of the Debenture.

"Optional Redemption Date" shall have the meaning set forth in Section 6(b).

"Optional Redemption Notice" shall have the meaning set forth in Section 6(b).

"Optional Redemption Notice Date" shall have the meaning set forth in Section 6(b).

"Optional Redemption Period" shall have the meaning set forth in Section 6(b).

"Original Issue Date" means the date of the first issuance of the Debentures, regardless of any transfers of any Debenture and regardless of the number of instruments which may be issued to evidence such Debentures.

"Periodic Redemption" means the redemption of this Debenture pursuant to Section 6(a) hereof.

"Periodic Redemption Amount" means, (i) as to the Periodic Redemption on each of March 30, 2017, June 30, 2017, September 30, 2017 and December 31, 2017, $______1 to be first applied towards accrued but unpaid interest of this Debenture (with surplus amount (if any) applied towards principal); and (ii) as to the Periodic Redemption on each of March 30, 2018, June 30, 2018 and September 30, 2018, $___________2 to be first applied towards accrued but unpaid interest of this Debenture (with surplus amount (if any) applied towards principal); (iii) and as to the Periodic Redemption on November 1, 2018, the remaining principal amount of this Debenture, plus accrued but unpaid interest, liquidated damages and any other amounts then owing to the Holder in respect of this Debenture.

"Periodic Redemption Date" means each of March 30, 2017, June 30, 2017, September 30, 2017, December 31, 2017, March 30, 2018, June 30, 2018, September 30, 2018 and November 1, 2018.

"Periodic Redemption Notice" shall have the meaning set forth in Section 6(a) hereof.

"Permitted Indebtedness" means (a) the indebtedness evidenced by the Debentures, (b) up to $9,000,000 in indebtedness owing to Partners for Growth IV, L.P., (c) indebtedness that (i) is expressly subordinate to the Debentures pursuant to a written subordination agreement with the Holders that is acceptable to each Holder in its sole and absolute discretion and (ii) matures at a date later than the 91st day following the Maturity Date and (d) lease obligations and purchase money indebtedness of up to $200,000, in the aggregate, incurred in connection with the acquisition of capital assets and lease obligations with respect to newly acquired or leased assets.
1 Insert 3.4% of the original principal amount of such purchaser's Debenture.
2 Insert 5.1% of the original principal amount of such purchaser's Debenture.
5

"Permitted Lien" means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Company) have been established in accordance with GAAP, (b) Liens imposed by law which were incurred in the ordinary course of the Company's business, such as carriers', warehousemen's and mechanics' Liens, statutory landlords' Liens, and other similar Liens arising in the ordinary course of the Company's business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Company and its consolidated Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien and (c) Liens incurred in connection with Permitted Indebtedness under clause (b) thereunder.
"Pre-Redemption Conversion Shares" shall have the meaning set forth in Section 6(a) hereof.

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

"Share Delivery Date" shall have the meaning set forth in Section 4(c)(ii).

"Successor Entity" shall have the meaning set forth in Section 5(e).

"Trading Day" means a day on which the principal Trading Market is open for trading.

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

"VWAP" means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b)  if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the "Pink Sheets" published by OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holders of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.
6

Section 2.                          Interest.

a)
Payment of Interest. The Company shall pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture at the rate of 10% per annum, payable quarterly on each Periodic Redemption Date (up to the Periodic Redemption Amount), on each Conversion Date (as to the principal amount being converted) and on the Maturity Date (each such date, an "Interest Payment Date") (if any Interest Payment Date is not a Business Day, then the applicable payment shall be due on the next succeeding Business Day), in cash or, at the Company's option, in duly authorized, validly issued, fully paid and non-assessable shares of Common Stock at the Interest Conversion Rate (the dollar amount to be paid in shares, the "Interest Share Amount") or a combination thereof; provided, however, that payment in shares of Common Stock may only occur if (i) all of the Equity Conditions have been met (unless waived by the Holder in writing) during the 20 Trading Days immediately prior to the applicable Interest Payment Date  (the "Interest Notice Period") and through and including the date such shares of Common Stock are actually issued to the Holder, (ii) the Company shall have given the Holder notice in accordance with the notice requirements set forth below and (iii) as to such Interest Payment Date, prior to such Interest Notice Period (but not more than five (5) Trading Days prior to the commencement of such Interest Notice Period), the Company shall have delivered to the Holder's account with The Depository Trust Company a number of shares of Common Stock to be applied against such Interest Share Amount equal to the quotient of (x) the applicable Interest Share Amount divided by (y) the lesser of the (i) then Conversion Price and (ii) the Interest Conversion Rate assuming for such purposes that the Interest Payment Date is the Trading Day immediately prior to the commencement of the Interest Notice Period (the "Interest Conversion Shares").

b)
Company's Election to Pay Interest in Cash or Kind.  Subject to the terms and conditions herein, the decision whether to pay interest hereunder in cash, shares of Common Stock or a combination thereof shall be at the sole discretion of the Company.  Prior to the commencement of any Interest Notice Period, the Company shall deliver to the Holder a written notice of its election to pay interest hereunder on the applicable Interest Payment Date either in cash, shares of Common Stock or a combination thereof and the Interest Share Amount as to the applicable Interest Payment Date, provided that the Company may indicate in such notice that the election contained in such notice shall apply to future Interest Payment Dates until revised by a subsequent notice.  During any Interest Notice Period, the Company's election (whether specific to an Interest Payment Date or continuous) shall be irrevocable as to such Interest Payment Date.  Subject to the aforementioned conditions, failure to timely deliver such written notice to the Holder shall be deemed an election by the Company to pay the interest on such Interest Payment Date in cash.    The aggregate number of shares of Common Stock otherwise issuable to the Holder on an Interest Payment Date shall be reduced by the number of Interest Conversion Shares previously issued to the Holder in connection with such Interest Payment Date.
7

c)
Interest Calculations. Interest shall be calculated on the basis of a 360-day year, consisting of twelve 30 calendar day periods, and shall accrue daily commencing on the Original Issue Date until payment in full of the outstanding principal, together with all accrued and unpaid interest, liquidated damages and other amounts which may become due hereunder, has been made.  Payment of interest in shares of Common Stock (other than the Interest Conversion Shares issued prior to an Interest Notice Period) shall otherwise occur pursuant to Section 4(c)(ii) herein and, solely for purposes of the payment of interest in shares, the Interest Payment Date shall be deemed the Conversion Date.  Interest shall cease to accrue with respect to any principal amount converted, provided that, the Company actually delivers the Conversion Shares within the time period required by Section 4(c)(ii) herein.  Interest hereunder will be paid to the Person in whose name this Debenture is registered on the records of the Company regarding registration and transfers of this Debenture (the "Debenture Register"). Except as otherwise provided herein, if at any time the Company pays interest partially in cash and partially in shares of Common Stock to the holders of the Debentures, then such payment of cash shall be distributed ratably among the holders of the then-outstanding Debentures based on their (or their predecessor's) initial purchases of Debentures pursuant to the Purchase Agreement.

d)
Late Fee.  All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law (the "Late Fees") which shall accrue daily from the date such interest is due hereunder through and including the date of actual payment in full. Notwithstanding anything to the contrary contained herein, if, on any Interest Payment Date the Company has elected to pay accrued interest in the form of Common Stock but the Company is not permitted to pay accrued interest in Common Stock because it fails to satisfy the conditions for payment in Common Stock set forth in Section 2(a) herein, then, at the option of the Holder, the Company, in lieu of delivering either shares of Common Stock pursuant to this Section 2 or paying the regularly scheduled interest payment in cash, shall deliver, within three (3) Trading Days of each applicable Interest Payment Date, an amount in cash equal to the product of (x) the number of shares of Common Stock otherwise deliverable to the Holder in connection with the payment of interest due on such Interest Payment Date multiplied by (y) the highest VWAP during the period commencing on the Interest Payment Date and ending on the Trading Day prior to the date such payment is actually made.  If any Interest Conversion Shares are issued to the Holder in connection with an Interest Payment Date and are not applied against an Interest Share Amount, then the Holder shall promptly return such excess shares to the Company.
8


e)
Prepayment.  Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder.

Section 3.                          Registration of Transfers and Exchanges.

a)
Different Denominations. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holder surrendering the same.  No service charge will be payable for such registration of transfer or exchange.

b)
Investment Representations. This Debenture has been issued subject to certain investment representations of the original Holder set forth in the Exchange Agreement and may be transferred or exchanged only in compliance with the Exchange Agreement and applicable federal and state securities laws and regulations.

c)
Reliance on Debenture Register. Prior to due presentment for transfer to the Company of this Debenture, the Company and any agent of the Company may treat the Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

Section 4.                          Conversion.

a)
Voluntary Conversion. At any time after the Original Issue Date until this Debenture is no longer outstanding, this Debenture shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(d) and Section 4(e) hereof).  The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a "Notice of Conversion"), specifying therein the principal amount of this Debenture to be converted and the date on which such conversion shall be effected (such date, the "Conversion Date").  If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder.  No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required.  To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this Debenture, plus all accrued and unpaid interest thereon, has been so converted in which case the Holder shall surrender this Debenture as promptly as is reasonably practicable after such conversion without delaying the Company's obligation to deliver the shares on the Share Delivery Date. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion.  The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s).  The Company may deliver an objection to any Notice of Conversion within one (1) Business Day of delivery of such Notice of Conversion.  In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof.
9

b)
Conversion Price.  The conversion price in effect on any Conversion Date shall be equal to $0.30, subject to adjustment herein (the "Conversion Price").

c)
Mechanics of Conversion.

i.
Conversion Shares Issuable Upon Conversion of Principal Amount.  The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted by (y) the Conversion Price.

ii.
Delivery of Conversion Shares Upon Conversion. Not later than three (3) Trading Days after each Conversion Date (the "Share Delivery Date"), the Company shall deliver, or cause to be delivered, to the Holder (A) the Conversion Shares which shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Exchange Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Debenture (including, if the Company has given continuous notice pursuant to Section 2(b) for payment of interest in shares of Common Stock at least 20 Trading Days prior to the date on which the Notice of Conversion is delivered to the Company, shares of Common Stock representing the payment of accrued interest otherwise determined pursuant to Section 2(a) but assuming that the Interest Notice Period is the 20 Trading Days period immediately prior to the date on which the Notice of Conversion is delivered to the Company and excluding for such issuance the condition that the Company deliver Interest Conversion Shares as to such interest payment prior to the commencement of the Interest Notice Period) and (B) a bank check in the amount of accrued and unpaid interest (if the Company has elected or is required to pay accrued interest in cash). The Company shall deliver any Conversion Shares required to be delivered by the Company under this Section 4(c) electronically through the Depository Trust Company or another established clearing corporation performing similar functions.
10

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

iv.
Obligation Absolute; Partial Liquidated Damages.  The Company's obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder.  In the event the Holder of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the Company posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Debenture, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment.  In the absence of such injunction, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion.  If the Company fails for any reason to deliver to the Holder such Conversion Shares pursuant to Section 4(c)(ii) by the Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Trading Day (increasing to $20 per Trading Day on the fifth (5th) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Share Delivery Date until such Conversion Shares are delivered or Holder rescinds such conversion.  Nothing herein shall limit a Holder's right to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for the Company's failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.  The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.
11

v.
Compensation for Buy-In on Failure to Timely Deliver Conversion Shares Upon Conversion. In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such Conversion Shares by the Share Delivery Date pursuant to Section 4(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder's brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a "Buy-In"), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder's total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 4(c)(ii).  For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000.  The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss.  Nothing herein shall limit a Holder's right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company's failure to timely deliver Conversion Shares upon conversion of this Debenture as required pursuant to the terms hereof.
12

vi.
Reservation of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture and payment of interest on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Debentures), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Exchange Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the then outstanding principal amount of this Debenture and payment of interest hereunder.  The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if a registration statement is then effective under the Securities Act, shall be registered for public resale in accordance with such registration statement.

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

viii.
Transfer Taxes and Expenses.  The issuance of Conversion Shares on conversion of this Debenture shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such Conversion Shares, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such Conversion Shares upon conversion in a name other than that of the Holder of this Debenture so converted and the Company shall not be required to issue or deliver such Conversion Shares unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.  The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Conversion Shares.
 
d)
Holder's Conversion Limitations.  The Company shall not effect any conversion of this Debenture, and a Holder shall not have the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder's Affiliates, and any Persons acting as a group together with the Holder or any of the Holder's Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted principal amount of this Debenture beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Debentures or the Warrants) beneficially owned by the Holder or any of its Affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 4(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.  To the extent that the limitation contained in this Section 4(d) applies, the determination of whether this Debenture is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which principal amount of this Debenture is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder's determination of whether this Debenture may be converted (in relation to other securities owned by the Holder together with any Affiliates) and which principal amount of this Debenture is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination.  In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.  For purposes of this Section 4(d), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Company's most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Company, or (iii) a more recent written notice by the Company or the Company's transfer agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Company shall within two (2) Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Debenture, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The "Beneficial Ownership Limitation" shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Debenture held by the Holder.  The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Debenture.
 

13
e)
Issuance Limitations.  Notwithstanding anything herein to the contrary, the Company may not issue, upon conversion or redemption of this Debenture, a number of shares of Common Stock which, when aggregated with any shares of Common Stock issued on or after the Original Issue Date and prior to such Conversion Date in connection with the conversion or redemption of any Debentures issued pursuant to the Exchange Agreement, would exceed 19,667,000 shares of Common Stock (subject to adjustment for forward and reverse stock splits, recapitalizations and the like) (such number of shares, the "Issuable Maximum").  Each Holder shall be entitled to a portion of the Issuable Maximum equal to the quotient obtained by dividing (x) the original principal amount of the Holder's Debenture by (y) the aggregate original principal amount of all Debentures issued on the Original Issue Date to all Holders. Such portion shall be adjusted upward ratably in the event a Holder no longer holds any Debentures and the amount of shares issued to the Holder pursuant to the Holder's Debentures was less than the Holder's pro-rata share of the Issuable Maximum.  Notwithstanding anything herein to the contrary, upon an Event of Default, there shall be no Issuable Maximum and the provisions of this Section 4(e) shall thereafter be void.

Section 5.                          Certain Adjustments.

a)
Stock Dividends and Stock Splits.  If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of interest on, the Debentures), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event.  Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re‑classification.
14

b)
Subsequent Equity Sales.  If, at any time while this Debenture is outstanding,  the Company or any Subsidiary, as applicable, sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the "Base Conversion Price" and such issuances, collectively, a "Dilutive Issuance") (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base Conversion Price.  Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued.  Notwithstanding the foregoing, no adjustment will be made under this Section 5(b) in respect of an Exempt Issuance.  If the Company enters into a Variable Rate Transaction, despite the prohibition set forth in the Exchange Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion price at which such securities may be converted or exercised. The Company shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 5(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the "Dilutive Issuance Notice").  For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion.
c)
Subsequent Rights Offerings.  In addition to any adjustments pursuant to Section 5(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the "Purchase Rights"), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Debenture (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder's right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
15

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

e)
Fundamental Transaction. If, at any time while this Debenture is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a "Fundamental Transaction"), then, upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 4(d) and Section 4(e) on the conversion of this Debenture), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the "Alternate Consideration") receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Debenture is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 4(d) and Section 4(e) on the conversion of this Debenture).  For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction.  The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the "Successor Entity") to assume in writing all of the obligations of the Company under this Debenture and the other Transaction Documents (as defined in the Exchange Agreement) in accordance with the provisions of this Section 5(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the holder of this Debenture, deliver to the Holder in exchange for this Debenture a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Debenture which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Debenture (without regard to any limitations on the conversion of this Debenture) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Debenture immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Debenture and the other Transaction Documents referring to the "Company" shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Debenture and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.
16

f)
Calculations.  All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.  For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.

g)
Notice to the Holder.

i.
Adjustment to Conversion Price.  Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

ii.
Notice to Allow Conversion by Holder.  If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Debenture Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice.  To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.  The Holder shall remain entitled to convert this Debenture during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
17

Section 6.                          Redemption.

a)
Periodic Redemption.  On each Periodic Redemption Date, the Company shall redeem the Periodic Redemption Amount (the "Periodic Redemption"). The Periodic Redemption Amount payable on each Periodic Redemption Date shall be paid in cash; provided, however, as to any Periodic Redemption and upon thirty (30) Trading Days' prior written irrevocable notice (the "Periodic Redemption Notice"), in lieu of a cash redemption payment the Company may elect to pay all or part of the Periodic Redemption Amount in Conversion Shares based on a conversion price equal to the lesser of (i) the then Conversion Price and (ii) 85% of the average of the VWAPs for the ten (10) consecutive Trading Days ending on the Trading Day that is immediately prior to the applicable Periodic Redemption Date (subject to adjustment for any stock dividend, stock split, stock combination or other similar event affecting the Common Stock during such 10-Trading Day period) (the price calculated during the 10-Trading Day period immediately prior to the Periodic Redemption Date, the "Periodic Conversion Price" and such 10-Trading Day period, the "Periodic Conversion Period"); provided, further, that the Company may not pay the Periodic Redemption Amount in Conversion Shares unless (y) from the date the Holder receives the duly delivered Periodic Redemption Notice through and until the date such Periodic Redemption is paid in full, the Equity Conditions have been satisfied, unless waived in writing by the Holder, and (z) as to such Periodic Redemption, prior to such Periodic Conversion Period (but not more than five (5) Trading Days prior to the commencement of the Periodic Conversion Period), the Company shall have delivered to the Holder's account with The Depository Trust Company a number of shares of Common Stock to be applied against such Periodic Redemption Amount equal to the quotient of (x) the applicable Periodic Redemption Amount divided by (y) the lesser of (A) the Conversion Price and (B) 85% of the average of the 10 VWAPs during the period ending on the 3rd Trading Day immediately prior to the date of the Periodic Redemption Notice (the "Pre-Redemption Conversion Shares").  The Holder may convert, pursuant to Section 4(a), any principal amount of this Debenture subject to a Periodic Redemption at any time prior to the date that the Periodic Redemption Amount, plus accrued but unpaid interest, liquidated damages and any other amounts then owing to the Holder are due and paid in full.  Unless otherwise indicated by the Holder in the applicable Notice of Conversion, any principal amount of this Debenture converted during the applicable Periodic Conversion Period until the date the Periodic Redemption Amount is paid in full shall be first applied to the principal amount subject to the Periodic Redemption Amount payable in cash and then to the Periodic Redemption Amount payable in Conversion Shares.  Any principal amount of this Debenture converted during the applicable Periodic Conversion Period in excess of the Periodic Redemption Amount shall be applied against the last principal amount of this Debenture scheduled to be redeemed hereunder, in reverse time order from the Maturity Date; provided, however, if any such conversion is applied against such Periodic Redemption Amount, the Pre-Redemption Conversion Shares, if any were issued in connection with such Periodic Redemption or were not already applied to such conversions, shall be first applied against such conversion.  The Company covenants and agrees that it will honor all Notices of Conversion tendered up until such amounts are paid in full.  The Company's determination to pay a Periodic Redemption in cash, shares of Common Stock or a combination thereof shall be applied ratably to all of the holders of the then outstanding Debentures based on their (or their predecessor's) initial Debenture issued pursuant to the Exchange Agreement.  At any time the Company delivers a notice to the Holder of its election to pay the Periodic Redemption Amount in shares of Common Stock, if the shares being issued are subject to an effective registration statement, the Company shall file a prospectus supplement pursuant to Rule 424 disclosing such election.
18
 
b)
Optional Redemption at Election of Company.  Subject to the provisions of this Section 6(b), at any time after the Original Issue Date, the Company may deliver a notice to the Holder (an "Optional Redemption Notice" and the date such notice is deemed delivered hereunder, the "Optional Redemption Notice Date") of its irrevocable election to redeem some or all of the then outstanding principal amount of this Debenture for cash in an amount equal to the Optional Redemption Amount on the 10th Trading Day following the Optional Redemption Notice Date (such date, the "Optional Redemption Date", such 10 Trading Day period, the "Optional Redemption Period" and such redemption, the "Optional Redemption").  The Optional Redemption Amount is payable in full on the Optional Redemption Date.  The Company may only effect an Optional Redemption if there is no existing Event of Default and no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default on each Trading Day during the period commencing on the Optional Redemption Notice Date through to the Optional Redemption Date and through and including the date payment of the Optional Redemption Amount is actually made in full.  The Company covenants and agrees that it will honor all Notices of Conversion tendered from the time of delivery of the Optional Redemption Notice through the date all amounts owing thereon are due and paid in full. The Company's determination to pay an Optional Redemption in cash shall be applied ratably to all of the holders of the then outstanding Debentures based on their (or their predecessor's) initial purchases of Debentures pursuant to the Purchase Agreement.
 
c)
Redemption Procedure.  The payment of cash or issuance of Common Stock, as applicable, pursuant to a Periodic Redemption shall be payable on the Periodic Redemption Date.  If any portion of the payment pursuant to a Periodic Redemption or Optional Redemption shall not be paid by the Company by the applicable due date, interest shall accrue thereon at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law until such amount is paid in full.  Notwithstanding anything herein contained to the contrary, if any portion of the Periodic Redemption Amount or Optional Redemption Amount remains unpaid after such date, the Holder may elect, by written notice to the Company given at any time thereafter, to invalidate such Periodic Redemption or Optional Redemption, ab initio, and, with respect to the Company's failure to honor the Optional Redemption, the Company shall have no further right to exercise such Optional Redemption.  Notwithstanding anything to the contrary in this Section 6, the Company's determination to redeem in cash or its elections under Section 6(b) shall be applied ratably among the Holders of Debentures. The Holder may elect to convert the outstanding principal amount of the Debenture pursuant to Section 4 prior to actual payment in cash for any redemption under this Section 6 by the delivery of a Notice of Conversion to the Company.
19

Section 7.                          Negative Covenants. As long as any portion of this Debenture remains outstanding, unless the holders of at least 67% in principal amount of the then outstanding Debentures shall have otherwise given prior written consent, the Company shall not, and shall not permit any of the Subsidiaries to, directly or indirectly:

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

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

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

d)
repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock or Common Stock Equivalents other than as to (i) the Conversion Shares or Warrant Shares as permitted or required under the Transaction Documents and (ii) repurchases of Common Stock or Common Stock Equivalents of departing officers and directors of the Company, provided that such repurchases shall not exceed an aggregate of $5,000 for all officers and directors during the term of this Debenture;

e)
repay, repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness, other than the Debentures if on a pro-rata basis, other than (i) regularly scheduled principal and interest payments owing to Partners for Growth IV, L.P. pursuant to the terms of that certain PFG Loan and Security Agreement as in effect on the Original Issue Debt, (ii) regularly scheduled principal and interest payments on other outstanding Indebtedness as such terms are in effect as of the Original Issue Date and prepayments on such Indebtedness, provided that (x) such payments shall not be permitted if, at such time, or after giving effect to such payment, any Event of Default exist or occur and (y) any such prepayments shall be made on a pro-rata basis with an Optional Redemption of this Debenture and the other Debentures (whereby such payments are applied on a pro-rata basis based on the outstanding principal amount of such Indebtedness on the Original Issue Date and the original aggregate principal amount of the Debentures) and (iii) trade payables owed to manufacturers or vendors of the Company;
20

f)
pay cash dividends or distributions on any equity securities of the Company;

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

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

Section 8.                          Events of Default.

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

i.
any default in the payment of (A) the principal amount of any Debenture or (B) interest, liquidated damages and other amounts owing to a Holder on any Debenture, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of an interest payment or other default under clause (B) above, is not cured within three (3) Trading Days;

ii.
the Company shall fail to observe or perform any other covenant or agreement contained in the Debentures (other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (x) below) which failure is not cured, if possible to cure, within the earlier to occur of (A) Five (5) Trading Days after notice of such failure sent by the Holder or by any other Holder to the Company and (B) Ten (10) Trading Days after the Company has become or should have become aware of such failure;
21

iii.
a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);

iv.
any representation or warranty made in this Debenture, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

v.
the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X)  shall be subject to a Bankruptcy Event;

vi.
the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $150,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;

vii.
the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within five (5) Trading Days;

viii.
the Company shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in excess of 33% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);

ix.
the Company does not meet the current public information requirements under Rule 144 in respect of the Underlying Shares;

x.
the Company shall fail for any reason to deliver Conversion Shares to a Holder prior to the fifth Trading Day after a Conversion Date pursuant to Section 4(c) or the Company shall provide at any time notice to the Holder, including by way of public announcement, of the Company's intention to not honor requests for conversions of any Debentures in accordance with the terms hereof;
22

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

xii.
any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $5,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of forty-five (45) calendar days; or

xiii.
a false or inaccurate certification (including a false or inaccurate deemed certification) by the Company that the Equity Conditions are satisfied or that there has been no Equity Conditions Failure or as to whether any Event of Default has occurred.

b)
Remedies Upon Event of Default. If any Event of Default occurs, the outstanding principal amount of this Debenture, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder's election, immediately due and payable in cash at the Mandatory Default Amount.  Commencing five (5) days after the occurrence of any Event of Default that results in the eventual acceleration of this Debenture, the interest rate on this Debenture shall accrue at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law.  Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Debenture to or as directed by the Company.  In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law.  Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 8(b).  No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

Section 9.                          Miscellaneous.

a)
Notices.  Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, by email attachment, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other facsimile number, email address, or address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 9(a).  Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, by email attachment, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or email address or address of the Holder appearing on the books of the Company, or if no such facsimile number or email attachment or address appears on the books of the Company, at the principal place of business of such Holder, as set forth in the Exchange Agreement.  Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment to the email address set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment to the email address set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.
23

b)
Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed.  This Debenture is a direct debt obligation of the Company.  This Debenture ranks pari passu with all other Debentures now or hereafter issued under the terms set forth herein.

c)
Lost or Mutilated Debenture.  If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, reasonably satisfactory to the Company.

d)
Governing Law.  All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof.  Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the "New York Courts").  Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Debenture and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.
24

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

f)
Severability.  If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances.  If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Debenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.
25

g)
Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief.  The remedies provided in this Debenture shall be cumulative and in addition to all other remedies available under this Debenture and any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder's right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Debenture.  The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any such breach or any such threatened breach, without the necessity of showing economic loss and without any bond or other security being required. The Company shall provide all information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company's compliance with the terms and conditions of this Debenture.

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

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

Section 10.  Disclosure.   Upon receipt or delivery by the Company of any notice in accordance with the terms of this Debenture, unless the Company has in good faith determined that the matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries, the Company shall within two (2) Business Days after such receipt or delivery publicly disclose such material, nonpublic information on a Current Report on Form 8-K or otherwise. In the event that the Company believes that a notice contains material, non-public information relating to the Company or its Subsidiaries, the Company so shall indicate to the Holder contemporaneously with delivery of such notice, and in the absence of any such indication, the Holder shall be allowed to presume that all matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries.

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


(Signature Pages Follow)
26

 
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above indicated.


ACTIVECARE, INC.
 
 
By:__________________________________________
     Name:
     Title:
Facsimile No. for delivery of Notices: _______________
 
 

27
ANNEX A

NOTICE OF CONVERSION


The undersigned hereby elects to convert principal under the 10%   Convertible Debenture due November 1, 2018 of ActiveCare, Inc., a Delaware corporation (the "Company"), into shares of common stock (the "Common Stock"), of the Company according to the conditions hereof, as of the date written below.  If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith.  No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

Conversion calculations:
Date to Effect Conversion:

Principal Amount of Debenture to be Converted:

Payment of Interest in Common Stock __ yes  __ no
If yes, $_____ of Interest Accrued on Account of Conversion at Issue.

Number of shares of Common Stock to be issued:


Signature:

Name:

Address for Delivery of Common Stock Certificates:

Or

DWAC Instructions:

Broker No:                                                      
Account No:                                                      

28
Schedule 1

CONVERSION SCHEDULE

This 10%   Convertible Debenture due on November 1, 2018 in the original principal amount of $____________ is issued by ActiveCare, Inc., a Delaware corporation.  This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.

Dated:


 
Date of Conversion
(or for first entry, Original Issue Date)
 
Amount of Conversion
 
Aggregate Principal Amount Remaining Subsequent to Conversion
(or original Principal Amount)
 
Company Attest
       
       
       
       
       
       
       
       
       

 

 
29


 EX-10.12 13 exh1012.htm FORM OF WARRANT AGREEMENTS BY AND AMONG ACTIVECARE, INC. AND THE HOLDERS OF ACTIVECARE SERIES F CONVERTIBLE PREFERRED STOCK
Exhibit 10.12

EXHIBIT C
COMMON STOCK PURCHASE WARRANT

 ACTIVECARE, INC.
Warrant Shares: _______                                                                                                  Initial Exercise Date: February 19, 2016
Holding Period Date: December 16, 2013

THIS COMMON STOCK PURCHASE WARRANT (the "Warrant") certifies that, for value received, _____________ or its assigns (the "Holder") is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after [the date hereof]1 [as to 25% of the Warrant Shares issuable hereunder, the first date that an Event of Default occurs under the Debentures, as to 37.5% of the Warrant Shares issuable hereunder, the second date that an Event of Default occurs under the Debentures and 37.5% of the Warrant Shares issuable hereunder, on the third date that an Event of Default occurs under the Debentures (which subsequent Events of Default may be the same Events of Default as the prior Events of Default, including but not limited to a failure of the Company to make serial periodic principal or interest payments on existing Indebtedness)]2 (the "Initial Exercise Date") and on or prior to the close of business on the [five]3 [ten]4 year anniversary of the Initial Exercise Date (the "Termination Date") but not thereafter, to subscribe for and purchase from ActiveCare, Inc., a Delaware corporation (the "Company"), up to ______ shares (as subject to adjustment hereunder, the "Warrant Shares") of Common Stock.  The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).
Section 1.                          Definitions.  Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Exchange Agreement (the "Exchange Agreement"), dated February 19, 2016, among the Company and the purchasers signatory thereto.
Section 2.                          Exercise.
a)
Exercise of Warrant.  Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy (or e-mail attachment) of the Notice of Exercise in the form annexed hereto and, within three (3) Trading Days of the date said Notice of Exercise is delivered to the Company, the Company shall have received payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashier's check drawn on a United States bank or, if available, pursuant to the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise.  No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise form be required.  Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased.  The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice.  The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.
1            Warrants issued pursuant to Section 2.2(a)(iv).
2            Warrants issued pursuant to Section 2.2(a)(v).
3            Warrants issued pursuant to Section 2.2(a)(iv).
4            Warrants issued pursuant to Section 2.2(a)(v).
1
b)
Exercise Price.  The exercise price per share of the Common Stock under this Warrant shall be $0.305, subject to adjustment hereunder (the "Exercise Price").
c)
Cashless Exercise.  If there is no effective Registration Statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised, in whole or in part, at such time by means of a "cashless exercise" in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:
 (A) = the last VWAP immediately preceding the time of delivery of the Notice of Exercise giving rise to the applicable "cashless exercise", as set forth in the applicable Notice of Exercise (to clarify, the "last VWAP" will be the last VWAP as calculated over an entire Trading Day such that, in the event that this Warrant is exercised at a time that the Trading Market is open, the prior Trading Day's VWAP shall be used in this calculation);

(B) = the Exercise Price of this Warrant, as adjusted hereunder; and

(X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the characteristics of the Warrants being exercised, and the holding period of the Warrant Shares being issued may be tacked on to the holding period of the securities of the Company issued pursuant to the Exchange Agreement.  The Company agrees not to take any position contrary to this Section 2(c).

5            $0.30 if issued pursuant to Section 2.2(a)(iv) and $0.001 if issued pursuant to Section 2.2(a)(v).
2

Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

d)
Mechanics of Exercise.
i.
Delivery of Warrant Shares Upon Exercise.  Warrant Shares purchased hereunder shall be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder's or its designee's balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system ("DWAC") if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) the Warrant Shares are eligible for resale by the Holder without volume or manner-of-sale limitations pursuant to Rule 144, and otherwise by physical delivery of a certificate, registered in the Company's share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is one (1) Trading Day after the delivery to the Company of the Notice of Exercise (such date, the "Warrant Share Delivery Date").   Upon delivery of the Notice of Exercise the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares; provided payment of the aggregate Exercise Price (other than in the case of a Cashless Exercise) is received within three Trading Days of delivery of the Notice of Exercise.  If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exerciseable.
3
ii.
Delivery of New Warrants Upon Exercise.  If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.
iii.
Rescission Rights.  If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.
iv.
Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise.  In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder's brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a "Buy-In"), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder's total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder.  For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss.  Nothing herein shall limit a Holder's right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company's failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.
4
v.
No Fractional Shares or Scrip.  No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant.  As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.
vi.
Charges, Taxes and Expenses.  Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.  The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.
vii.
Closing of Books.  The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.
e)            Holder's Exercise Limitations.  The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder's Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder's Affiliates (such Persons, "Attribution Parties")), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other  Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties.  Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith.   To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder's determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination.   In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.  For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company's most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported.  The "Beneficial Ownership Limitation" shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant.  The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply.  Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company.  The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.
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Section 3.                          Certain Adjustments.
a)
Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged.  Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re‑classification.
b)
Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding, shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents, at an effective price per share less than the Exercise Price then in effect (such lower price, the "Base Share Price" and such issuances collectively, a "Dilutive Issuance") (it being understood and agreed that if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance at such effective price), then simultaneously with the consummation of each Dilutive Issuance the Exercise Price shall be reduced and only reduced to equal the Base Share Price.  Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued.  Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 3(b) in respect of an Exempt Issuance.  The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance or deemed issuance of any Common Stock or Common Stock Equivalents subject to this Section 3(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the "Dilutive Issuance Notice").  For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise. If the Company enters into a Variable Rate Transaction, despite the prohibition thereon in the Exchange Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion or exercise price at which such securities may be converted or exercised.
c)
Subsequent Rights Offerings.  In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the "Purchase Rights"), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder's right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
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d)
Pro Rata Distributions.  During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a "Distribution"), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
e)
Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a "Fundamental Transaction"), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the "Alternate Consideration") receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant).  For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction.  Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor Entity (as defined below) shall, at the Holder's option, exercisable at any time concurrently with, or within 30 days after, the consummation of the Fundamental Transaction, purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction.  "Black Scholes Value" means the value of this Warrant based on the Black and Scholes Option Pricing Model obtained from the "OV" function on Bloomberg, L.P. ("Bloomberg") determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date.  The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the "Successor Entity") to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the "Company" shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.
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f)
Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.
g)
Notice to Holder.
i.
Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.
ii.
Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice.  To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.  The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice  except as may otherwise be expressly set forth herein.
8
Section 4.                          Transfer of Warrant.
a)
Transferability.  Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of the Exchange Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer.  Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled.  Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date the Holder delivers an assignment form to the Company assigning this Warrant full.  The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.
b)
New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney.  Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the original issue date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.
c)
Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the "Warrant Register"), in the name of the record Holder hereof from time to time.  The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
9
d)
Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or current public information requirements pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 5.7 of the Exchange Agreement.
e)
Representation by the Holder.  The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act.
Section 5.                          Miscellaneous.
a)
No Rights as Stockholder Until Exercise.  This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3.
b)
Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.
c)
Saturdays, Sundays, Holidays, etc.  If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.
d)
Authorized Shares.
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The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant.  The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant.  The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed.  The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).
Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment.  Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.
e)
Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Exchange Agreement.
f)
Restrictions.  The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.
11
g)
Nonwaiver and Expenses.  No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder's rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date.  If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
h)
Notices.  Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Exchange Agreement.
i)
Limitation of Liability.  No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
j)
Remedies.  The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant.  The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.
k)
Successors and Assigns.  Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder.  The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.
l)
Amendment.  This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.
m)
Severability.  Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.
n)
Headings.  The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

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


(Signature Page Follows)
12
 

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.


ACTIVECARE, INC.
 
 
By:__________________________________________
     Name:
     Title:
 


13


NOTICE OF EXERCISE

[ABSENT AN EFFECTIVE RESALE REGISTRATION STATEMENT, A CASH EXERCISE WILL RESTART THE RULE 144 HOLDING PERIOD OF 6 MONTHS FROM EXERCISE.  TO OBTAIN UNRESTRICTED SHARES ABSENT REGISTRATION, YOU MUST ELECT CASHLESS EXERCISE]

TO:            ACTIVECARE, INC.

(1)    The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
(2)    Payment shall take the form of (check applicable box):
[  ] in lawful money of the United States; or
[ ] [if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).
(3)    Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
_______________________________


The Warrant Shares shall be delivered to the following DWAC Account Number:

_______________________________

_______________________________

_______________________________

(4)  Accredited Investor.  The undersigned is an "accredited investor" as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

[SIGNATURE OF HOLDER]

Name of Investing Entity: ________________________________________________________________________
Signature of Authorized Signatory of Investing Entity: _________________________________________________
Name of Authorized Signatory: ___________________________________________________________________
Title of Authorized Signatory: ____________________________________________________________________
Date: ________________________________________________________________________________________


14


EXHIBIT B

ASSIGNMENT FORM
 (To assign the foregoing Warrant, execute this form and supply required information.  Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to
Name:
  
 
(Please Print)
Address:
  
 
Phone Number:
Email Address:
(Please Print)
______________________________________
______________________________________
Dated: _______________ __, ______
  
Holder's Signature:                                                                                  
  
Holder's Address:                                                                                  
  

 
15
EX-10.1 14 exh1013.htm FORM OF WARRANT AGREEMENTS RELATED TO THE PARTNERS FOR GROWTH LOAN AND SECURITY AGREEMENT
Exhibit 10.13
WARRANT


THIS WARRANT ("WARRANT") TO PURCHASE SHARES IN THE CAPITAL OF ACTIVECARE, INC., A DELAWARE CORPORATION (THE "COMPANY") IS ISSUED ON THE ISSUE DATE PURSUANT TO THE TERMS OF THAT CERTAIN LOAN AND SECURITY AGREEMENT BETWEEN THE COMPANY AND PARTNERS FOR GROWTH IV, L.P. (THE "LOAN AGREEMENT"). THIS WARRANT IS SOLD IN A PRIVATE TRANSACTION, WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND REGULATIONS PROMULGATED THEREUNDER (THE "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY BE OFFERED OR SOLD ONLY IF REGISTERED UNDER THE SECURITIES ACT AND SUCH LAWS OR IF AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND SUCH LAWS IS AVAILABLE.

Company:
ActiveCare, Inc., a Delaware corporation
Warrant Stock:
Common Stock
Number of Shares:
Up to ______, subject to adjustment
Exchange Price:
$0.065 per Share, subject to adjustment
Issue Date:
February 19, 2016
Expiration Date:
February 19, 2023

The term "Holder" shall initially refer to ______ which is the initial holder of this Warrant and shall further refer to any subsequent permitted holder of this Warrant from time to time.

The Company does hereby certify and agree that in consideration of Holder's  payment of $_____ for this Warrant on the Issue Date (such dollar amount, exclusive of the Exchange Price payable or creditable upon Exercise or Exchange of this Warrant, the "Purchase Price"), Holder, or its permitted successors and assigns, hereby is entitled, subject to Section 1.8 hereof, to Exchange or Exercise this Warrant in the Company for up to _____ (_____) shares of the Company's Common Stock (the "Warrant Stock"). This Warrant is subject to adjustment as set forth in this Warrant. Capitalized terms used but not defined in this Warrant have their meanings as set forth in the Loan Agreement defined in the heading between the Company and _______ ("Holder"), whether or not the Loan Agreement is then in effect. When the term "convert" or "conversion" in relation to the Warrant is used herein, it includes an Exchange and an Exercise, each as defined in Section 1.3(a), below, as applicable.

Section 1.      Term, Price and Exchange of Warrant.

1.1     Term of Warrant. This Warrant shall be convertible for a period of seven (7) years after the Issue Date (hereinafter referred to as the "Expiration Date").

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1.2     Exchange Price.  The price per Share at which the shares of Warrant Stock are issuable upon conversion of this Warrant shall be $0.065 per Warrant Share (the "Exchange Price").

1.3     Conversion of Warrant.

(a)  This Warrant may be exercised, in whole or in part, upon surrender of this Warrant to the Company, together with the Election to Exchange or Exercise attached hereto as Exhibit A (the "Election") duly completed and executed with "Exercise"
selected as the mode of conversion, and upon payment to the Company of the Exercise Price for the number of shares of Warrant Stock in respect of which this Warrant is then being exercised (an "Exercise").  In whole or in part in lieu of an Exercise, Holder may convert this Warrant on a cashless basis by so indicating in the Election and proceeding in accordance with the remainder of this Section 1.3 (an "Exchange"). In each above case, Holder shall surrender this Warrant to the Company at its then principal offices, together with the Election duly completed and executed.

(b)            Upon an Exchange, the Holder shall receive shares of Warrant Stock such that, without the payment of any funds, the Holder shall surrender this Warrant in exchange for the number of shares of Warrant Stock equal to "X" (as defined below), computed using the following formula:
Y * (A-B)
X   =   _______________
A
Where

X    =                the number of shares of Warrant Stock to be issued to Holder
Y    =                the number of shares of Warrant Stock to be converted
under this Warrant
A    =                the Fair Market Value of one Warrant Share
B    =                the Exchange Price (as adjusted to the date of such
calculations)
*     =                multiplied by

(c)            For purposes of calculating Fair Market Value for purposes of Exchanging this Warrant, the "Fair Market Value" of one Warrant Share shall be (i) if the Company's securities become listed on a national or international stock exchange, the highest closing sale price reported on such exchange for such listed securities during the 90-trading day period immediately prior to the date Holder delivers its Election to the Company, or (ii) if the Company's securities are traded over-the-counter, the highest average of bid and ask price for such securities over the 90-trading day period immediately prior to the day Holder delivers its Election to the Company, in each case of (i) and (ii), above, if the shares of Warrant Stock are convertible into such listed or over-the-counter traded securities other than on a one-to-one basis, multiplied by the ratio at which one Warrant Share converts into such other security. If the Company's securities are not listed or traded as contemplated in clauses (i) or (ii), above, the Fair Market Value of the Warrant Stock shall be the price per Warrant Share which the Company could obtain from a willing buyer of shares of Warrant Stock sold by the Company from its authorized but unissued Shares, initially as the Board of Directors of the Company ("Board") shall determine in its reasonable good faith judgment, subject to Holder's valuation rights below, but in no event less than the price to which a holder of Warrant Stock would be entitled based on an enterprise valuation of the Company (including its Subsidiaries if part of a Group) as a going concern and the application of the rights, preferences and privileges of the Company's outstanding securities as set forth in the Company's Constitutional Documents without discount for minority, control or lack of marketability. For the avoidance of doubt, if the Board relies on an appraisal (including a "409A" valuation) to determine the Fair Market Value of the Warrant Stock, such determined Fair Market Value from such appraisal may not assume the automatic conversion of all convertible securities in deriving such Fair Market Value but, instead, shall be based on enterprise value and application of the rights, preferences and privileges of the Company's outstanding securities as set forth in the Company's Constitutional Documents as if the Company (or Group) were being sold in an Acquisition for cash to determine what dollar value each class of security would receive upon such Acquisition. If the Warrant is to be converted in connection with an Acquisition (in fact), the Fair Market Value of a Warrant Share shall be based on the enterprise value specified or implied in such Acquisition and shall be the greater of (A) the value attributable to the Warrant Stock and (B) the value attributable to the Company securities into which the shares of Warrant Stock are (or may be) convertible (but subject to Holder's conversion directly into such other Company securities). If Holder disagrees the Board's determination, Holder may engage an independent appraiser to determine fair market value of the Warrant Stock the foregoing basis at shared expense between the Company and Holder. If the fair market value difference between the Board's determination and the determination by the Holder's appraiser is less than 30%, then the average between the two determinations shall be deemed to be the fair market value. If the difference is 30% or more, then the parties shall agree a second appraiser, with each party bearing half of the expense of such second appraiser, and the determination of such appraiser shall be deemed to be the fair market value.
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(d)  In the event that Holder converts this Warrant in connection with a transaction in which shares of the same class and series as the Warrant Stock are converted into another security, Holder may effect a conversion directly into such other security.
(e)  Subject to Section 2 hereof, upon delivery of the duly completed and executed Election, the Company shall issue and deliver within two (2) business days to Holder or such other person as Holder may designate in writing a certificate or certificates or other legal evidence of Holder's ownership of the number of shares of Warrant Stock so acquired upon the conversion of this Warrant. Such certificate(s) or other legal evidence shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become a stockholder of the Company and a holder of record of such shares of Warrant Stock as of the date the Election is delivered to the Company, provided, however, Holder's admission as a stockholder shall be subject to Holder's execution and delivery of such agreements as may be required of all stockholders or of an accession or similar agreement by which Holder agrees to be bound by such agreements.  If this Warrant is converted in part, a new warrant substantially identical to this Warrant for the number of Shares not converted shall be promptly executed and delivered to Holder by the Company.

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1.4     Fractional Interests. The Company shall not be required to issue fractions of shares of Warrant Stock upon the conversion of this Warrant.  If any fraction of a Warrant Share would be issuable upon the conversion of this Warrant (or any portion thereof), the Company shall purchase such fraction for an amount in cash equal to the fair market value of a Warrant Share as determined by the Board in its reasonable judgment.

1.5            Certain Definitions. For purposes of this Warrant:
"Acquisition" means, in any single transaction or series of related transactions: (i) any sale or other disposition (including exclusive license) of all or substantially all of the assets of the Company in whatever form and however consummated, (ii) any reorganization, consolidation, merger or acquisition of the Company or a Controlling interest in the Company, or (iii) any liquidation or deemed liquidation under the Company's Constitutional Documents.
An "Affiliate" of, or person "affiliated" with, a specified Person, is a Person that directly, or indirectly through one or more intermediaries, beneficially owns or is beneficially owned, controls or is controlled by, or is under common control with, the Person specified, and any person or entity that owns or controls directly or indirectly ten percent (10%) or more of the Shares of Company shall be deemed to be an Affiliate of the Company.
"Constitutional Documents" means the Company's Certificate of Incorporation (as amended and restated, as applicable), Bylaws and agreements between or among the Company and holders of any class or series of its stock.
"Control" (including the terms "controlling", "controlled by" and "under common control with") means the possession, direct or indirect through one or more Affiliates, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership or voting of voting securities, by contract, or otherwise.

"Equity Value of the Company" means: (i) subject to the next paragraph, the greater of: (A) the value of price of all equity (FDE equity) in the Company implied by the transaction giving rise to the Put Right; and (B) the gross amount made available to shareholders of the Company; or (ii) in the case of a Put Event arising due to the occurrence of an Insolvency Event or the expiry of this Warrant, the market value of all equity (on an FDE basis) in the Company as agreed by the Company and Holder (or if no such agreement is reached, the market value as determined by an appraiser under Section 1.3(c).
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"FDE" means the fully-diluted equity of the Company, assuming the conversion of all convertible securities, including convertible debt, and the exercise of all convertible instruments, including options and warrants.
"Person" or "person" means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, government, or any agency or political division thereof, or any other entity of any kind.

1.6            Automatic Conversion upon Expiration.  Upon the Expiration Date, this Warrant shall automatically be deemed on and as of such date to be Exchanged pursuant to Section 1.3 as to all shares of Warrant Stock (or such other securities) for which this Warrant has become convertible and for which it shall not previously have been converted for Warrant Stock (or if not then outstanding, into such other class and series of securities into which the Warrant Stock is then convertible), and the Company shall promptly deliver a certificate or other legal evidence of ownership of the shares of Warrant Stock (or such other securities) issued upon such Exchange to Holder.
1.7            Treatment of Warrant Upon Acquisition of Company.  Subject to HOLDER's exercise of rights under Section 1.8, upon the closing of any Acquisition, the surviving entity shall, as a condition to the Acquisition, either (i) assume the obligations under this Warrant, then this Warrant shall be convertible into the same securities as would be payable for the shares of Warrant Stock issuable upon conversion of the unconverted portion of this Warrant as if such shares of Warrant Stock were outstanding on the record date for the Acquisition (and the Exchange Price and/or number of shares of Warrant Stock shall be adjusted accordingly); or (ii) the Company or other surviving entity in such Acquisition shall, upon initial closing of such Acquisition purchase this Warrant at its "Fair Value" (the "Purchase Price"). For purposes hereof, "Fair Value" means that value determined by the parties using a Black-Scholes Option-Pricing Model (the "Black-Scholes Calculation") with the following assumptions: (A) a risk-free interest rate equal to the risk-free interest rate at the time of the closing of the Acquisition (or as close thereto as practicable), (B) a contractual life of the Warrant equal to the remaining term of this Warrant as of the date of the announcement of the Acquisition, (C) an annual dividend yield equal to dividends payable or declared on the underlying shares of Warrant Stock (including securities into which the shares of Warrant Stock may be convertible) during the term of this Warrant (calculated on an annual basis), and (D) a volatility factor of the expected market price of the Company's Shares comprised of: (1) if the Company is publicly traded on a national securities exchange, its volatility over the one year period ending on the day prior to the announcement of the Acquisition, (2) if the Shares are traded over-the-counter, its volatility over the one year period ending on the day prior to the announcement of the Acquisition, or (3) if the Company is a non-public company, the volatility, over the one year period prior to the Acquisition, of an average of publicly-traded companies in the same or similar industry to the Company with such companies having similar revenues.  The Purchase Price determined in accordance with the above shall be paid upon the initial closing of the Acquisition and shall not be subject to any post-Acquisition closing contingencies or adjustments; provided, however, the parties may take such post-Acquisition closing contingencies or adjustments into account in determining the Purchase Price, and if the parties take any post-Acquisition closing contingencies or adjustments into account, then upon the partial or complete removal of those post-Acquisition closing contingencies or adjustments, a new Black-Scholes Calculation would be made using all of the same inputs except for the value of the Company's Shares (as determined under subclause (D)), and any increase in Fair Value (and, correspondingly, Purchase Price), including, without limitation, as a result of any earn-out or escrowed consideration, would be paid in full to Holder immediately after those post-Acquisition closing contingencies or adjustments can be determined or achieved.
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1.8            Warrant Put. Notwithstanding anything to the contrary set forth in this Warrant, in the event of (i) any Acquisition of the Company, (ii) any liquidation of the Company, (iii) any liquidation or deemed liquidation of the Company under its Constitutional Documents or under any documents governing the Series G Preferred Stock, or (iv) the expiry of this Warrant, Holder shall have the right (but not the obligation) to exchange this Warrant (the "Put Right") for the greater of (i) cash sum of $300,000, and (ii) 3.9% of the Equity Value of the Company (as defined below) at the time of the Put Right is triggered (which for the avoidance of doubt shall be determined on a pre-management carve-out (Series G Preferred Stock) basis) (the "Exchange Put Price"). The above "3.9% of Equity Value" (the "Reference Percentage") assumes that the Company is able to draw all Tranches under Facility A and Facility B of the Loan Agreement. Until such time as the Company is able to draw all Tranches, the Reference Percentage shall be (i) 2.1% on the Issue Date with the disbursement of Tranche 1 of Facility B, (ii) 2.4% on the date Tranche 2 of Facility B is disbursed, (iii) 3% on the date the Company may draw Tranche 3 of Facility B, and (iv) an additional 0.3% on each (of three) occasions when the Company meets the financial performance criteria to increase the Facility A Dollar Credit Limit (for an aggregate among clauses (i) through (iv) of 3.9%). The Exchange Put Price shall be paid as and when any payment is made on in respect of Series G Preferred Stock (which term shall include any security or instrument into which the Series G Preferred Stock may convert or for which it may be exchanged) and adjusted on a relative percentage basis to the extent that Holder has converted any part of this Warrant and later exercises its Put Right. Except as to a put effected under Section 1.6, Holder shall exercise such Put Right by written notice as provided in this Warrant and, upon receipt by the Company of such notice, the Expiration Date of this Warrant shall be deemed extended until such time as the Company has paid the Exchange Put Price to Holder. The Company shall promptly (and in no event later than (five) 5 business days of Holder's notice to the Company) pay the Exchange Put Price to Holder.

1.9            Reduction in Number of Shares. The parties acknowledge that the loans under the Loan Agreement are made available in two separate Loan Facilities, Facility A (represented in Schedule 1 to the Loan Agreement) and Facility B (represented in Schedule 2 to the Loan Agreement) and the Warrant Stock is intended to represent a maximum of 3.9% of FDE and become convertible upon Loans being made available to Borrower from time to time based on its financial performance. As a result, the Warrant Stock becomes convertible by Holder as follows: (i) 4,435,680 shares of Warrant Stock (2.4% of FDE) are immediately convertible on the Issue Date with the disbursement of Tranche 1 of Facility B, (ii) 1,108,530 shares of Warrant Stock (0.6% of FDE) become immediately convertible on the date Tranche 2 of Facility B is disbursed, and (iii) 555,000 (0.3% of FDE) shares of Warrant Stock automatically become convertible on each (of three) occasions when the Company meets the financial performance criteria to increase the Facility A Dollar Credit Limit.
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Section 2.      Exchange and Transfer of Warrant.

(a)  This Warrant may be transferred, in whole or in part, without restriction, subject only to (i) Holder's compliance with applicable securities laws (which, in the case of Affiliates, shall be deeded satisfied by Holder (and transferee) certification of Affiliate status), and (ii) the transferee holder of the new Warrant assuming the obligations of Holder set forth in this Warrant. A transfer may be registered with the Company by submission to it of the annexed Assignment Form attached hereto as Exhibit B duly completed and executed. After the Company's registration of a transfer of this Warrant, the Company will issue and deliver to the transferee a new warrant (representing the portion of this Warrant so transferred) upon the same terms and conditions as this Warrant and in substantially identical form, which the Company will register in the new holder's name. In the event of registration of a partial transfer of this Warrant, the Company shall concurrently issue and deliver to the transferring holder a new warrant that entitles the transferring holder to the balance of this Warrant not so transferred and that otherwise is upon the same terms and conditions as this Warrant. Upon the delivery of this Warrant for transfer, the transferee holder shall for all purposes become the holder of the new warrant issued for the portion of this Warrant so transferred, irrespective of the date of actual delivery of the new warrant representing the portion of this Warrant so transferred.

(b)  In the event of the loss, theft or destruction of this Warrant, the Company shall execute and deliver an identical new warrant to Holder in substitution therefor upon the Company's receipt of (i) evidence reasonably satisfactory to the Company of such event, and (ii) if requested by the Company, an indemnity agreement in reasonable and customary form.

(c)  The Company shall pay its own and all Holder's reasonable costs and expenses incurred in connection with the conversion, transfer or replacement of this Warrant, including, without limitation, securities compliance, the costs of preparation, execution and delivery of a new warrant and of certificates or other legal evidence of all Warrant Stock.

Section 3.      Certain Covenants.

(a)  The Company shall ensure that any approval of its stockholders required for issuance of this Warrant and of the shares of Warrant Stock issuable upon conversion hereof (which shall, for the avoidance of doubt, include any securities into which shares of Warrant Stock are or become convertible) remains in full force and effect until the earlier of conversion or the Expiration Date.
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(b)  The Company will not, by amendment of its Constitutional Documents or through reorganization, consolidation, merger, amalgamation, sale of assets or otherwise, avoid or seek to avoid the observance or performance of any of the terms of this Warrant.  Without limiting the foregoing, the Company will from time to time take all such action as may be necessary or appropriate in order that the Company may validly and legally issue shares of Warrant Stock upon the conversion of this Warrant.

(c)            So long as Holder or any of its Affiliates holds this Warrant and/or the Warrant Stock, the Company shall deliver to Holder (i) such reports as it provides to any holders of securities of the same class and series as the Warrant Stock, as and when delivered to such holders, and (ii) copies of any and all valuations performed of the Company or the value of its stock (including for purposes of Section 409A of the Internal Revenue Code), as and when such valuations are made available to the Company. Notwithstanding the foregoing, the Company will provide quarterly and annual financial statements and such other information as such Holder may reasonably request and that the Company may lawfully provide at such time under applicable securities laws.

(d)            The Company shall not treat the Warrant or the shares of Warrant Stock as being granted or issued as property transferred in connection with the performance of services or otherwise as compensation for services rendered.

(e)            The Company shall not characterize the Warrant as an ownership interest in the Company or Holder as a stockholder of the Company until such time as Holder converts the Warrant for shares of Warrant Stock.

Section 4.                          Adjustments to Number of Shares of Warrant Stock,  Etc.

4.1  Adjustments. In order to prevent dilution of the rights granted hereunder, the Number of Shares and Exchange Price shall be subject to adjustment from time to time in accordance with this Section 4. Upon each adjustment of the Exchange Price pursuant to this Section 4, Holder shall thereafter be entitled to acquire upon conversion, at the Exchange Price resulting from such adjustment, the number of shares of Warrant Stock obtainable by multiplying the Exchange Price in effect immediately prior to such adjustment by the number of shares of Warrant Stock acquirable immediately prior to such adjustment and dividing the product thereof by the new Exchange Price resulting from such adjustment.

4.2  Subdivisions, Combinations and Stock Dividends. If the Company shall at any time subdivide by split-up or otherwise, the class and series of Company securities into which the Warrant could then be converted into a greater number of shares, or issue additional securities as a dividend, bonus issue or otherwise with respect to such securities into which the Warrant could be converted, then the Exchange Price in effect immediately prior to such subdivision or share dividend or bonus issue shall be proportionately reduced and the number of shares acquirable upon exchange hereunder shall be proportionately increased. Conversely, if the class and series of Company securities into which the Warrant could then be converted are combined into a smaller number of shares, the Exchange Price in effect immediately prior to such combination shall be proportionately increased.
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4.3  Reclassification, Exchange, Substitutions, Etc.  Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exchange or exercise of this Warrant, Holder shall be entitled to receive, upon conversion of this Warrant, the number and kind of securities and property that Holder would have received for the Warrant Stock if this Warrant had been converted immediately before such reclassification, exchange, substitution, or other event. Such an event shall include any automatic conversion of the outstanding or issuable securities of the Company of the same class or series as the Warrant Stock to Common Stock pursuant to the Company's Constitutional Documents upon the closing of a public offering of the Company's Common Stock. The Company or its successor shall promptly issue to Holder an amendment to this Warrant setting forth the number and kind of such new securities or other property issuable upon exchange or exercise of this Warrant as a result of such reclassification, exchange, substitution or other event that results in a change of the number and/or class of securities issuable upon exchange or exercise of this Warrant. The amendment to this Warrant shall provide for adjustments (as determined in good faith by the Company's Board of Directors) which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 4 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exchange of the new Warrant. The provisions of Sections 4.2 and 4.3 shall similarly apply to successive subdivisions, combinations, Share dividends, distributions, reclassifications, exchanges, substitutions, and dilutive events.

4.4    Notices of Record Date, Etc.  In the event that the Company shall:

               (1) declare or propose to declare any dividend upon Company securities, whether payable in cash, property, shares or other securities and whether or not a regular cash dividend, or

(2)  offer for sale any additional shares of any class or series of the Company's stock or securities exchangeable for or convertible into such stock in any transaction that would give rise (regardless of waivers thereof) to pre-emptive rights of any class or series of shareholders, or

(3)  effect or approve any reclassification, exchange, substitution or recapitalization of the capital shares of the Company, including any subdivision or combination of its outstanding stock, or consolidation or merger of the Company with, or sale of all or substantially all of its assets to, another corporation,  or to liquidate, dissolve or wind up (including an assignment for the benefit of creditors), or

(4)  offer holders of registration rights the opportunity to participate in any public offering of the Company's securities, or receive a notice or demand for redemption of Company securities, or

(5) offer stockholders the opportunity to participate in any public offering of the Company's securities,
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then, in connection with such event, the Company shall give to Holder:

          (i) at least ten (10) days prior written notice of the date on which the books of the Company shall close or a record shall be taken for such a distribution or offer in respect of the matters referred to in (1) or (2) above, or for determining rights to vote in respect of the matters referred to in (3) above; and

          (ii) in the case of the matters referred to in (4) and (5) above, the greater of (A) ten (10) days prior written notice of the date when the same shall take place and (B) the date that notice is or is required to be given to any stockholder.

Such notice in accordance with the foregoing clause (1) shall also specify, in the case of any such distribution, the date on which the holders of Company securities shall be entitled thereto and the terms of such distribution, and such notice in accordance with clause (2) shall also specify the date on which the holders of Company securities shall be entitled to convert their stock for securities or other property deliverable upon such reorganization, reclassification, exchange, substitution, consolidation, merger or sale, as the case may be, and the terms of such exchange. Each such written notice shall be given by first class mail, postage prepaid, addressed to the holder of this Warrant at the address of Holder.

4.6 Adjustment for Capitalization Table Errors.  The parties acknowledge their mutual agreement that the initial Number of Shares is based on the capitalization of the Company being in all material respects as represented to Holder and appended hereto as Exhibit C and Holder's ownership of Warrant Stock being equal to a maximum of 3.9% of the FDE of the Company on the Issue Date. If the fully-diluted equity of the Company is not, as of the Issue Date, in fact as represented in Section 6.3 and Exhibit C, the Number of Shares and / or Exchange Price shall be equitably adjusted under Section 4.7.

4.7 Adjustments by Board. If any event occurs as to which the provisions of this Section 4 are not strictly applicable or if strictly applicable would not fairly protect the rights of Holder in accordance with the essential intent and principles of such provisions, then the Board shall make an adjustment in the application of such provisions, in accordance with such essential intent and principles, so as to protect such rights.

4.8 Officer's Statement as to Adjustments. Whenever the Number of Shares subject to this Warrant is required to be or is adjusted as provided in Section 4, the Company shall forthwith file at the office designated for the conversion of this Warrant a statement, signed by the chief financial officer of the Company, showing in reasonable detail the facts requiring such adjustment and the number of issuable shares of Warrant Stock that will be effective after such adjustment.  If such notice relates to an adjustment resulting from an event referred to in Section 4.3, such notice shall be included as part of the notice required to be mailed or published under the provisions of Section 4.4.
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4.9  Issue of Securities other than Warrant Stock.  In the event that at any time, as a result of any adjustment made pursuant to Section 4, Holder thereafter shall become entitled to receive any securities of the Company, other than Warrant Stock, thereafter the number of such other securities so receivable upon conversion of this Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Warrant Stock contained in Section 4.

Section 5.      Rights of the Warrant Holder.

        This Warrant shall entitle Holder, upon Conversion, to the benefit of all rights as are applicable to any stockholder of the Company holding shares that are the same class and series as the Warrant Stock.

Section 6.                          Representations, Warranties and Covenants of the Company.  The Company represents and warrants to, and covenants with, Holder that:

6.1            Corporate Power; Authorization.  The Company has all requisite corporate power and has taken all requisite corporate action to execute and deliver this Warrant, to issue the Warrant and Warrant Stock and to carry out and perform all of its obligations hereunder. This Warrant has been duly authorized, executed and delivered on behalf of the Company and constitutes the valid and binding agreement of the Company, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization or similar laws relating to or affecting the enforcement of creditors' rights generally and (ii) as limited by equitable principles generally. Any person executing this Warrant on behalf of the Company is a duly authorized officer of the Company with all necessary legal authority to bind the Company generally and with the specific legal authority to cause the Company to execute and deliver this Warrant.

6.2            Validity of Securities.  This Warrant, when sold by the Company against the consideration therefor as provided herein, will be validly authorized, issued and fully paid. The issuance and delivery of the Warrant is not subject to any consent, approval, preemptive or any similar rights of the shareholders of the Company (which has not been duly secured or waived), including without limitation any pre-emptive rights, or any liens or encumbrances except for restrictions on transfer provided for herein or under applicable securities laws; and when and if shares of Warrant Stock are issued upon conversion and in accordance with the terms hereof and this Warrant is converted for such Warrant Stock, such securities will be, at each such issuance, validly issued shares of Warrant Stock in the Company's capital, in compliance with all applicable securities laws and free of any liens or encumbrances except for restrictions on transfer provided for herein, in the Constitutional Documents or under such applicable securities laws.

6.3            Capitalization. As of the date of this Warrant, the authorized capital of the Company consists of 200,000,000 common shares, of which 106,355,166 are issued and outstanding, 10,000,000 Preferred Shares, no par value per share, of which, as of the date of this Warrant, 115,070 are issued and outstanding, consisting of (i) 45,000 designated as Series D Preferred Shares, and (ii) 70,070 designated as Series E Preferred Shares. (Concurrent with the date of this Warrant, 5361 shares of the Company's Series F Preferred Stock were exchanged and cancelled for shares of common stock, convertible debentures, and warrants, which securities are included elsewhere in this paragraph.) The 115,070 outstanding Series D and E Preferred Shares can convert into 702,830 common shares. It is anticipated that a new series consisting of 210 preferred shares will be designated as Series G Preferred shares after the date hereof. 64,764,552 shares of common stock are reserved for issuance upon exercise of outstanding options, along with possible issuances for conversions of outstanding convertible debt.  A true, correct and current copy of the Company's current Restated Articles of Incorporation is appended as Exhibit C hereto. Except as specified in this Agreement, there are no other options, warrants, conversion privileges or other contractual rights presently outstanding to purchase or otherwise acquire any authorized but unissued shares of the Company's capital stock or other securities. Exhibit D hereto sets forth a capitalization table of the Company which is true, correct accurate and complete as of the date hereof.
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6.4            No Conflict. The execution and delivery of this Warrant do not, and the consummation of the transactions contemplated hereby and thereby will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or to a loss of a material benefit, under, any provision of the Company's Constitutional Documents, as amended, or any mortgage, indenture, lease or other agreement or instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company, its properties or assets, the effect of which would have a material adverse effect on the Company or materially impair or restrict its power to perform its obligations as contemplated hereby.

6.5            Governmental and other Consents. As at the Issue Date, no consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any governmental authority or other person or entity is required on the part of the Company in connection with the issuance, sale and delivery of the Warrant and the Warrant Stock, except such filings as shall have been made prior to and shall be effective on and as of the date hereof. All Company and stockholder consents required in connection with issuance of the Warrant and Warrant Stock have either been obtained by the Company or no such consents are required.

6.6            Exempt from Registration. As at the Issue Date, assuming the accuracy of the representations and warranties of Holder in Section 7 hereof, the offer, sale and issuance of the Warrant and the Warrant Stock will be exempt from any registration requirements of the Securities Act, the registration and qualification requirements of applicable state securities laws.

6.7            Delivery of Information; Accuracy. The Company acknowledges its delivery of certain Representations and Warranties in connection with the Loan Agreement and this Warrant (the "Representation Letter") to HOLDER, which Representations and Warranties form the basis for Holder purchasing this Warrant. As at the Issue Date, the information contained in the Representation Letter and all documents, instruments and other information delivered to Holder in connection therewith are true, correct, accurate and complete in all material respects.
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Section 7.                          Representations and Warranties of Holder.  Holder hereby represents and  warrants to the Company as of the Issue Date as follows:

7.1            Investment Experience.  Holder is an "accredited investor" within the meaning of Rule 501 under the Securities Act, and was not organized for the specific purpose of acquiring the Securities. Holder is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities.  Holder has such business and financial experience as is required to give it the capacity to protect its own interests in connection with the purchase of the Warrant and the Warrant Stock.

7.2            Investment Intent.  Holder is purchasing the Warrant for investment for its own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act.  Holder understands that the Warrant has not been registered under the Securities Act or registered or qualified under any state securities law in reliance on specific exemptions therefrom, which exemptions may depend upon, among other things, the bona fide nature of Holder's investment intent as expressed herein.

7.3            Authorization.  Holder has all requisite power and has taken all requisite action required of it to carry out and perform all of its obligations hereunder.  The execution and delivery of this Warrant has been duly authorized, executed and delivered on behalf of Holder and constitutes the valid and binding agreement of Holder, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency,  reorganization or similar laws relating to or affecting the enforcement of creditors' rights generally and (ii) as limited by equitable principles generally. The consummation of the transactions contemplated herein and the fulfillment of the terms herein will not result in a breach of any of the terms or provisions of Holder's constitutional documents or instruments. Any person executing this Warrant on behalf of Holder is a duly authorized officer of Holder with all necessary legal authority to bind Holder generally and with the specific legal authority to cause Holder to execute and deliver this Warrant.

Section 8.                          Restrictive Securities Legend.

This Warrant and the Warrant Stock have not been registered under any securities laws.  Accordingly, any Share certificates issued pursuant to the conversion of this Warrant shall (until receipt of an opinion of counsel in customary form that such legend is no longer necessary) bear the following legend:

THIS WARRANT AND THE WARRANT SHARES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"), AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OF DISTRIBUTION THEREOF.  NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN CUSTOMARY FORM THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT.
13

Section 9.                          Notices.

All notices to be given under this Warrant shall be in writing and shall be given: (i) personally, or (ii) by reputable private delivery service, (iii) by regular first-class mail, or certified mail return receipt re-quested, or (iv) by fax, or (v) by electronic mail. If sent by fax or electronic mail, such notice shall also be sent concurrently by one of the other methods provided herein. Notices may be sent to the parties in accordance with their contact details specified below or to any other address, fax number or electronic mail address later designated in writing by a party. All no-tices shall be deemed to have been given upon delivery in the case of notices personally delivered, or at the expira-tion of one Business Day following delivery to the private delivery service, or two Business Days following the de-posit thereof in the United States mail, with postage pre-paid, or upon receipt during the Business Day where received in the case of notices sent by fax or electronic mail, but subject to reasonably concurrent transmission by another method, as specified above. The addresses for such communications shall be:

if to Holder, at

________________
________________
________________
________________
Fax:  ________________
Email: ________________

with a copy (not constituting notice) to

________________
________________
________________
________________
Fax: ________________
Email: ________________

with the original of this Warrant and any replacement, restatement or reissue of this Warrant to be delivered to:

________________
________________
________________
________________
Phone # ________________
Email: ________________

or
14

if to the Company, at

ActiveCare, Inc.
1365 West Business Park Drive, Suite 100
Orem, UT 84058
Fax: 866-226-2595
Attn: Jeffrey Peterson, CFO
Email: jpeterson@activecare.com

     with a copy to:

________________
________________
________________
Fax: ________________
________________

Each party hereto may from time to time change its address for notices under this Section 7 by giving at least 10 calendar days' notice of such changes address to the other party hereto.

Section 8.      Amendments and Waivers.

        This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.
15

Section 9.     Applicable Law; Severability.

        This Warrant shall be governed by and construed and enforced in accordance with the laws of the State of California.  If any one or more of the provisions contained in this Warrant, or any application of any provision thereof, shall be invalid, illegal, or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and all other applications of any provision thereof shall not in any way be affected or impaired thereby.

Section 10.                          Construction.

Section headings are only used in this Agreement for convenience.  The Company and Holder each acknowledge that the headings may not describe completely the subject matter of the applicable Section, and the headings shall not be used in any manner to construe, limit, define or interpret any term or provision of this Agreement. This Agreement has been fully reviewed and negotiated between the parties and no uncertainty or ambiguity in any term or provision of this Agreement shall be construed strictly against either party under any rule of construction or otherwise..

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
16

 
        IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed on the day and year first above written.

COMPANY:
 
COMPANY NAME
 
 
 
 
By: ____________________________
 
Name: _________________________
 
Title: __________________________
 
ACKNOWLEDGED AND AGREED:
 
HOLDER:
 
________________________________
 
 
By: _______________________
      ___________________, _________
 
17



Exhibit A

To:     ACTIVECARE INC.


                              ELECTION TO EXCHANGE OR EXERCISE

The undersigned hereby exercises its right to Exchange its Warrant for _________________ fully paid, validly issued and nonassessable:

     Shares

The undersigned hereby exercises its right to Exercise its Warrant for _________________ fully paid, validly issued and nonassessable:

     Shares


[check one box]

covered by the attached Warrant in accordance with the terms thereof.

and requests that certificates or other legal evidence of ownership of such Shares be issued in the name of, and delivered to:


                       ______________________
                       ______________________
                       ______________________

Date: _____________________         [Holder]


                                                    By _________________________
                                                       Name:
                                                       Title:

18



Exhibit B

ASSIGNMENT FORM

To:     ACTIVECARE INC.

        The undersigned hereby assigns and transfers this Warrant to

__________________________________________________
 (Insert assignee's social security or tax identification number)

____________________________________________________________________
(Print or type assignee's name, address and postal code)
____________________________________________________________________

____________________________________________________________________


and irrevocably appoints _______________________________________ to transfer this Warrant on the books of the Company.

Date: __________________   [Holder]


By __________________________
Name: _______________, ______________


19
Exhibit C - Capitalization Table






20
Exhibit D – Certificate of Incorporation

 
 
21
 EX-31.1 15 exh311.htm CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, James J. Dalton, 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 24, 2016
/s/  James J. Dalton
 
James J. Dalton
 
Chief Executive Officer
 
(Principal Executive Officer)



EX-31.2 16 exh312.htm CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Jeffrey S. Peterson, 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 24, 2016
/s/ Jeffrey S. Peterson
  
 
Jeffrey S. Peterson
  
 
Chief Financial Officer
  
 
(Principal Financial and Accounting Officer)
  



EX-32.1 17 exh321.htm CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
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, 2015 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), James J. Dalton, Chief Executive Officer, and Jeffrey S. Peterson, 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/  James J. Dalton                                                                                    
James J. Dalton
Chief Executive Officer
(Principal Executive Officer)




/s/ Jeffrey S. Peterson                                                                                    
Jeffrey S. Peterson
Chief Financial Officer
(Principal Financial and Accounting Officer)



Dated: February 24, 2016

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.
 
 


 
 EX-101.INS 18 acar-20151231.xml XBRL INSTANCE DOCUMENT 1075992 936866 281125 523561 2293419 2375334 17846 17846 9831 10010 2445974 2538960 4649000 4493211 237362 162797 1304681 743967 970898 567350 9354700 7799083 12800132 11147334 1 1 795 781 84208290 83231002 -94563244 -91840158 -10354158 -8608374 2445974 2538960 0.00001 10000000 120431 120431 0.00001 0.00001 200000000 79486837 78113971 2087670 1508091 1593356 1117223 494314 390868 2346705 2351459 22909 45198 2369614 2396657 -1875300 -2005789 -491149 -350536 -444238 -244092 -2319538 -2249881 403548 195187 -2723086 -2718050 -0.03 -0.05 0.00 -0.01 -0.03 -0.06 78815000 47162000 1179922 1169977 -2319538 -2522863 -1085294 -453565 -270731 -306711 -94628 -716412 -13745 -249606 46311 106444 -139126 546548 21507 237154 -28230 -26664 -125354 102823 -419958 78874 -502588 -327672 600 2674 478738 -2074 478738 1209200 100000 661636 51705 547564 48295 42902 199361 172436 197027 215338 396388 8713 2605 403548 195187 130246 101058 31252 105000 22500 6251 10-Q 2015-12-31 false ACTIVECARE, INC. 0001429896 acar --09-30 78445171 Smaller Reporting Company Yes No No 2016 Q1 <!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-justify:inter-ideograph'><b>1.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Basis of Presentation </b></p> <p style='margin:0in;margin-bottom:.0001pt;text-align:justify;text-justify:inter-ideograph;text-autospace:none;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-autospace:ideograph-numeric ideograph-other'>The unaudited interim condensed consolidated financial statements of ActiveCare, Inc. (the &#147;Company&#148; or &#147;ActiveCare&#148;) have been prepared in accordance with Article 8 of Regulation S-X promulgated by the Securities and Exchange Commission.&nbsp;&nbsp;Certain information and disclosures normally included in financial statements prepared in accordance with US generally accepted accounting principles (&#147;US GAAP&#148;) have been condensed or omitted pursuant to such rules and regulations.&nbsp;&nbsp;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&#146;s financial position as of December 31, 2015 and September 30, 2015, and the results of its operations and its cash flows for the three months ended December 31, 2015 and 2014.&nbsp;&nbsp;These financial statements should be read in conjunction with the annual consolidated financial statements and notes thereto that are included in the Company&#146;s Annual Report on Form 10-K for the year ended September 30, 2015.&nbsp;&nbsp;The results of operations for the three months ended December 31, 2015 may not be indicative of the results for the full fiscal year ending September 30, 2016.</p> <p style='margin:0in;margin-bottom:.0001pt;text-align:justify;text-justify:inter-ideograph;text-autospace:none;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-autospace:ideograph-numeric ideograph-other'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;text-align:justify;text-justify:inter-ideograph;text-autospace:none;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-autospace:ideograph-numeric ideograph-other'><i>Going Concern</i></p> <p style='margin:0in;margin-bottom:.0001pt;text-align:justify;text-justify:inter-ideograph;text-autospace:none;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:36.75pt;text-indent:-.75pt'>The Company continues to incur negative cash flows from operating activities and net losses.&#160; The Company had negative working capital and negative total equity as of December 31, 2015 and September 30, 2015 and is in default with respect to certain debt. &#160;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.</p> <p style='margin:0in;margin-bottom:.0001pt;text-align:justify;text-justify:inter-ideograph;text-autospace:none;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:36.75pt;text-indent:-.75pt;text-autospace:ideograph-numeric ideograph-other'>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.&#160; Management's plans with respect to this uncertainty consist of raising additional capital by issuing debt or equity securities and increasing the sales of the Company's services and products.&#160; There can be no assurance that the Company will be able to raise sufficient additional capital or that revenues will increase rapidly enough to achieve operating profits.&#160; 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.</p> <p style='margin:0in;margin-bottom:.0001pt;text-align:justify;text-justify:inter-ideograph;text-autospace:none;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:36.75pt;text-indent:-.75pt;text-autospace:ideograph-numeric ideograph-other'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph;text-indent:.75pt'><i>Use of Estimates in the Preparation of Financial Statements</i></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph;text-indent:.75pt'>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.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph;text-indent:.75pt'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph;text-indent:.75pt'><i>Fair Value of Financial Instruments</i></p> <p style='margin-top:0in;margin-right:5.4pt;margin-bottom:0in;margin-left:.5in;margin-bottom:.0001pt;text-align:justify;text-justify:inter-ideograph'>The Company measures the fair values of its assets and liabilities using the US GAAP hierarchy.&#160; The carrying amounts reported in the condensed 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 values because the underlying instruments are at interest rates which approximate current market rates.</p> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph;text-indent:-.5in'><b>2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </b><b>Discontinued Operations</b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>In December 2014, the Company sold substantially all of its customer contracts and equipment leased to customers associated with its CareServices segment.&#160; Additional equipment held in stock was sold to the buyer pursuant to a written invoice.&#160; The purchase price included cash receipts of $412,280 for the customer contracts and $66,458 for the equipment held in stock.&#160; The sale included all segment assets that generated revenue related to the CareServices segment.&#160; 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.&#160; This segment was engaged in the business of developing, distributing and marketing mobile health monitoring and concierge services to distributors and consumers.&#160; The debt secured by the CareServices customer contracts was amended in January 2015 and December 2015 and remains an obligation of the Company (see Note 11).&#160; There were no material liabilities of discontinued operations.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>As a result of the sale of the CareServices assets, the Company has reflected this segment as discontinued operations in the condensed consolidated financial statements for the three months ended December 31, 2014.&#160; The following table summarizes certain operating data for discontinued operations for the three months ended December 31:</p> <table border="0" cellspacing="0" cellpadding="0" width="100%" style='width:100.0%;border-collapse:collapse'> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.96%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="22%" valign="bottom" style='width:22.48%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b> 2015 </b></p> </td> <td width="4%" valign="bottom" style='width:4.24%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="24%" valign="bottom" style='width:24.32%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b> 2014 </b></p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.96%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Revenues</p> </td> <td width="22%" valign="bottom" style='width:22.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="4%" valign="bottom" style='width:4.24%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.32%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 141,523 </p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.96%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="22%" valign="bottom" style='width:22.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="4%" valign="bottom" style='width:4.24%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="24%" valign="bottom" style='width:24.32%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.96%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Cost of revenues</p> </td> <td width="22%" valign="bottom" style='width:22.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="4%" valign="bottom" style='width:4.24%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.32%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 203,294 </p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.96%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="22%" valign="bottom" style='width:22.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="4%" valign="bottom" style='width:4.24%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="24%" valign="bottom" style='width:24.32%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.96%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Gross loss</p> </td> <td width="22%" valign="bottom" style='width:22.48%;border:none;border-top:solid windowtext 1.0pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="4%" valign="bottom" style='width:4.24%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.32%;border:none;border-top:solid windowtext 1.0pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (61,771)</p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.96%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="22%" valign="bottom" style='width:22.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="4%" valign="bottom" style='width:4.24%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="24%" valign="bottom" style='width:24.32%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.96%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Selling, general and administrative expenses</p> </td> <td width="22%" valign="bottom" style='width:22.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="4%" valign="bottom" style='width:4.24%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.32%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (211,211)</p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.96%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="22%" valign="bottom" style='width:22.48%;border:none;border-top:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="4%" valign="bottom" style='width:4.24%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="24%" valign="bottom" style='width:24.32%;border:none;border-top:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:13.5pt'> <td width="48%" valign="bottom" style='width:48.96%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Loss from discontinued operations</p> </td> <td width="22%" valign="bottom" style='width:22.48%;border:none;border-bottom:double windowtext 2.25pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="4%" valign="bottom" style='width:4.24%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.32%;border:none;border-bottom:double windowtext 2.25pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (272,982)</p> </td> </tr> </table> <!--egx--><font style='line-height:115%'> </font>&#160; <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph;text-indent:-.5in'><b>3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </b><b>Net Loss per Common Share</b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>Basic net loss per common share (&quot;Basic EPS&quot;) is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>Diluted net loss per common share (&quot;Diluted EPS&quot;) 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 outstanding.&#160; The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutive effect.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>Common share equivalents consist of shares issuable upon the exercise of common stock warrants and options, shares issuable from restricted stock grants, and shares issuable from convertible notes and convertible Series D, Series E and Series F preferred stock.&#160; As of December 31, 2015 and 2014, there were 49,873,389 and 27,905,091 outstanding common share equivalents, respectively, that were not included in the computation of Diluted EPS as their effect would be anti-dilutive.&#160; The common stock equivalents outstanding consist of the following as of December 31:</p> <table border="0" cellspacing="0" cellpadding="0" width="100%" style='width:100.0%;border-collapse:collapse'> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.92%;background:white;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> <td width="25%" valign="bottom" style='width:25.38%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b>&#160;</b><b>2015 </b></p> </td> <td width="4%" valign="bottom" style='width:4.06%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="21%" valign="bottom" style='width:21.62%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b>&#160;</b><b>2014</b><b> </b></p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.92%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Common stock options and warrants</p> </td> <td width="25%" valign="bottom" style='width:25.38%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 9,497,551 </p> </td> <td width="4%" valign="bottom" style='width:4.06%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="21%" valign="bottom" style='width:21.62%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 10,991,576 </p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.92%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Series D convertible preferred stock</p> </td> <td width="25%" valign="bottom" style='width:25.38%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 225,000 </p> </td> <td width="4%" valign="bottom" style='width:4.06%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="21%" valign="bottom" style='width:21.62%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 225,000 </p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.92%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Series E convertible preferred stock</p> </td> <td width="25%" valign="bottom" style='width:25.38%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 477,830 </p> </td> <td width="4%" valign="bottom" style='width:4.06%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="21%" valign="bottom" style='width:21.62%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 477,830 </p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.92%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Series F convertible preferred stock</p> </td> <td width="25%" valign="bottom" style='width:25.38%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 16,065,328 </p> </td> <td width="4%" valign="bottom" style='width:4.06%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="21%" valign="bottom" style='width:21.62%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 16,065,328 </p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.92%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Convertible debt</p> </td> <td width="25%" valign="bottom" style='width:25.38%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 23,600,180 </p> </td> <td width="4%" valign="bottom" style='width:4.06%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="21%" valign="bottom" style='width:21.62%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 135,607 </p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.92%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Restricted shares of common stock</p> </td> <td width="25%" valign="bottom" style='width:25.38%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 7,500 </p> </td> <td width="4%" valign="bottom" style='width:4.06%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="21%" valign="bottom" style='width:21.62%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 9,750 </p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.92%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> <td width="25%" valign="bottom" style='width:25.38%;border:none;border-top:solid windowtext 1.0pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="4%" valign="bottom" style='width:4.06%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="21%" valign="bottom" style='width:21.62%;border:none;border-top:solid windowtext 1.0pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:13.5pt'> <td width="48%" valign="bottom" style='width:48.92%;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:7.95pt'>Total common stock equivalents</p> </td> <td width="25%" valign="bottom" style='width:25.38%;border:none;border-bottom:double windowtext 2.25pt;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 49,873,389 </p> </td> <td width="4%" valign="bottom" style='width:4.06%;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'></td> <td width="21%" valign="bottom" style='width:21.62%;border:none;border-bottom:double windowtext 2.25pt;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 27,905,091 </p> </td> </tr> </table> <!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:10.0pt;margin-left:.5in;line-height:115%;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph;text-indent:-.5in;text-autospace:none'><b><font style='line-height:115%'>4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font></b><b><font style='line-height:115%'>Recent Accounting Pronouncements</font></b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>In May 2014, the Financial Accounting Standards Board (FASB) issued ASU 2014-09, <i>Revenue from Contracts with Customers</i>, 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. In August 2015, the FASB voted to defer the effective date of the new revenue standard by one year. The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein, which will be effective for the Company for the quarter ending December 31, 2018. The Company is assessing the impact, if any, of implementing this guidance on its consolidated financial position, results of operations and liquidity.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>In August 2014, the FASB issued ASU 2014-15, <i>Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern</i>. 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 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, which will be effective for the Company for the quarter ending December 31, 2017. The Company is assessing the impact, if any, of implementing this guidance on its evaluation of going concern.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>In November 2014, the FASB issued ASU 2014-16, <i>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</i>. 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, which will be effective for the Company for the quarter ending December 31, 2016. The Company is assessing the impact, if any, of implementing this guidance on its consolidated financial position, results of operations and liquidity.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>In June 2015, the FASB issued ASU 2015-10, <i>Technical Corrections and Improvements</i>. The purpose of this ASU is to clarify guidance, correct unintended application of guidance, or make minor improvements to guidance. The ASU is effective for fiscal years and interim periods beginning after December 15, 2015, which will be effective for the Company for the quarter ending December 31, 2016. The Company is assessing the impact, if any, of implementing this guidance on its consolidated financial position, results of operations and liquidity.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>In July 2015, the FASB issued ASU 2015-11, <i>Inventory: Simplifying the Measurement of Inventory</i>. The purpose of this ASU is to more closely align the measurement of inventory in U.S. GAAP with the measurement of inventory in International Financial Reporting Standards. This ASU requires entities to measure most inventory at the &quot;lower of cost and net realizable value.&quot; Additionally, some of the amendments are designed to more clearly articulate the requirements for the measurement and disclosure of inventory. The ASU is effective for fiscal years and interim periods beginning after December 15, 2016, which will be effective for the Company for the quarter ending December 31, 2017. The Company is assessing the impact, if any, of implementing this guidance on its consolidated financial position, results of operations and liquidity.</p> <!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:10.0pt;margin-left:.5in;line-height:115%;text-autospace:ideograph-numeric ideograph-other;margin-top:12.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph;text-indent:-.5in'><b><font style='line-height:115%'>5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font></b><b><font style='line-height:115%'>Accounts Receivable</font></b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>Accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts.&#160; Specific reserves are estimated by management based on certain assumptions and variables, including the customer&#146;s financial condition, age of the customer&#146;s receivables and changes in payment histories.&#160; Accounts receivable are written off when management determines the likelihood of collection is remote.&#160; A receivable is considered to be past due if any portion of the receivable balance has not been received by the contractual payment date.&#160; Interest is not charged on accounts receivable that are past due.&#160; The Company recorded an allowance for doubtful accounts of $67,749 and $30,495 as of December 31, 2015 and September 30, 2015, respectively.</p> <!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:10.0pt;margin-left:.5in;line-height:115%;text-autospace:ideograph-numeric ideograph-other;margin-top:12.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph;text-indent:-.5in;line-height:normal'><b>6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </b><b>Inventory </b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>Inventory is recorded at the lower of cost or market, cost being determined using the first-in, first-out (&quot;FIFO&quot;) method. Inventory consists of diabetic supplies.&#160; Inventory held by distributors is reported as inventory until the supplies are shipped to the end user by the distributor.&#160; The Company estimates an inventory reserve for obsolescence and excessive quantities.&#160; Due to competitive pressures and technological innovation, it is possible that estimates of net realizable values could change in the near term.&#160; During the three months ended December 31, 2015, the Company disposed of $163,526 of inventory for which a reserve for obsolescence had previously been recorded.&#160; Inventory consists of the following as of:</p> <table border="0" cellspacing="0" cellpadding="0" width="100%" style='width:100.0%;border-collapse:collapse'> <tr style='height:25.5pt'> <td width="48%" valign="bottom" style='width:48.48%;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'></td> <td width="25%" valign="bottom" style='width:25.22%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b> December 31, 2015 </b></p> </td> <td width="4%" valign="bottom" style='width:4.02%;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'></td> <td width="22%" valign="bottom" style='width:22.26%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b> September 30, 2015 </b></p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:7.95pt'>Finished goods </p> </td> <td width="25%" valign="bottom" style='width:25.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1,142,127 </p> </td> <td width="4%" valign="bottom" style='width:4.02%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="22%" valign="bottom" style='width:22.26%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160; 206,038 </p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:7.95pt'>Finished goods held by distributors</p> </td> <td width="25%" valign="bottom" style='width:25.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="4%" valign="bottom" style='width:4.02%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="22%" valign="bottom" style='width:22.26%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1,350,368 </p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:10.0pt'>&nbsp;</p> </td> <td width="25%" valign="bottom" style='width:25.22%;border:none;border-top:solid windowtext 1.0pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="4%" valign="bottom" style='width:4.02%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="22%" valign="bottom" style='width:22.26%;border:none;border-top:solid windowtext 1.0pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:15.95pt'>Total inventory</p> </td> <td width="25%" valign="bottom" style='width:25.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1,142,127 </p> </td> <td width="4%" valign="bottom" style='width:4.02%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="22%" valign="bottom" style='width:22.26%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1,556,406 </p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> <td width="25%" valign="bottom" style='width:25.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="4%" valign="bottom" style='width:4.02%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="22%" valign="bottom" style='width:22.26%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:7.95pt'>Inventory reserve</p> </td> <td width="25%" valign="bottom" style='width:25.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (421,163)</p> </td> <td width="4%" valign="bottom" style='width:4.02%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="22%" valign="bottom" style='width:22.26%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (813,935)</p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> <td width="25%" valign="bottom" style='width:25.22%;border:none;border-top:solid windowtext 1.0pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="4%" valign="bottom" style='width:4.02%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="22%" valign="bottom" style='width:22.26%;border:none;border-top:solid windowtext 1.0pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:13.5pt'> <td width="48%" valign="bottom" style='width:48.48%;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:15.95pt'>Net inventory</p> </td> <td width="25%" valign="bottom" style='width:25.22%;border:none;border-bottom:double windowtext 2.25pt;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 720,964 </p> </td> <td width="4%" valign="bottom" style='width:4.02%;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'></td> <td width="22%" valign="bottom" style='width:22.26%;border:none;border-bottom:double windowtext 2.25pt;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160; 742,471 </p> </td> </tr> </table> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-align:justify;text-justify:inter-ideograph;text-autospace:none;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-indent:-.5in;text-autospace:ideograph-numeric ideograph-other'><b>7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </b><b>Customer Contracts</b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>The Company amortized Chronic Illness Monitoring customer contracts acquired during 2012 over their estimated useful lives through 2014.&#160; As of December 31, 2015 and September 30, 2015, the cost associated with these customer contracts of $214,106 was fully amortized. Amortization expense related to these contracts for the three months ended December 31, 2015 and 2014 was $0.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>The Company sold substantially all of the CareServices customer contracts during December 2014.&#160; Amortization expense related to customer contracts in the CareServices segment for the three months ended December 31, 2015 and 2014 was $0 and $179,648, respectively. &#160;</p> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph;text-indent:-.5in'><b>8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </b><b>Patents</b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>Amortization expense for the three months ended December 31, 2015 and 2014 was $0 and $31,718, respectively.&#160; As of December 31, 2015 and September 30, 2015, the cost associated with the patents of $514,046 was fully amortized.</p> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-align:justify;text-justify:inter-ideograph;text-autospace:none;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-indent:-.5in;text-autospace:ideograph-numeric ideograph-other'><b>9.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </b><b>Property and Equipment</b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>Property and equipment are stated at cost, less accumulated depreciation and amortization.&#160; 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.&#160; Leasehold improvements are amortized over the shorter of the estimated useful lives of the assets or the terms of the lease.&#160; Expenditures for maintenance and repairs are expensed as incurred.&#160; Upon the sale or disposal of property and equipment, any gains or losses are included in operations.&#160; Property and equipment consist of the following as of:</p> <table border="0" cellspacing="0" cellpadding="0" width="100%" style='width:100.0%;border-collapse:collapse'> <tr style='height:25.5pt'> <td width="49%" valign="bottom" style='width:49.5%;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'></td> <td width="24%" valign="bottom" style='width:24.24%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b> December 31, 2015 </b></p> </td> <td width="3%" valign="bottom" style='width:3.74%;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'></td> <td width="22%" valign="bottom" style='width:22.52%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b> September 30, 2015 </b></p> </td> </tr> <tr style='height:12.75pt'> <td width="49%" valign="bottom" style='width:49.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Software</p> </td> <td width="24%" valign="bottom" style='width:24.24%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 100,574 </p> </td> <td width="3%" valign="bottom" style='width:3.74%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="22%" valign="bottom" style='width:22.52%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160; 100,574 </p> </td> </tr> <tr style='height:12.75pt'> <td width="49%" valign="bottom" style='width:49.5%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Leasehold improvements</p> </td> <td width="24%" valign="bottom" style='width:24.24%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 98,023 </p> </td> <td width="3%" valign="bottom" style='width:3.74%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="22%" valign="bottom" style='width:22.52%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 98,023 </p> </td> </tr> <tr style='height:12.75pt'> <td width="49%" valign="bottom" style='width:49.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Furniture</p> </td> <td width="24%" valign="bottom" style='width:24.24%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 68,758 </p> </td> <td width="3%" valign="bottom" style='width:3.74%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="22%" valign="bottom" style='width:22.52%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 68,758 </p> </td> </tr> <tr style='height:12.75pt'> <td width="49%" valign="bottom" style='width:49.5%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Equipment</p> </td> <td width="24%" valign="bottom" style='width:24.24%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 62,428 </p> </td> <td width="3%" valign="bottom" style='width:3.74%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="22%" valign="bottom" style='width:22.52%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 59,754 </p> </td> </tr> <tr style='height:12.75pt'> <td width="49%" valign="bottom" style='width:49.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.24%;border:none;border-top:solid windowtext 1.0pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="3%" valign="bottom" style='width:3.74%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="22%" valign="bottom" style='width:22.52%;border:none;border-top:solid windowtext 1.0pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:12.75pt'> <td width="49%" valign="bottom" style='width:49.5%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:7.95pt'>Total property and equipment</p> </td> <td width="24%" valign="bottom" style='width:24.24%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 329,783 </p> </td> <td width="3%" valign="bottom" style='width:3.74%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="22%" valign="bottom" style='width:22.52%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 327,109 </p> </td> </tr> <tr style='height:12.75pt'> <td width="49%" valign="bottom" style='width:49.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.24%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="3%" valign="bottom" style='width:3.74%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="22%" valign="bottom" style='width:22.52%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:12.75pt'> <td width="49%" valign="bottom" style='width:49.5%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Accumulated depreciation and amortization</p> </td> <td width="24%" valign="bottom" style='width:24.24%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (204,905)</p> </td> <td width="3%" valign="bottom" style='width:3.74%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="22%" valign="bottom" style='width:22.52%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (191,339)</p> </td> </tr> <tr style='height:12.75pt'> <td width="49%" valign="bottom" style='width:49.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.24%;border:none;border-top:solid windowtext 1.0pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="3%" valign="bottom" style='width:3.74%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="22%" valign="bottom" style='width:22.52%;border:none;border-top:solid windowtext 1.0pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:13.5pt'> <td width="49%" valign="bottom" style='width:49.5%;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:7.95pt'>Property and equipment, net</p> </td> <td width="24%" valign="bottom" style='width:24.24%;border:none;border-bottom:double windowtext 2.25pt;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 124,878 </p> </td> <td width="3%" valign="bottom" style='width:3.74%;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'></td> <td width="22%" valign="bottom" style='width:22.52%;border:none;border-bottom:double windowtext 2.25pt;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160; 135,770 </p> </td> </tr> </table> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>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.&#160; During the three months ended December 31, 2015, the Company recorded a gain on the disposal of property and equipment of $600.&#160; During December 2014, the Company sold all of its equipment leased to customers (see Note 2).&#160; Depreciation expense for the three months ended December 31, 2015 and 2014 was $13,745 and $38,061, respectively.</p> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph;text-indent:-.5in'><b>10.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </b><b>Accrued Expenses</b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>Accrued expenses consisted of the following as of: </p> <table border="0" cellspacing="0" cellpadding="0" width="100%" style='width:100.0%;border-collapse:collapse'> <tr style='height:25.5pt'> <td width="52%" valign="bottom" style='width:52.88%;background:white;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> <td width="23%" valign="bottom" style='width:23.74%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b> December 31, 2015 </b></p> </td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'></td> <td width="19%" valign="bottom" style='width:19.5%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b> September 30, 2015 </b></p> </td> </tr> <tr style='height:12.75pt'> <td width="52%" valign="bottom" style='width:52.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&#160;Interest </p> </td> <td width="23%" valign="bottom" style='width:23.74%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160; 370,498 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="19%" valign="bottom" style='width:19.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160; 190,045 </p> </td> </tr> <tr style='height:12.75pt'> <td width="52%" valign="bottom" style='width:52.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&#160;Payroll </p> </td> <td width="23%" valign="bottom" style='width:23.74%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 200,581 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="19%" valign="bottom" style='width:19.5%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 270,974 </p> </td> </tr> <tr style='height:12.75pt'> <td width="52%" valign="bottom" style='width:52.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'> Deferred revenue </p> </td> <td width="23%" valign="bottom" style='width:23.74%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 184,617 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="19%" valign="bottom" style='width:19.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 147,344 </p> </td> </tr> <tr style='height:12.75pt'> <td width="52%" valign="bottom" style='width:52.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&#160;Commissions and fees </p> </td> <td width="23%" valign="bottom" style='width:23.74%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 141,868 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="19%" valign="bottom" style='width:19.5%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 64,432 </p> </td> </tr> <tr style='height:12.75pt'> <td width="52%" valign="bottom" style='width:52.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'> Liability to issue warrants </p> </td> <td width="23%" valign="bottom" style='width:23.74%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 130,246 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="19%" valign="bottom" style='width:19.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> </tr> <tr style='height:12.75pt'> <td width="52%" valign="bottom" style='width:52.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'> Warranty liability </p> </td> <td width="23%" valign="bottom" style='width:23.74%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 95,630 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="19%" valign="bottom" style='width:19.5%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> </tr> <tr style='height:12.75pt'> <td width="52%" valign="bottom" style='width:52.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'> Liability to issue common stock </p> </td> <td width="23%" valign="bottom" style='width:23.74%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 81,762 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="19%" valign="bottom" style='width:19.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 40,000 </p> </td> </tr> <tr style='height:12.75pt'> <td width="52%" valign="bottom" style='width:52.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&#160;Other </p> </td> <td width="23%" valign="bottom" style='width:23.74%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 99,479 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="19%" valign="bottom" style='width:19.5%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 31,172 </p> </td> </tr> <tr style='height:12.75pt'> <td width="52%" valign="bottom" style='width:52.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> <td width="23%" valign="bottom" style='width:23.74%;border:none;border-top:solid windowtext 1.0pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="19%" valign="bottom" style='width:19.5%;border:none;border-top:solid windowtext 1.0pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:13.5pt'> <td width="52%" valign="bottom" style='width:52.88%;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:7.95pt'>Total accrued expenses</p> </td> <td width="23%" valign="bottom" style='width:23.74%;border:none;border-bottom:double windowtext 2.25pt;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1,304,681 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'></td> <td width="19%" valign="bottom" style='width:19.5%;border:none;border-bottom:double windowtext 2.25pt;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160; 743,967 </p> </td> </tr> </table> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:12.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph;text-indent:-.5in'><b>11.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </b><b>Notes Payable </b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>The Company had the following notes payable outstanding as of:&#160; &#160;&#160;</p> <table border="0" cellspacing="0" cellpadding="0" width="100%" style='width:100.0%;border-collapse:collapse'> <tr style='height:25.5pt'> <td width="53%" valign="bottom" style='width:53.48%;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'></td> <td width="18%" valign="bottom" style='width:18.46%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b>&#160;December 31, 2015 </b></p> </td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'></td> <td width="24%" valign="bottom" style='width:24.16%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b>&#160;September 30, 2015 </b></p> </td> </tr> <tr style='height:229.5pt'> <td width="53%" valign="bottom" style='width:53.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:229.5pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Secured borrowings from third parties that purchased $1,439,395 of customer receivables for 80% of their value with interest from 2.25% to 7.50%.&#160; The remaining 20% is held in reserve by the lender until collected then is returned to the Company.&#160; The balance of the reserve was $169,953 as of December 31, 2015 and is not included in the outstanding balance of the note.&#160; The Company may sell additional customer receivables for a balance up to $2,000,000 and must repurchase any receivables not collected within 90 days of the original date billed.&#160; The Company issued 791,666 shares of common stock to a third party in connection with the agreement.&#160; The $71,250 fair value of the stock is being amortized to interest expense over the term of the agreement.&#160; The Company accrued warrants for the purchase of 1,333,333 shares of common stock to a third party in connection with the agreement.&#160; The $130,246 fair value of the warrants is being amortized to interest expense over the term of the agreement.&#160; The Company was required to pay commissions related to the agreement totaling $203,784, which are being amortized to interest expense over the term of the notes. In February 2016, the Company terminated the note and paid a termination fee of $50,300 in addition to the outstanding principal and interest then outstanding.&#160; See Note 20</p> </td> <td width="18%" valign="bottom" style='width:18.46%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:229.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'> $&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 539,528 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:229.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.16%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:229.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; &#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;-&#160;&#160; </p> </td> </tr> <tr style='height:12.75pt'> <td width="53%" valign="bottom" style='width:53.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.46%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="24%" valign="bottom" style='width:24.16%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:127.5pt'> <td width="53%" valign="bottom" style='width:53.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:127.5pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Secured borrowings from a third party that purchased $945,000 of customer receipts for $750,000, with due dates ranging from November 2015 to December 2016 and payable in daily payments ranging from $955 to $1,909.&#160; The $195,000 difference between the customer receipts and cash received is being amortized to interest expense over the term of the respective notes.&#160; The secured borrowings are guaranteed by two officers of the Company.&#160; In November 2015, one of the notes was amended to subordinate to another note and to increase the principal by $28,385.&#160; The additional principal amount is being amortized to interest expense over the term of the note.&#160; In February 2016, the note was settled for $377,607 or 91% of the outstanding balance.&#160; See Note 20.</p> </td> <td width="18%" valign="bottom" style='width:18.46%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:127.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 484,418 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:127.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.16%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:127.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 421,413 </p> </td> </tr> <tr style='height:12.75pt'> <td width="53%" valign="bottom" style='width:53.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.46%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="24%" valign="bottom" style='width:24.16%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:27.0pt'> <td width="53%" valign="bottom" style='width:53.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:27.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Unsecured notes payable with interest at 12%, with due dates ranging from March 2016 to April 2016 and convertible into common stock at a 15% discount from the 10-day volume adjusted weighted average closing price per share upon maturity.&#160; In connection with the issuance of the notes, the Company issued 841,176 shares of common stock.&#160; The $119,205 fair value of the stock is being amortized to interest expense over the term of the notes.&#160; The notes included loan origination fees of $35,049, which are being amortized to interest expense over the term of the notes.&#160; The Company recorded a derivative in connection with the convertible feature of the notes (see Note 14) and is amortizing the initial $151,283 fair value of the derivatives liability over the life of the notes.&#160; In February 2016, the notes plus interest of $21,029 were converted into 9,287,985 shares of common stock, or $0.04 per common share, which was below the fair value of the Company&#146;s stock on the date of conversion.&#160; The stock will be issued subsequent to the filing of the Company&#146;s Quarterly Report on Form 10-Q for the three months ended December 31, 2015, which includes these financial statements.&#160; See Note 20.</p> </td> <td width="18%" valign="bottom" style='width:18.46%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:27.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 350,490 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:27.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.16%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:27.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 212,490 </p> </td> </tr> <tr style='height:12.75pt'> <td width="53%" valign="bottom" style='width:53.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.46%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="24%" valign="bottom" style='width:24.16%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:178.5pt'> <td width="53%" valign="bottom" style='width:53.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:178.5pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Note payable previously secured by CareServices customer contracts.&#160; In January 2015, the note was amended to reduce the outstanding principal to $375,000, interest at 9%, and payable in 15 monthly installments beginning in February 2015.&#160; The amendment released the collateralized customer contracts and the note payable is guaranteed by both a former Executive Chairman of the Board of Directors and a member of the Board of Directors.&#160; A gain on the extinguishment of the old note of $769,449 was recorded in other income.&#160; In December 2015, the note was amended to extend maturity to January 2018 payable in monthly installments beginning in July 2016, convert $31,252 from accrued interest into principal, interest at 10%, and provide that the note is convertible into common stock at its fair value per share.&#160; The Company recorded a derivative in connection with the convertible feature of the note (see Note 14) and is amortizing the initial $302,690 fair value of the derivatives liability over the life of the notes.&#160; In February 2016, the note was amended to subordinate to notes payable also issued during February 2016.</p> </td> <td width="18%" valign="bottom" style='width:18.46%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:178.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 334,464 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:178.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.16%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:178.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 303,212 </p> </td> </tr> <tr style='height:12.75pt'> <td width="53%" valign="bottom" style='width:53.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.46%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="24%" valign="bottom" style='width:24.16%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:192.0pt'> <td width="53%" valign="bottom" style='width:53.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:192.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Unsecured note payable with interest at 12%, due February 2016, convertible into common stock at $0.30 per share.&#160; In connection with the issuance of the note, the Company repriced previously issued warrants to purchase shares of common stock.&#160; The $22,397 increase in relative fair value of the warrants was included as a loss on the extinguishment of the old note in other expense in fiscal 2015.&#160; The note also required a payment of 3,000,000 shares of common stock.&#160; The fair value of $780,000 was included as a loss on the extinguishment of the old note in other expense in fiscal 2015.&#160; The maturity date was extended during November 2015 for 125,000 shares of common stock, which has been included in accrued expenses.&#160; The $8,750 fair value of the shares is being amortized over the extension period.&#160; In February 2016, the note was amended to subordinate to notes payable, also issued during February 2016, and the conversion price was reduced to $0.06 per share, which was below the fair value of the Company&#146;s stock on the date of the agreement.&#160; The note holder shall only be able to convert the loan, or a portion thereof, upon maintaining holdings at 9.99% or below.&#160; See Note 20.</p> </td> <td width="18%" valign="bottom" style='width:18.46%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:192.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 300,000 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:192.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.16%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:192.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 300,000 </p> </td> </tr> <tr style='height:12.75pt'> <td width="53%" valign="bottom" style='width:53.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&#160;</p> </td> <td width="18%" valign="bottom" style='width:18.46%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="24%" valign="bottom" style='width:24.16%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:114.75pt'> <td width="53%" valign="bottom" style='width:53.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:114.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Secured borrowings from third parties that purchased a $337,600 customer receivable for $200,000, in default.&#160; The Company was able to buy back the receivable for $233,333 less cash received by the third parties before June 2015.&#160; The $33,333 difference between the buyback and cash received plus $20,000 of commission paid to a related party, was amortized to interest expense through June 2015.&#160; In February 2016, the notes were converted into 5,800,000 shares of common stock, or $0.04 per common share, which was below the fair value of the Company&#146;s stock on the date of conversion.&#160; The stock will be issued subsequent to the filing of the Company&#146;s Quarterly Report on Form 10-Q for the three months ended December 31, 2015, which includes these financial statements.&#160; See Note 20.</p> </td> <td width="18%" valign="bottom" style='width:18.46%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:114.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'> $&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 233,333 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:114.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.16%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:114.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'> $&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 233,333 </p> </td> </tr> <tr style='height:12.75pt'> <td width="53%" valign="bottom" style='width:53.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.46%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="24%" valign="bottom" style='width:24.16%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:81.0pt'> <td width="53%" valign="bottom" style='width:53.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:81.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Unsecured notes with interest at 18%, due April 2013, in default.&#160; The Company issued 20,000 shares of Series D preferred stock as loan origination fees.&#160; The $195,000 fair value of the preferred stock was amortized over the original term of the note.&#160;&#160; Principal of $50,000 and accrued interest of $13,333 were converted to common stock in December 2013.</p> </td> <td width="18%" valign="bottom" style='width:18.46%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:81.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 64,261 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:81.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.16%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:81.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 64,261 </p> </td> </tr> <tr style='height:12.75pt'> <td width="53%" valign="bottom" style='width:53.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.46%;border:none;border-top:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'><b>&nbsp;</b></p> </td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="24%" valign="bottom" style='width:24.16%;border:none;border-top:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'><b>&nbsp;</b></p> </td> </tr> <tr style='height:12.75pt'> <td width="53%" valign="bottom" style='width:53.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:10.0pt'>Total notes payable before discount</p> </td> <td width="18%" valign="bottom" style='width:18.46%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160; &#160;&#160;&#160;&#160;&#160;&#160; 2,306,494 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.16%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1,534,709 </p> </td> </tr> <tr style='height:12.75pt'> <td width="53%" valign="bottom" style='width:53.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.46%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="24%" valign="bottom" style='width:24.16%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:12.75pt'> <td width="53%" valign="bottom" style='width:53.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:20.0pt'>Less discount</p> </td> <td width="18%" valign="bottom" style='width:18.46%;border:none;border-bottom:solid windowtext 1.0pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (894,213)</p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.16%;border:none;border-bottom:solid windowtext 1.0pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (274,793)</p> </td> </tr> <tr style='height:12.75pt'> <td width="53%" valign="bottom" style='width:53.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.46%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="24%" valign="bottom" style='width:24.16%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:12.75pt'> <td width="53%" valign="bottom" style='width:53.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:10.0pt'>Total notes payable</p> </td> <td width="18%" valign="bottom" style='width:18.46%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160; &#160;&#160;&#160;&#160;&#160;&#160;&#160; 1,412,281 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.16%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1,259,916 </p> </td> </tr> <tr style='height:12.75pt'> <td width="53%" valign="bottom" style='width:53.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.46%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="24%" valign="bottom" style='width:24.16%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:12.75pt'> <td width="53%" valign="bottom" style='width:53.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:20.0pt'>Less current portion</p> </td> <td width="18%" valign="bottom" style='width:18.46%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160; &#160;&#160;&#160;&#160;&#160; (1,315,100)</p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.16%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160; &#160;&#160;&#160;&#160; (1,259,916)</p> </td> </tr> <tr style='height:12.75pt'> <td width="53%" valign="bottom" style='width:53.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.46%;border:none;border-top:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="24%" valign="bottom" style='width:24.16%;border:none;border-top:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:13.5pt'> <td width="53%" valign="bottom" style='width:53.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:10.0pt'>Notes payable, net of current portion</p> </td> <td width="18%" valign="bottom" style='width:18.46%;border:none;border-bottom:double windowtext 2.25pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'> $&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 97,181 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.16%;border:none;border-bottom:double windowtext 2.25pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'> $&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> </tr> </table> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>&nbsp;</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:10.0pt;margin-left:.5in;line-height:115%;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph;text-indent:-.5in'><b><font style='line-height:115%'>12.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font></b><b><font style='line-height:115%'>Related-Party Notes Payable</font></b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>The Company had the following related-party notes payable outstanding as of: </p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>&nbsp;</p> <table border="0" cellspacing="0" cellpadding="0" width="100%" style='width:100.0%;border-collapse:collapse'> <tr style='height:25.5pt'> <td width="54%" valign="bottom" style='width:54.22%;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'></td> <td width="18%" valign="bottom" style='width:18.68%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b> December 31, 2015 </b></p> </td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'></td> <td width="23%" valign="bottom" style='width:23.22%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b> September 30, 2015 </b></p> </td> </tr> <tr style='height:230.25pt'> <td width="54%" valign="bottom" style='width:54.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:230.25pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Secured borrowings from entities controlled by an officer that purchased a $2,813,175 customer receivable for $1,710,500.&#160; The Company was able to buy back the receivable for $1,950,000 less cash received by the entities through March 2015.&#160; The $239,500 difference between the buyback and cash received plus $253,500 of loan origination fees was amortized to interest expense through March 2015.&#160; In September 2015, the note was modified to extend the maturity date to January 2017 with interest at 18%.&#160; The Company added $81,600 of extension fees and issued 3,000,000 shares of common stock as part of the modification and the note is convertible into common stock at $0.30 per share.&#160; The $540,000 fair value of the common stock was recognized as a loss on extinguishment of debt in fiscal 2015.&#160; In February 2016, the note was amended to subordinate to notes payable, also issued during February 2016, and the conversion price was reduced to $0.06 per share, which was below the fair value of the Company&#146;s stock on the date of the agreement.&#160; The conversion of the note is now limited to a maximum of 20,000,000 common shares in combination with other convertible notes payable held by the entities.&#160; The note also now has a default penalty of 4,203,389 shares of common stock, in combination with other convertible notes held by the entity, if not paid by maturity.&#160; See Note 20.</p> </td> <td width="18%" valign="bottom" style='width:18.68%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:230.25pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1,721,100 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:230.25pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="23%" valign="bottom" style='width:23.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:230.25pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1,721,100 </p> </td> </tr> <tr style='height:12.75pt'> <td width="54%" valign="bottom" style='width:54.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.68%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="23%" valign="bottom" style='width:23.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:153.0pt'> <td width="54%" valign="bottom" style='width:54.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:153.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Unsecured note payable to an entity controlled by an officer with interest at 18%, due January 2017, convertible into common stock at $0.30 per share.&#160; The Company issued 3,000,000 shares of common stock as loan origination fees.&#160; The $540,000 fair value of the common stock was recognized as a loss on extinguishment of debt in fiscal 2015.&#160; In February 2016, the note was amended to subordinate to notes payable, also issued during February 2016, and reduced the conversion price to $0.06 per share, which was below the fair value of the Company&#146;s stock on the date of the agreement.&#160; The conversion of the note is now limited to a maximum of 20,000,000 common shares in combination with other convertible notes payable held by the entity.&#160; The note also now has a default penalty of 4,203,389 shares of common stock, in combination with other convertible notes held by the entity, if not paid by maturity.&#160; See Note 20.</p> </td> <td width="18%" valign="bottom" style='width:18.68%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:153.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1,303,135 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:153.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="23%" valign="bottom" style='width:23.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:153.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1,303,135 </p> </td> </tr> <tr style='height:12.75pt'> <td width="54%" valign="bottom" style='width:54.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.68%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="23%" valign="bottom" style='width:23.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:89.25pt'> <td width="54%" valign="bottom" style='width:54.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:89.25pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Unsecured note payable to an entity controlled by a former Executive Chairman of the Board of Directors with no interest (18% in the event of default), due on demand and in default. The former Executive Chairman demanded payment by May 15, 2015.&#160; In February 2016, the note plus accrued interest was bifurcated into two notes payable.&#160; One of the bifurcated notes plus part of the second bifurcated note was assigned to a third party and converted into a convertible note payable.&#160; The remaining part of the second bifurcated note, in combination with another note payable held by the entity plus its accrued interest, was converted into a convertible note payable and another note payable assigned to a third party.&#160; See Note 20.</p> </td> <td width="18%" valign="bottom" style='width:18.68%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:89.25pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 396,667 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:89.25pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="23%" valign="bottom" style='width:23.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:89.25pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 396,667 </p> </td> </tr> <tr style='height:12.75pt'> <td width="54%" valign="bottom" style='width:54.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.68%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="23%" valign="bottom" style='width:23.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:25.5pt'> <td width="54%" valign="bottom" style='width:54.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Unsecured note payable to an entity controlled by a former Executive Chairman of the Board of Directors with interest at 18%, due January 2017.&#160; In February 2016, the note plus accrued interest, in combination with another note payable held by the entity, was converted into a convertible note payable.&#160; See Note 20.&#160; </p> </td> <td width="18%" valign="bottom" style='width:18.68%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 324,016 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="23%" valign="bottom" style='width:23.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 324,016 </p> </td> </tr> <tr style='height:12.75pt'> <td width="54%" valign="bottom" style='width:54.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.68%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="23%" valign="bottom" style='width:23.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:38.25pt'> <td width="54%" valign="bottom" style='width:54.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:38.25pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Unsecured note payable to a former officer with interest at 15%, due June 2012, in default.&#160; The note included a $3,000 loan origination fee added to the principal and is convertible into common stock at $0.50 per share.&#160; </p> </td> <td width="18%" valign="bottom" style='width:18.68%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:38.25pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 30,000 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:38.25pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="23%" valign="bottom" style='width:23.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:38.25pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 30,000 </p> </td> </tr> <tr style='height:12.75pt'> <td width="54%" valign="bottom" style='width:54.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.68%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="23%" valign="bottom" style='width:23.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:28.5pt'> <td width="54%" valign="bottom" style='width:54.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:28.5pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Unsecured note payable to a former officer with interest at 12%, due September 2013, in default, and convertible into common stock at $0.75 per share.</p> </td> <td width="18%" valign="bottom" style='width:18.68%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:28.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 26,721 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:28.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="23%" valign="bottom" style='width:23.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:28.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 26,721 </p> </td> </tr> <tr style='height:12.75pt'> <td width="54%" valign="bottom" style='width:54.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.68%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="23%" valign="bottom" style='width:23.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:114.75pt'> <td width="54%" valign="bottom" style='width:54.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:114.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Unsecured note payable to an entity controlled by an officer with interest at 18%, due upon demand.&#160; In February 2016, the note was amended to subordinate to notes payable, also issued during February 2016, and the note is convertible into shares of common stock at $0.06 per share, which was below the fair value of the Company&#146;s stock on the date of the agreement.&#160; The conversion of the note is now limited to a maximum of 20,000,000 common shares in combination with other convertible notes payable held by the entity.&#160; The note also now has a default penalty of 4,203,389 shares of common stock, in combination with other convertible notes held by the entity, if not paid by maturity.&#160; See Note 20.</p> </td> <td width="18%" valign="bottom" style='width:18.68%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:114.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 25,463 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:114.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="23%" valign="bottom" style='width:23.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:114.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 25,463 </p> </td> </tr> <tr style='height:12.75pt'> <td width="54%" valign="bottom" style='width:54.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.68%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="23%" valign="bottom" style='width:23.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:13.5pt'> <td width="54%" valign="bottom" style='width:54.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Unsecured note payable to a former officer with interest at 12%, due on demand.</p> </td> <td width="18%" valign="bottom" style='width:18.68%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 13,644 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="23%" valign="bottom" style='width:23.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 13,644 </p> </td> </tr> <tr style='height:12.75pt'> <td width="54%" valign="bottom" style='width:54.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.68%;border:none;border-top:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="23%" valign="bottom" style='width:23.22%;border:none;border-top:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:12.75pt'> <td width="54%" valign="bottom" style='width:54.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:15.95pt'>Total notes payable, related-party</p> </td> <td width="18%" valign="bottom" style='width:18.68%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 3,840,746 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="23%" valign="bottom" style='width:23.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 3,840,746 </p> </td> </tr> <tr style='height:12.75pt'> <td width="54%" valign="bottom" style='width:54.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.68%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="23%" valign="bottom" style='width:23.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:12.75pt'> <td width="54%" valign="bottom" style='width:54.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:23.9pt'>Less current portion</p> </td> <td width="18%" valign="bottom" style='width:18.68%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (492,495)</p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="23%" valign="bottom" style='width:23.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (492,495)</p> </td> </tr> <tr style='height:12.75pt'> <td width="54%" valign="bottom" style='width:54.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.68%;border:none;border-top:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="23%" valign="bottom" style='width:23.22%;border:none;border-top:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:13.5pt'> <td width="54%" valign="bottom" style='width:54.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:15.95pt'>Notes payable, related party, net of current portion</p> </td> <td width="18%" valign="bottom" style='width:18.68%;border:none;border-bottom:double windowtext 2.25pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 3,348,251 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="23%" valign="bottom" style='width:23.22%;border:none;border-bottom:double windowtext 2.25pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 3,348,251 </p> </td> </tr> </table> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other'>&nbsp;</p> <!--egx--> <p style='margin-top:12.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph;text-indent:-.5in'><b>13.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </b><b>Fair Value Measurements</b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:12.0pt;margin-right:5.4pt;margin-bottom:0in;margin-left:.5in;margin-bottom:.0001pt;text-align:justify;text-justify:inter-ideograph'>The Company measures the fair values of its assets and liabilities using the US GAAP hierarchy levels as follows: </p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:12.0pt;margin-right:5.4pt;margin-bottom:0in;margin-left:.5in;margin-bottom:.0001pt;text-align:justify;text-justify:inter-ideograph'>&nbsp;</p> <div align="center"> <table border="0" cellspacing="0" cellpadding="0" width="515" style='width:386.2pt;border-collapse:collapse'> <tr style='height:15.0pt'> <td width="77" valign="top" style='width:57.7pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Level 1</p> </td> <td width="438" valign="top" style='width:328.5pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>The Company does not have any Level 1 inputs available to measure its assets.</p> </td> </tr> <tr style='height:15.0pt'> <td width="77" valign="top" style='width:57.7pt;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Level 2 </p> </td> <td width="438" valign="top" style='width:328.5pt;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>The Company&#146;s embedded derivative liabilities are measured on a recurring basis using Level 2 inputs.</p> </td> </tr> <tr style='height:15.0pt'> <td width="77" valign="top" style='width:57.7pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Level 3 </p> </td> <td width="438" valign="top" style='width:328.5pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>The Company does not measure any of its assets or liabilities using Level 3 inputs.</p> </td> </tr> </table> </div> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>The Company&#146;s embedded derivative liabilities are re-measured to fair value as of each reporting date until the contingency is resolved.&#160; See Note 14 for more information about derivatives and the inputs used for calculating fair value.</p> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph;text-indent:-.5in'><b>14.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </b><b>Derivatives Liability</b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>The derivatives liability as of December 31, 2015 and September 30, 2015 was $385,164 and $79,347, respectively.&#160; The derivatives liability as of September 30, 2014 was related to a variable conversion price adjustment on the Series F preferred stock.&#160; 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.&#160; The derivatives liability as of December 31, 2015 and September 30, 2015 is related to a variable conversion price adjustment on outstanding notes payable.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>During the three months ended December 31, 2015, 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 prices ranging from $0.03 to $0.09 per share; risk free interest rates ranging from 0.16% to 1.06%; expected lives ranging from 0.17 to 2.09 years; expected dividends of 0%; volatility factors ranging from 125.33% to 231.42%; and stock prices ranging from $0.03 to $0.09.&#160; During the fiscal year ended September 30, 2015, 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 prices ranging from $0.12 to $0.33 per share; risk free interest rates ranging from 0.010% to 0.260%; expected lives ranging from 0.001 to 0.50 years; expected dividends of 0%; volatility factors ranging from 0.01% to 138.68%; and stock prices ranging from $0.12 to $0.33.&#160; The expected lives of the instruments were equal to the average term of the conversion option.&#160; The expected volatility is based on the historical price volatility of the Company's common stock.&#160; The risk-free interest rate represents the US 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.&#160; The Company recognized a gain on derivatives liability for the three months ended December 31, 2015 and 2014 of $46,311 and $106,444, respectively.</p> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph;text-indent:-.5in'><b>15.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </b><b>Preferred Stock</b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>The Company is authorized to issue 10,000,000 shares of preferred stock, with a par value of $0.00001 per share.&#160; 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.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'><i><u>Series D Convertible Preferred Stock </u></i></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>The Board of Directors has designated 1,000,000 shares of preferred stock as Series D convertible preferred stock (&quot;Series D preferred stock&quot;).&#160; The Series D preferred stock is voting on an as-converted basis.&#160; The Series D preferred stock has a dividend rate of 8%, payable quarterly.&#160; 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 each of the three months ended December 31, 2015 and 2014, the Company accrued $6,251 of dividends on Series D preferred stock.&#160; During the three months ended December 31, 2014, the Company settled $6,251 of accrued dividends by issuing 18,522 shares of common stock.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'><i><u>Series E Convertible Preferred Stock </u></i></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>During fiscal year 2013, the Board of Directors designated shares of preferred stock as Series E convertible preferred stock (&quot;Series E preferred stock&quot;).&#160; 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.&#160; 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.&#160; 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.&#160; 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.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>During fiscal year 2014, $83,473 of debenture loans and accrued interest converted into 8,347 shares of Series E preferred stock.&#160; During the three months ended December 31, 2015 and 2014, the Company accrued dividends of $84,572 and $81,716, respectively, to Series E preferred shareholders.&#160; As of December 31, 2015 and September 30, 2015, the redemption price for the Series E preferred stock was $477,829.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'><i><u>Series F Convertible Preferred Stock </u></i></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>During fiscal year 2014, the Board of Directors designated 7,803 shares of preferred stock as Series F convertible preferred stock (&quot;Series F preferred stock&quot;).&#160; In April 2014, the Company increased the authorized shares of Series F preferred stock to 10,000.&#160; Series F preferred stock is non-voting, has a stated value of $1,000 and is convertible into common stock at $0.3337 per share (see Note 14).&#160; 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.&#160; In February 2016, the Company converted all 5,361 outstanding shares into 10,000,000 shares of common stock and $5,900,000 of notes payable.&#160; See Note 20.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>During fiscal year 2014, the Company issued 5,361<font style='display:none'>858</font><font style='display:none'> </font><font style='display:none'>4,503</font> shares of Series F preferred stock for net proceeds of $3,580,771, after considering $675,229 of related costs, and the conversion of $574,592 of debt and accrued interest.&#160; During the three months ended December 31, 2015 and 2014, the Company accrued dividends of $312,725 and $107,220, respectively, to Series F preferred shareholders.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'><i><u>Liquidation Preference</u></i></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>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 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.&#160; 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.</p> <!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:10.0pt;margin-left:.5in;line-height:115%;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph;text-indent:-.5in;line-height:normal'><b>16.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </b><b>Common Stock</b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>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.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>During the three months ended December 31, 2015, the Company issued 1,372,866 shares of common stock as follows:</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:0in;margin-left:.5in;margin-bottom:.0001pt;line-height:115%;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:1.0in;text-align:justify;text-justify:inter-ideograph;text-indent:-.25in'><font style='line-height:115%;font-family:Symbol'>&#183;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><font style='line-height:115%'>250,000</font><font style='line-height:115%'> shares for future services to be provided by an independent consultant, the value at the date of grant was </font><font style='line-height:115%'>$22,500</font><font style='line-height:115%'>;</font></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:10.0pt;margin-left:.5in;line-height:115%;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:1.0in;text-align:justify;text-justify:inter-ideograph;text-indent:-.25in'><font style='line-height:115%;font-family:Symbol'>&#183;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><font style='line-height:115%'>1,122,866</font><font style='line-height:115%'> shares for notes payable origination and financing fees, the value on the date of grant was </font><font style='line-height:115%'>$101,058</font><font style='line-height:115%'>.</font></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>The fair value of unvested common stock as of December 31, 2015 was $1,918,011.</p> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph;text-indent:-.5in'><b>17.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </b><b>Common Stock Options and Warrants</b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>The fair value of each stock option or warrant is estimated on the date of grant using a binomial option-pricing model.&#160; 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.&#160; Expected volatilities are based on historical volatility of the Company's common stock, among other factors.&#160; The Company uses the simplified method within the valuation model due to the Company's short trading history.&#160; The risk-free rate related to the expected term of the stock options or warrants is based on the US Treasury yield curve in effect at the time of grant.&#160; The dividend yield is zero.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>During the three months ended December 31, 2015 and 2014, the Company did not grant any common stock options or warrants. &#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:0in;margin-left:.5in;margin-bottom:.0001pt;text-align:justify;text-justify:inter-ideograph'>The following table summarizes information about stock options and warrants outstanding as of December 31, 2015:</p> <table border="0" cellspacing="0" cellpadding="0" width="100%" style='width:100.0%;border-collapse:collapse'> <tr style='height:38.25pt'> <td width="49%" valign="bottom" style='width:49.42%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:38.25pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b>Options and Warrants</b></p> </td> <td width="25%" valign="bottom" style='width:25.16%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:38.25pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b>&#160;Number of Options and Warrants </b></p> </td> <td width="4%" valign="bottom" style='width:4.02%;padding:0in 5.4pt 0in 5.4pt;height:38.25pt'></td> <td width="21%" valign="bottom" style='width:21.4%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:38.25pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b>&#160;Weighted-Average Exercise Price </b></p> </td> </tr> <tr style='height:12.75pt'> <td width="49%" valign="bottom" style='width:49.42%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Outstanding as of October 1, 2015</p> </td> <td width="25%" valign="bottom" style='width:25.16%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 9,497,551 </p> </td> <td width="4%" valign="bottom" style='width:4.02%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="21%" valign="bottom" style='width:21.4%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'> $&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 0.97 </p> </td> </tr> <tr style='height:12.75pt'> <td width="49%" valign="bottom" style='width:49.42%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:10.0pt'>Granted</p> </td> <td width="25%" valign="bottom" style='width:25.16%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; &#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="4%" valign="bottom" style='width:4.02%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="21%" valign="bottom" style='width:21.4%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:12.75pt'> <td width="49%" valign="bottom" style='width:49.42%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:10.0pt'>Exercised</p> </td> <td width="25%" valign="bottom" style='width:25.16%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="4%" valign="bottom" style='width:4.02%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="21%" valign="bottom" style='width:21.4%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:12.75pt'> <td width="49%" valign="bottom" style='width:49.42%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:10.0pt'>Forfeited</p> </td> <td width="25%" valign="bottom" style='width:25.16%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="4%" valign="bottom" style='width:4.02%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="21%" valign="bottom" style='width:21.4%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:13.5pt'> <td width="49%" valign="bottom" style='width:49.42%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Outstanding as of December 31, 2015</p> </td> <td width="25%" valign="bottom" style='width:25.16%;border:none;border-bottom:double windowtext 2.25pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; &#160;&#160;&#160;&#160;&#160;&#160; 9,497,551 </p> </td> <td width="4%" valign="bottom" style='width:4.02%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="21%" valign="bottom" style='width:21.4%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 0.91 </p> </td> </tr> <tr style='height:14.25pt'> <td width="49%" valign="bottom" style='width:49.42%;padding:0in 5.4pt 0in 5.4pt;height:14.25pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Exercisable as of December 31, 2015</p> </td> <td width="25%" valign="bottom" style='width:25.16%;border:none;border-bottom:double windowtext 2.25pt;padding:0in 5.4pt 0in 5.4pt;height:14.25pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; &#160;&#160;&#160;&#160; 7,767,551 </p> </td> <td width="4%" valign="bottom" style='width:4.02%;padding:0in 5.4pt 0in 5.4pt;height:14.25pt'></td> <td width="21%" valign="bottom" style='width:21.4%;padding:0in 5.4pt 0in 5.4pt;height:14.25pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1.00 </p> </td> </tr> </table> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:0in;margin-left:.5in;margin-bottom:.0001pt;text-align:justify;text-justify:inter-ideograph'>As of December 31, 2015, the outstanding warrants have an aggregate intrinsic value of $0, the weighted average remaining term of the warrants was 2.66 years, and the fair value of unvested stock options and warrants was $124,784.</p> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph;text-indent:-.5in'><b>18.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </b><b>Segment Information</b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:0in;margin-left:.5in;margin-bottom:.0001pt;text-align:justify;text-justify:inter-ideograph'>The Company operated one business segment during the three months ended December 31, 2015 and 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.&#160; The customer contracts and equipment leased to customers of the Company&#146;s CareServices segment were sold in December 2014 and that segment was discontinued.&#160; The CareServices segment was engaged in the business of developing, distributing and marketing mobile health monitoring and concierge services to distributors and consumers.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:0in;margin-left:.5in;margin-bottom:.0001pt;text-align:justify;text-justify:inter-ideograph'>At the corporate level, the Company raises capital and provides for the administrative operations of the Company as a whole.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:0in;margin-left:.5in;margin-bottom:.0001pt;text-align:justify;text-justify:inter-ideograph'>The following table reflects certain financial information relating to each reportable segment as of December 31, 2015 and 2014 and for the three months then ended: </p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:0in;margin-left:.5in;margin-bottom:.0001pt;text-align:justify;text-justify:inter-ideograph'>&nbsp;</p> <table border="0" cellspacing="0" cellpadding="0" width="100%" style='width:100.0%;border-collapse:collapse'> <tr style='height:39.0pt'> <td width="37%" valign="bottom" style='width:37.8%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:39.0pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b>&nbsp;</b></p> </td> <td width="15%" valign="bottom" style='width:15.5%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:39.0pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b> Corporate </b></p> </td> <td width="15%" valign="bottom" style='width:15.5%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:39.0pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b> Chronic Illness Monitoring </b></p> </td> <td width="14%" valign="bottom" style='width:14.54%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:39.0pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b> CareServices (Discontinued Operations) </b></p> </td> <td width="16%" valign="bottom" style='width:16.66%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:39.0pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b> Total </b></p> </td> </tr> <tr style='height:15.0pt'> <td width="37%" valign="bottom" style='width:37.8%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>As of December 31, 2015 and for the Three</p> </td> <td width="15%" valign="bottom" style='width:15.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> <td width="15%" valign="bottom" style='width:15.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> <td width="14%" valign="bottom" style='width:14.54%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> <td width="16%" valign="bottom" style='width:16.66%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> </tr> <tr style='height:15.0pt'> <td width="37%" valign="bottom" style='width:37.8%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:10.0pt'>Months Then Ended</p> </td> <td width="15%" valign="bottom" style='width:15.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> <td width="15%" valign="bottom" style='width:15.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> <td width="14%" valign="bottom" style='width:14.54%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> <td width="16%" valign="bottom" style='width:16.66%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> </tr> <tr style='height:15.0pt'> <td width="37%" valign="bottom" style='width:37.8%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:15.95pt'>Sales to external customers</p> </td> <td width="15%" valign="bottom" style='width:15.5%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="15%" valign="bottom" style='width:15.5%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160; 2,087,670 </p> </td> <td width="14%" valign="bottom" style='width:14.54%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="16%" valign="bottom" style='width:16.66%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160; 2,087,670 </p> </td> </tr> <tr style='height:15.0pt'> <td width="37%" valign="bottom" style='width:37.8%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:15.95pt'>Segment income (loss)</p> </td> <td width="15%" valign="bottom" style='width:15.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160; (2,537,504)</p> </td> <td width="15%" valign="bottom" style='width:15.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160; 217,966 </p> </td> <td width="14%" valign="bottom" style='width:14.54%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="16%" valign="bottom" style='width:16.66%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160; (2,319,538)</p> </td> </tr> <tr style='height:15.0pt'> <td width="37%" valign="bottom" style='width:37.8%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:15.95pt'>Interest expense, net</p> </td> <td width="15%" valign="bottom" style='width:15.5%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 491,149 </p> </td> <td width="15%" valign="bottom" style='width:15.5%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="14%" valign="bottom" style='width:14.54%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="16%" valign="bottom" style='width:16.66%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 491,149 </p> </td> </tr> <tr style='height:15.0pt'> <td width="37%" valign="bottom" style='width:37.8%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:15.95pt'>Segment assets</p> </td> <td width="15%" valign="bottom" style='width:15.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 544,308 </p> </td> <td width="15%" valign="bottom" style='width:15.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160; 1,901,666 </p> </td> <td width="14%" valign="bottom" style='width:14.54%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="16%" valign="bottom" style='width:16.66%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160; 2,445,974 </p> </td> </tr> <tr style='height:15.0pt'> <td width="37%" valign="bottom" style='width:37.8%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:15.95pt'>Property and equipment purchases</p> </td> <td width="15%" valign="bottom" style='width:15.5%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 2,674 </p> </td> <td width="15%" valign="bottom" style='width:15.5%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="14%" valign="bottom" style='width:14.54%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="16%" valign="bottom" style='width:16.66%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 2,674 </p> </td> </tr> <tr style='height:15.0pt'> <td width="37%" valign="bottom" style='width:37.8%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:15.95pt'>Depreciation and amortization</p> </td> <td width="15%" valign="bottom" style='width:15.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 13,745 </p> </td> <td width="15%" valign="bottom" style='width:15.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="14%" valign="bottom" style='width:14.54%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="16%" valign="bottom" style='width:16.66%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 13,745 </p> </td> </tr> <tr style='height:15.0pt'> <td width="37%" valign="bottom" style='width:37.8%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'></td> <td width="15%" valign="bottom" style='width:15.5%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'></td> <td width="15%" valign="bottom" style='width:15.5%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'></td> <td width="14%" valign="bottom" style='width:14.54%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'></td> <td width="16%" valign="bottom" style='width:16.66%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'></td> </tr> <tr style='height:15.0pt'> <td width="37%" valign="bottom" style='width:37.8%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>As of December 31, 2014 and for the Three</p> </td> <td width="15%" valign="bottom" style='width:15.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="15%" valign="bottom" style='width:15.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="14%" valign="bottom" style='width:14.54%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="16%" valign="bottom" style='width:16.66%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:15.0pt'> <td width="37%" valign="bottom" style='width:37.8%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:10.0pt'>Months Then Ended</p> </td> <td width="15%" valign="bottom" style='width:15.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="15%" valign="bottom" style='width:15.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="14%" valign="bottom" style='width:14.54%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="16%" valign="bottom" style='width:16.66%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:15.0pt'> <td width="37%" valign="bottom" style='width:37.8%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:15.95pt'>Sales to external customers</p> </td> <td width="15%" valign="bottom" style='width:15.5%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="15%" valign="bottom" style='width:15.5%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160; 1,508,091 </p> </td> <td width="14%" valign="bottom" style='width:14.54%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160; 141,523 </p> </td> <td width="16%" valign="bottom" style='width:16.66%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160; 1,649,614 </p> </td> </tr> <tr style='height:15.0pt'> <td width="37%" valign="bottom" style='width:37.8%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:15.95pt'>Segment loss</p> </td> <td width="15%" valign="bottom" style='width:15.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160; (2,344,677)</p> </td> <td width="15%" valign="bottom" style='width:15.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 94,796 </p> </td> <td width="14%" valign="bottom" style='width:14.54%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160; (272,982)</p> </td> <td width="16%" valign="bottom" style='width:16.66%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160; (2,522,863)</p> </td> </tr> <tr style='height:15.0pt'> <td width="37%" valign="bottom" style='width:37.8%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:15.95pt'>Interest expense, net</p> </td> <td width="15%" valign="bottom" style='width:15.5%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 350,536 </p> </td> <td width="15%" valign="bottom" style='width:15.5%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="14%" valign="bottom" style='width:14.54%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="16%" valign="bottom" style='width:16.66%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 350,536 </p> </td> </tr> <tr style='height:15.0pt'> <td width="37%" valign="bottom" style='width:37.8%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:15.95pt'>Segment assets</p> </td> <td width="15%" valign="bottom" style='width:15.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 689,072 </p> </td> <td width="15%" valign="bottom" style='width:15.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160; 3,414,742 </p> </td> <td width="14%" valign="bottom" style='width:14.54%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="16%" valign="bottom" style='width:16.66%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160; 4,103,814 </p> </td> </tr> <tr style='height:15.0pt'> <td width="37%" valign="bottom" style='width:37.8%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:15.95pt'>Depreciation and amortization</p> </td> <td width="15%" valign="bottom" style='width:15.5%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 15,941 </p> </td> <td width="15%" valign="bottom" style='width:15.5%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="14%" valign="bottom" style='width:14.54%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 233,665 </p> </td> <td width="16%" valign="bottom" style='width:16.66%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 249,606 </p> </td> </tr> </table> <!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph;text-indent:-.5in'><b>19.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </b><b>Commitments and Contingencies</b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>During the three months ended December 31, 2014, the Company leased office space under a non-cancelable operating lease, which was terminated during June 2015.&#160; In February 2015, the Company entered into a sublease agreement for part of the office space under the non-cancelable operating lease through the end of the original lease period.&#160; Payments under the sublease were made by the sublessee directly to the Company's landlord.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>The Company's rent expense for facilities under the terminated operating lease for the three months ended December 31, 2014 was approximately $76,000.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>During June 2015, the Company entered into a new non-cancelable operating lease for its existing office space, excluding the previously subleased space, and with payments beginning in July 2015.&#160; Future minimum rental payments under the non-cancelable operating lease as of December 31, 2015 were as follows:</p> <table border="0" cellspacing="0" cellpadding="0" width="100%" style='width:100.0%;border-collapse:collapse'> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.36%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b><u>Years Ending September 30,</u></b></p> </td> <td width="23%" valign="bottom" style='width:23.8%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="6%" valign="bottom" style='width:6.86%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="20%" valign="bottom" style='width:20.98%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.36%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'>2016 (nine months)</p> </td> <td width="23%" valign="bottom" style='width:23.8%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'>&nbsp;</p> </td> <td width="6%" valign="bottom" style='width:6.86%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'>&nbsp;</p> </td> <td width="20%" valign="bottom" style='width:20.98%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'> $&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 95,230 </p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.36%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'>2017</p> </td> <td width="23%" valign="bottom" style='width:23.8%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="6%" valign="bottom" style='width:6.86%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="20%" valign="bottom" style='width:20.98%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160; &#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 130,036 </p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.36%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'>2018</p> </td> <td width="23%" valign="bottom" style='width:23.8%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'>&nbsp;</p> </td> <td width="6%" valign="bottom" style='width:6.86%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'>&nbsp;</p> </td> <td width="20%" valign="bottom" style='width:20.98%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160; &#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 111,340 </p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.36%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="23%" valign="bottom" style='width:23.8%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="6%" valign="bottom" style='width:6.86%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="20%" valign="bottom" style='width:20.98%;border:none;border-top:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:13.5pt'> <td width="48%" valign="bottom" style='width:48.36%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:10.0pt'>&nbsp;</p> </td> <td width="23%" valign="bottom" style='width:23.8%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:10.0pt'>&nbsp;</p> </td> <td width="6%" valign="bottom" style='width:6.86%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:10.0pt'>&nbsp;</p> </td> <td width="20%" valign="bottom" style='width:20.98%;border:none;border-bottom:double windowtext 2.25pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'> $&#160;&#160;&#160;&#160;&#160;&#160; 336,606 </p> </td> </tr> </table> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>The Company's rent expense under the new non-cancelable operating lease for three months ended December 31, 2015 was approximately $31,000.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>On May 28, 2015, an investor of the Company filed a lawsuit claiming damages of $1,000,000 exclusive of interest and costs against the Company, its Executive Chairman, an entity controlled by its former Executive Chairman, and 4G Biometrics, a wholly owned subsidiary of the Company for a breach of contract.&#160; The Company has engaged legal counsel regarding the matter.&#160; As the lawsuit is in its early stages, it is not possible to predict the outcome of the matter.&#160; The Company intends to vigorously dispute the litigation and believes it has meritorious defenses to the claims.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>On November 4, 2015, the Company received a demand for payment of $275,000 from a former employee of the Company and former principal of 4G Biometrics who was terminated for cause in regards to his employment agreement.&#160; On December 4, 2015, the Company filed a complaint against the former owners of 4G Biometrics, including this former employee, seeking damages in excess of $300,000 related to alleged misrepresentations made to induce ActiveCare to acquire 4G Biometrics.&#160; Between February 4, 2016 and February 8, 2016, the Company settled the complaint with each of the former owners of 4G Biometrics where all parties released each other from all outstanding claims, including any current monetary obligations to each party, excluding the former owner of 4G Biometrics who continues employment with the Company.&#160; A Stipulation for Order of Dismissal with Prejudice of all Claims and Counterclaims has been filed and is in the process of being approved.&#160; The settlement resulted in the termination of $39,863 of related party accounts payable.</p> <!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph;text-indent:-.5in'><b>20.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </b><b>Subsequent Events</b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>Subsequent to December 31, 2015, the Company entered into the following agreements and transactions:</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:10.0pt;margin-left:.5in;line-height:115%;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:1.0in;text-align:justify;text-justify:inter-ideograph;text-indent:-.25in'><font style='line-height:115%'>(1)&nbsp;&nbsp;&nbsp; </font><font style='line-height:115%'>In February 2016, the Company terminated a secured note payable with an outstanding principal balance of $706,344 and accrued interest and fees of $38,703 for a cash payment of $795,347. </font></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:10.0pt;margin-left:.5in;line-height:115%;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:1.0in;text-align:justify;text-justify:inter-ideograph;text-indent:-.25in'><font style='line-height:115%'>(2)&nbsp;&nbsp;&nbsp; </font><font style='line-height:115%'>In February 2016, the Company entered into a line of credit agreement with a third party in which it may draw up to $1,500,000, interest at 12.25%, maturing in February 2018, and secured by the Company&#146;s assets.&#160; The line of credit limit may increase up to $3,000,000 as the Company meets certain milestones.&#160; The interest rate may reduce to 10.75% as the Company meets certain milestones.</font></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:10.0pt;margin-left:.5in;line-height:115%;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:1.0in;text-align:justify;text-justify:inter-ideograph;text-indent:-.25in'><font style='line-height:115%'>(3)&nbsp;&nbsp;&nbsp; </font><font style='line-height:115%'>In February 2016, the Company entered into a note payable agreement with a third party, in conjunction with the line of credit described above, for $1,500,000, interest at 12.75%, maturing in March 2019, and secured by the Company&#146;s assets.&#160; The Company may borrow additional amounts under the note payable agreement up to a total balance of $3,000,000 as the Company meets certain milestones.&#160; The interest rate may reduce to 11.25% as the Company meets certain milestones.&#160; The Company issued warrants to purchase 12,015,350 shares of common stock at $0.065 per common share in connection with the note payable.</font></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:10.0pt;margin-left:.5in;line-height:115%;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:1.0in;text-align:justify;text-justify:inter-ideograph;text-indent:-.25in'><font style='line-height:115%'>(4)&nbsp;&nbsp;&nbsp; </font><font style='line-height:115%'>In February 2016, the Company converted third party convertible notes payable with outstanding principal balances totaling $350,490 and interest balances totaling $21,029 for a total of 9,287,985 shares of common stock, or $0.04 per common share, which was below the fair value of the Company&#146;s stock on the date of conversion.&#160; The stock will be issued subsequent to the filing of the Company&#146;s Quarterly Report on Form 10-Q for the three months ended December 31, 2015, which includes these financial statements.</font></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:10.0pt;margin-left:.5in;line-height:115%;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:1.0in;text-align:justify;text-justify:inter-ideograph;text-indent:-.25in'><font style='line-height:115%'>(5)&nbsp;&nbsp;&nbsp; </font><font style='line-height:115%'>In February 2016, the Company settled third party notes payable with outstanding principal balances totaling $417,160 for $377,607, or 91% of the outstanding principal balance.</font></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:10.0pt;margin-left:.5in;line-height:115%;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:1.0in;text-align:justify;text-justify:inter-ideograph;text-indent:-.25in'><font style='line-height:115%'>(6)&nbsp;&nbsp;&nbsp; </font><font style='line-height:115%'>In February 2016, the Company sold $380,000 of future customer receipts to a third party for $494,000 in cash.&#160; The $114,000 difference between the future customer receipts and cash received by the Company is being amortized to interest expense over the term of the note.</font></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:10.0pt;margin-left:.5in;line-height:115%;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:1.0in;text-align:justify;text-justify:inter-ideograph;text-indent:-.25in'><font style='line-height:115%'>(7)&nbsp;&nbsp;&nbsp; </font><font style='line-height:115%'>In February 2016, the Company settled secured borrowings from third parties with outstanding principal balances totaling $233,333 for a total of 5,800,000 shares of common stock, or $0.04 per common share, which was below the fair value of the Company&#146;s stock on the date of conversion.&#160; The stock will be issued subsequent to the filing of the Company&#146;s Quarterly Report on Form 10-Q for the three months ended December 31, 2015, which includes these financial statements.</font></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:10.0pt;margin-left:.5in;line-height:115%;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:1.0in;text-align:justify;text-justify:inter-ideograph;text-indent:-.25in'><font style='line-height:115%'>(8)&nbsp;&nbsp;&nbsp; </font><font style='line-height:115%'>In February 2016, the Company converted 5,361 shares of its Series F Convertible Preferred Stock plus accrued dividends of $603,113 into 10,000,000 shares of common stock with certain temporary restrictions, and $5,900,000 of notes payable, interest at 10%, due November 2018. The Company may, at its option, make payments either in cash, shares of common stock or a combination thereof.&#160; The notes payable are convertible at $0.30 per common share and adjustable to a rate the same as any grants of warrants, conversion options, or sale of equity at a rate lower than the conversion price subsequent to the agreement date.&#160; The conversion of these notes is limited to a maximum of 19,667,000 common shares.&#160; The Company is also required to cancel warrants to purchase 5,022,000 shares of common stock and issue new warrants with an exercise price of $0.30 per common share.&#160; The Company is also required to issue warrants for the purchase of up to 8,000,000 shares of common stock exercisable at $0.001 per share that vest upon certain events of default.&#160; No shares of Series F Convertible Preferred Stock remained after the conversion.</font></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:10.0pt;margin-left:.5in;line-height:115%;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:1.0in;text-align:justify;text-justify:inter-ideograph;text-indent:-.25in'><font style='line-height:115%'>(9)&nbsp;&nbsp;&nbsp; </font><font style='line-height:115%'>In February 2016, the Company modified a third party convertible note payable with a principal balance of $300,000 to subordinate to newly acquired notes payable.&#160; The Company also amended the note to reduce the conversion price from $0.30 per share to $0.06 per share, which was below the fair value of the Company&#146;s stock on the date of the agreement.&#160; The note holder shall only be able to convert the loan, or a portion thereof, upon maintaining holdings at 9.99% or below.</font></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:10.0pt;margin-left:.5in;line-height:115%;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:1.0in;text-align:justify;text-justify:inter-ideograph;text-indent:-.25in'><font style='line-height:115%'>(10) </font><font style='line-height:115%'>In February 2016, the Company modified related party convertible notes payable with principal balances totaling $3,024,235 to subordinate to newly acquired notes payable.&#160; The Company also amended the notes to reduce the conversion price from $0.30 per share to $0.06 per share, which was below the fair value of the Company&#146;s stock on the date of the agreement.&#160; In addition, the Company modified another note payable with the related party with a principal balance of $25,463 to subordinate to newly acquired notes payable.&#160; The Company also amended the note to make it convertible into shares of common stock at $0.06 per share, which was below the fair value of the Company&#146;s stock on the date of the agreement.&#160; The conversion of these notes is limited to a combined maximum of 20,000,000 common shares.&#160; These notes were also amended in combination to have a default penalty of 4,477,780 shares of common stock if not paid by maturity.</font></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:10.0pt;margin-left:.5in;line-height:115%;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:1.0in;text-align:justify;text-justify:inter-ideograph;text-indent:-.25in'><font style='line-height:115%'>(11) </font><font style='line-height:115%'>In February 2016, the Company bifurcated a related party note payable with a principal balance of $396,667 and accrued interest of $56,924 into two new notes payable with principal balances of $210,510 and $243,082, respectively.&#160; The bifurcated note with principal balance of $243,082 and $20,000 of the bifurcated note with principal balance of $210,510 was assigned to a third party and exchanged for a new convertible note payable which bears interest at 18%, is due in January 2017, and is payable at the Company&#146;s option in cash or shares of common stock at fair value. The note holder shall only be able to convert the loans, or a portion thereof, upon maintaining holdings at 4.99% or below.&#160; </font></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:10.0pt;margin-left:.5in;line-height:115%;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:1.0in;text-align:justify;text-justify:inter-ideograph;text-indent:-.25in'><font style='line-height:115%'>(12) </font><font style='line-height:115%'>In February 2016, the Company converted related party notes payable with principal balances totaling $514,525 and accrued interest totaling $27,480 into a new convertible note payable which bears interest at 18%, is due in January 2017, and is convertible into shares of common stock at $0.06 per share, which was below the fair value of the Company&#146;s stock on the date of the agreement.&#160; The conversion of the note is limited to a maximum of 9,250,000 common shares,</font> <font style='line-height:115%'>subject to a beneficial ownership cap of 4.99% of the issued and outstanding common stock and has a default penalty of 734,489 shares of common stock if not paid by maturity.</font></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:10.0pt;margin-left:.5in;line-height:115%;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:1.0in;text-align:justify;text-justify:inter-ideograph;text-indent:-.25in'><font style='line-height:115%'>(13) </font><font style='line-height:115%'>In February 2016, the Company paid $150,000 to a related-party in connection with an existing consulting agreement for a commission on fund raising activities.</font></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:10.0pt;margin-left:.5in;line-height:115%;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:1.0in;text-align:justify;text-justify:inter-ideograph;text-indent:-.25in'><font style='line-height:115%'>(14) </font><font style='line-height:115%'>In January 2016, the Company received 1,041,666 shares of common stock returned from a vendor, which were cancelled.&#160; The stock will be reissued to the same vendor subsequent to the filing of the Company&#146;s Quarterly Report on Form 10-Q for the three months ended December 31, 2015, which includes these financial statements.</font></p> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-align:justify;text-justify:inter-ideograph;text-autospace:none;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-autospace:ideograph-numeric ideograph-other'><i>Going Concern</i></p> <p style='margin:0in;margin-bottom:.0001pt;text-align:justify;text-justify:inter-ideograph;text-autospace:none;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:36.75pt;text-indent:-.75pt'>The Company continues to incur negative cash flows from operating activities and net losses.&#160; The Company had negative working capital and negative total equity as of December 31, 2015 and September 30, 2015 and is in default with respect to certain debt. &#160;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.</p> <p style='margin:0in;margin-bottom:.0001pt;text-align:justify;text-justify:inter-ideograph;text-autospace:none;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:36.75pt;text-indent:-.75pt;text-autospace:ideograph-numeric ideograph-other'>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.&#160; Management's plans with respect to this uncertainty consist of raising additional capital by issuing debt or equity securities and increasing the sales of the Company's services and products.&#160; There can be no assurance that the Company will be able to raise sufficient additional capital or that revenues will increase rapidly enough to achieve operating profits.&#160; 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.</p> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph;text-indent:.75pt'><i>Use of Estimates in the Preparation of Financial Statements</i></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph;text-indent:.75pt'>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.</p> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph;text-indent:.75pt'><i>Fair Value of Financial Instruments</i></p> <p style='margin-top:0in;margin-right:5.4pt;margin-bottom:0in;margin-left:.5in;margin-bottom:.0001pt;text-align:justify;text-justify:inter-ideograph'>The Company measures the fair values of its assets and liabilities using the US GAAP hierarchy.&#160; The carrying amounts reported in the condensed 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 values because the underlying instruments are at interest rates which approximate current market rates.</p> <!--egx--><table border="0" cellspacing="0" cellpadding="0" width="100%" style='width:100.0%;border-collapse:collapse'> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.96%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="22%" valign="bottom" style='width:22.48%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b> 2015 </b></p> </td> <td width="4%" valign="bottom" style='width:4.24%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="24%" valign="bottom" style='width:24.32%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b> 2014 </b></p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.96%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Revenues</p> </td> <td width="22%" valign="bottom" style='width:22.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="4%" valign="bottom" style='width:4.24%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.32%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 141,523 </p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.96%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="22%" valign="bottom" style='width:22.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="4%" valign="bottom" style='width:4.24%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="24%" valign="bottom" style='width:24.32%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.96%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Cost of revenues</p> </td> <td width="22%" valign="bottom" style='width:22.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="4%" valign="bottom" style='width:4.24%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.32%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 203,294 </p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.96%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="22%" valign="bottom" style='width:22.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="4%" valign="bottom" style='width:4.24%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="24%" valign="bottom" style='width:24.32%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.96%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Gross loss</p> </td> <td width="22%" valign="bottom" style='width:22.48%;border:none;border-top:solid windowtext 1.0pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="4%" valign="bottom" style='width:4.24%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.32%;border:none;border-top:solid windowtext 1.0pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (61,771)</p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.96%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="22%" valign="bottom" style='width:22.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="4%" valign="bottom" style='width:4.24%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="24%" valign="bottom" style='width:24.32%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.96%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Selling, general and administrative expenses</p> </td> <td width="22%" valign="bottom" style='width:22.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="4%" valign="bottom" style='width:4.24%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.32%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (211,211)</p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.96%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="22%" valign="bottom" style='width:22.48%;border:none;border-top:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="4%" valign="bottom" style='width:4.24%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="24%" valign="bottom" style='width:24.32%;border:none;border-top:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:13.5pt'> <td width="48%" valign="bottom" style='width:48.96%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Loss from discontinued operations</p> </td> <td width="22%" valign="bottom" style='width:22.48%;border:none;border-bottom:double windowtext 2.25pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="4%" valign="bottom" style='width:4.24%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.32%;border:none;border-bottom:double windowtext 2.25pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (272,982)</p> </td> </tr> </table> <!--egx--><table border="0" cellspacing="0" cellpadding="0" width="100%" style='width:100.0%;border-collapse:collapse'> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.92%;background:white;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> <td width="25%" valign="bottom" style='width:25.38%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b>&#160;</b><b>2015 </b></p> </td> <td width="4%" valign="bottom" style='width:4.06%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="21%" valign="bottom" style='width:21.62%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b>&#160;</b><b>2014</b><b> </b></p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.92%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Common stock options and warrants</p> </td> <td width="25%" valign="bottom" style='width:25.38%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 9,497,551 </p> </td> <td width="4%" valign="bottom" style='width:4.06%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="21%" valign="bottom" style='width:21.62%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 10,991,576 </p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.92%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Series D convertible preferred stock</p> </td> <td width="25%" valign="bottom" style='width:25.38%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 225,000 </p> </td> <td width="4%" valign="bottom" style='width:4.06%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="21%" valign="bottom" style='width:21.62%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 225,000 </p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.92%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Series E convertible preferred stock</p> </td> <td width="25%" valign="bottom" style='width:25.38%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 477,830 </p> </td> <td width="4%" valign="bottom" style='width:4.06%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="21%" valign="bottom" style='width:21.62%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 477,830 </p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.92%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Series F convertible preferred stock</p> </td> <td width="25%" valign="bottom" style='width:25.38%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 16,065,328 </p> </td> <td width="4%" valign="bottom" style='width:4.06%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="21%" valign="bottom" style='width:21.62%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 16,065,328 </p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.92%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Convertible debt</p> </td> <td width="25%" valign="bottom" style='width:25.38%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 23,600,180 </p> </td> <td width="4%" valign="bottom" style='width:4.06%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="21%" valign="bottom" style='width:21.62%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 135,607 </p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.92%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Restricted shares of common stock</p> </td> <td width="25%" valign="bottom" style='width:25.38%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 7,500 </p> </td> <td width="4%" valign="bottom" style='width:4.06%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="21%" valign="bottom" style='width:21.62%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 9,750 </p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.92%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> <td width="25%" valign="bottom" style='width:25.38%;border:none;border-top:solid windowtext 1.0pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="4%" valign="bottom" style='width:4.06%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="21%" valign="bottom" style='width:21.62%;border:none;border-top:solid windowtext 1.0pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:13.5pt'> <td width="48%" valign="bottom" style='width:48.92%;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:7.95pt'>Total common stock equivalents</p> </td> <td width="25%" valign="bottom" style='width:25.38%;border:none;border-bottom:double windowtext 2.25pt;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 49,873,389 </p> </td> <td width="4%" valign="bottom" style='width:4.06%;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'></td> <td width="21%" valign="bottom" style='width:21.62%;border:none;border-bottom:double windowtext 2.25pt;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 27,905,091 </p> </td> </tr> </table> <!--egx--><table border="0" cellspacing="0" cellpadding="0" width="100%" style='width:100.0%;border-collapse:collapse'> <tr style='height:25.5pt'> <td width="48%" valign="bottom" style='width:48.48%;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'></td> <td width="25%" valign="bottom" style='width:25.22%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b> December 31, 2015 </b></p> </td> <td width="4%" valign="bottom" style='width:4.02%;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'></td> <td width="22%" valign="bottom" style='width:22.26%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b> September 30, 2015 </b></p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:7.95pt'>Finished goods </p> </td> <td width="25%" valign="bottom" style='width:25.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1,142,127 </p> </td> <td width="4%" valign="bottom" style='width:4.02%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="22%" valign="bottom" style='width:22.26%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160; 206,038 </p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:7.95pt'>Finished goods held by distributors</p> </td> <td width="25%" valign="bottom" style='width:25.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="4%" valign="bottom" style='width:4.02%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="22%" valign="bottom" style='width:22.26%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1,350,368 </p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:10.0pt'>&nbsp;</p> </td> <td width="25%" valign="bottom" style='width:25.22%;border:none;border-top:solid windowtext 1.0pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="4%" valign="bottom" style='width:4.02%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="22%" valign="bottom" style='width:22.26%;border:none;border-top:solid windowtext 1.0pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:15.95pt'>Total inventory</p> </td> <td width="25%" valign="bottom" style='width:25.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1,142,127 </p> </td> <td width="4%" valign="bottom" style='width:4.02%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="22%" valign="bottom" style='width:22.26%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1,556,406 </p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> <td width="25%" valign="bottom" style='width:25.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="4%" valign="bottom" style='width:4.02%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="22%" valign="bottom" style='width:22.26%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:7.95pt'>Inventory reserve</p> </td> <td width="25%" valign="bottom" style='width:25.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (421,163)</p> </td> <td width="4%" valign="bottom" style='width:4.02%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="22%" valign="bottom" style='width:22.26%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (813,935)</p> </td> </tr> <tr style='height:12.75pt'> <td width="48%" valign="bottom" style='width:48.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> <td width="25%" valign="bottom" style='width:25.22%;border:none;border-top:solid windowtext 1.0pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="4%" valign="bottom" style='width:4.02%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="22%" valign="bottom" style='width:22.26%;border:none;border-top:solid windowtext 1.0pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:13.5pt'> <td width="48%" valign="bottom" style='width:48.48%;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:15.95pt'>Net inventory</p> </td> <td width="25%" valign="bottom" style='width:25.22%;border:none;border-bottom:double windowtext 2.25pt;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 720,964 </p> </td> <td width="4%" valign="bottom" style='width:4.02%;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'></td> <td width="22%" valign="bottom" style='width:22.26%;border:none;border-bottom:double windowtext 2.25pt;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160; 742,471 </p> </td> </tr> </table> <!--egx--><table border="0" cellspacing="0" cellpadding="0" width="100%" style='width:100.0%;border-collapse:collapse'> <tr style='height:25.5pt'> <td width="49%" valign="bottom" style='width:49.5%;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'></td> <td width="24%" valign="bottom" style='width:24.24%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b> December 31, 2015 </b></p> </td> <td width="3%" valign="bottom" style='width:3.74%;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'></td> <td width="22%" valign="bottom" style='width:22.52%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b> September 30, 2015 </b></p> </td> </tr> <tr style='height:12.75pt'> <td width="49%" valign="bottom" style='width:49.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Software</p> </td> <td width="24%" valign="bottom" style='width:24.24%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 100,574 </p> </td> <td width="3%" valign="bottom" style='width:3.74%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="22%" valign="bottom" style='width:22.52%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160; 100,574 </p> </td> </tr> <tr style='height:12.75pt'> <td width="49%" valign="bottom" style='width:49.5%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Leasehold improvements</p> </td> <td width="24%" valign="bottom" style='width:24.24%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 98,023 </p> </td> <td width="3%" valign="bottom" style='width:3.74%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="22%" valign="bottom" style='width:22.52%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 98,023 </p> </td> </tr> <tr style='height:12.75pt'> <td width="49%" valign="bottom" style='width:49.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Furniture</p> </td> <td width="24%" valign="bottom" style='width:24.24%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 68,758 </p> </td> <td width="3%" valign="bottom" style='width:3.74%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="22%" valign="bottom" style='width:22.52%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 68,758 </p> </td> </tr> <tr style='height:12.75pt'> <td width="49%" valign="bottom" style='width:49.5%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Equipment</p> </td> <td width="24%" valign="bottom" style='width:24.24%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 62,428 </p> </td> <td width="3%" valign="bottom" style='width:3.74%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="22%" valign="bottom" style='width:22.52%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 59,754 </p> </td> </tr> <tr style='height:12.75pt'> <td width="49%" valign="bottom" style='width:49.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.24%;border:none;border-top:solid windowtext 1.0pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="3%" valign="bottom" style='width:3.74%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="22%" valign="bottom" style='width:22.52%;border:none;border-top:solid windowtext 1.0pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:12.75pt'> <td width="49%" valign="bottom" style='width:49.5%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:7.95pt'>Total property and equipment</p> </td> <td width="24%" valign="bottom" style='width:24.24%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 329,783 </p> </td> <td width="3%" valign="bottom" style='width:3.74%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="22%" valign="bottom" style='width:22.52%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 327,109 </p> </td> </tr> <tr style='height:12.75pt'> <td width="49%" valign="bottom" style='width:49.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.24%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="3%" valign="bottom" style='width:3.74%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="22%" valign="bottom" style='width:22.52%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:12.75pt'> <td width="49%" valign="bottom" style='width:49.5%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Accumulated depreciation and amortization</p> </td> <td width="24%" valign="bottom" style='width:24.24%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (204,905)</p> </td> <td width="3%" valign="bottom" style='width:3.74%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="22%" valign="bottom" style='width:22.52%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (191,339)</p> </td> </tr> <tr style='height:12.75pt'> <td width="49%" valign="bottom" style='width:49.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.24%;border:none;border-top:solid windowtext 1.0pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="3%" valign="bottom" style='width:3.74%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="22%" valign="bottom" style='width:22.52%;border:none;border-top:solid windowtext 1.0pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:13.5pt'> <td width="49%" valign="bottom" style='width:49.5%;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:7.95pt'>Property and equipment, net</p> </td> <td width="24%" valign="bottom" style='width:24.24%;border:none;border-bottom:double windowtext 2.25pt;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 124,878 </p> </td> <td width="3%" valign="bottom" style='width:3.74%;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'></td> <td width="22%" valign="bottom" style='width:22.52%;border:none;border-bottom:double windowtext 2.25pt;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160; 135,770 </p> </td> </tr> </table> <!--egx--><table border="0" cellspacing="0" cellpadding="0" width="100%" style='width:100.0%;border-collapse:collapse'> <tr style='height:25.5pt'> <td width="52%" valign="bottom" style='width:52.88%;background:white;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> <td width="23%" valign="bottom" style='width:23.74%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b> December 31, 2015 </b></p> </td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'></td> <td width="19%" valign="bottom" style='width:19.5%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b> September 30, 2015 </b></p> </td> </tr> <tr style='height:12.75pt'> <td width="52%" valign="bottom" style='width:52.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&#160;Interest </p> </td> <td width="23%" valign="bottom" style='width:23.74%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160; 370,498 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="19%" valign="bottom" style='width:19.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160; 190,045 </p> </td> </tr> <tr style='height:12.75pt'> <td width="52%" valign="bottom" style='width:52.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&#160;Payroll </p> </td> <td width="23%" valign="bottom" style='width:23.74%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 200,581 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="19%" valign="bottom" style='width:19.5%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 270,974 </p> </td> </tr> <tr style='height:12.75pt'> <td width="52%" valign="bottom" style='width:52.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'> Deferred revenue </p> </td> <td width="23%" valign="bottom" style='width:23.74%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 184,617 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="19%" valign="bottom" style='width:19.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 147,344 </p> </td> </tr> <tr style='height:12.75pt'> <td width="52%" valign="bottom" style='width:52.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&#160;Commissions and fees </p> </td> <td width="23%" valign="bottom" style='width:23.74%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 141,868 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="19%" valign="bottom" style='width:19.5%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 64,432 </p> </td> </tr> <tr style='height:12.75pt'> <td width="52%" valign="bottom" style='width:52.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'> Liability to issue warrants </p> </td> <td width="23%" valign="bottom" style='width:23.74%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 130,246 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="19%" valign="bottom" style='width:19.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> </tr> <tr style='height:12.75pt'> <td width="52%" valign="bottom" style='width:52.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'> Warranty liability </p> </td> <td width="23%" valign="bottom" style='width:23.74%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 95,630 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="19%" valign="bottom" style='width:19.5%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> </tr> <tr style='height:12.75pt'> <td width="52%" valign="bottom" style='width:52.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'> Liability to issue common stock </p> </td> <td width="23%" valign="bottom" style='width:23.74%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 81,762 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="19%" valign="bottom" style='width:19.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 40,000 </p> </td> </tr> <tr style='height:12.75pt'> <td width="52%" valign="bottom" style='width:52.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&#160;Other </p> </td> <td width="23%" valign="bottom" style='width:23.74%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 99,479 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="19%" valign="bottom" style='width:19.5%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 31,172 </p> </td> </tr> <tr style='height:12.75pt'> <td width="52%" valign="bottom" style='width:52.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> <td width="23%" valign="bottom" style='width:23.74%;border:none;border-top:solid windowtext 1.0pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="19%" valign="bottom" style='width:19.5%;border:none;border-top:solid windowtext 1.0pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:13.5pt'> <td width="52%" valign="bottom" style='width:52.88%;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:7.95pt'>Total accrued expenses</p> </td> <td width="23%" valign="bottom" style='width:23.74%;border:none;border-bottom:double windowtext 2.25pt;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1,304,681 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'></td> <td width="19%" valign="bottom" style='width:19.5%;border:none;border-bottom:double windowtext 2.25pt;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160; 743,967 </p> </td> </tr> </table> <!--egx--><table border="0" cellspacing="0" cellpadding="0" width="100%" style='width:100.0%;border-collapse:collapse'> <tr style='height:25.5pt'> <td width="53%" valign="bottom" style='width:53.48%;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'></td> <td width="18%" valign="bottom" style='width:18.46%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b>&#160;December 31, 2015 </b></p> </td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'></td> <td width="24%" valign="bottom" style='width:24.16%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b>&#160;September 30, 2015 </b></p> </td> </tr> <tr style='height:229.5pt'> <td width="53%" valign="bottom" style='width:53.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:229.5pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Secured borrowings from third parties that purchased $1,439,395 of customer receivables for 80% of their value with interest from 2.25% to 7.50%.&#160; The remaining 20% is held in reserve by the lender until collected then is returned to the Company.&#160; The balance of the reserve was $169,953 as of December 31, 2015 and is not included in the outstanding balance of the note.&#160; The Company may sell additional customer receivables for a balance up to $2,000,000 and must repurchase any receivables not collected within 90 days of the original date billed.&#160; The Company issued 791,666 shares of common stock to a third party in connection with the agreement.&#160; The $71,250 fair value of the stock is being amortized to interest expense over the term of the agreement.&#160; The Company accrued warrants for the purchase of 1,333,333 shares of common stock to a third party in connection with the agreement.&#160; The $130,246 fair value of the warrants is being amortized to interest expense over the term of the agreement.&#160; The Company was required to pay commissions related to the agreement totaling $203,784, which are being amortized to interest expense over the term of the notes. In February 2016, the Company terminated the note and paid a termination fee of $50,300 in addition to the outstanding principal and interest then outstanding.&#160; See Note 20</p> </td> <td width="18%" valign="bottom" style='width:18.46%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:229.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'> $&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 539,528 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:229.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.16%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:229.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; &#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;-&#160;&#160; </p> </td> </tr> <tr style='height:12.75pt'> <td width="53%" valign="bottom" style='width:53.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.46%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="24%" valign="bottom" style='width:24.16%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:127.5pt'> <td width="53%" valign="bottom" style='width:53.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:127.5pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Secured borrowings from a third party that purchased $945,000 of customer receipts for $750,000, with due dates ranging from November 2015 to December 2016 and payable in daily payments ranging from $955 to $1,909.&#160; The $195,000 difference between the customer receipts and cash received is being amortized to interest expense over the term of the respective notes.&#160; The secured borrowings are guaranteed by two officers of the Company.&#160; In November 2015, one of the notes was amended to subordinate to another note and to increase the principal by $28,385.&#160; The additional principal amount is being amortized to interest expense over the term of the note.&#160; In February 2016, the note was settled for $377,607 or 91% of the outstanding balance.&#160; See Note 20.</p> </td> <td width="18%" valign="bottom" style='width:18.46%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:127.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 484,418 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:127.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.16%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:127.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 421,413 </p> </td> </tr> <tr style='height:12.75pt'> <td width="53%" valign="bottom" style='width:53.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.46%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="24%" valign="bottom" style='width:24.16%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:27.0pt'> <td width="53%" valign="bottom" style='width:53.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:27.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Unsecured notes payable with interest at 12%, with due dates ranging from March 2016 to April 2016 and convertible into common stock at a 15% discount from the 10-day volume adjusted weighted average closing price per share upon maturity.&#160; In connection with the issuance of the notes, the Company issued 841,176 shares of common stock.&#160; The $119,205 fair value of the stock is being amortized to interest expense over the term of the notes.&#160; The notes included loan origination fees of $35,049, which are being amortized to interest expense over the term of the notes.&#160; The Company recorded a derivative in connection with the convertible feature of the notes (see Note 14) and is amortizing the initial $151,283 fair value of the derivatives liability over the life of the notes.&#160; In February 2016, the notes plus interest of $21,029 were converted into 9,287,985 shares of common stock, or $0.04 per common share, which was below the fair value of the Company&#146;s stock on the date of conversion.&#160; The stock will be issued subsequent to the filing of the Company&#146;s Quarterly Report on Form 10-Q for the three months ended December 31, 2015, which includes these financial statements.&#160; See Note 20.</p> </td> <td width="18%" valign="bottom" style='width:18.46%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:27.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 350,490 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:27.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.16%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:27.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 212,490 </p> </td> </tr> <tr style='height:12.75pt'> <td width="53%" valign="bottom" style='width:53.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.46%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="24%" valign="bottom" style='width:24.16%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:178.5pt'> <td width="53%" valign="bottom" style='width:53.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:178.5pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Note payable previously secured by CareServices customer contracts.&#160; In January 2015, the note was amended to reduce the outstanding principal to $375,000, interest at 9%, and payable in 15 monthly installments beginning in February 2015.&#160; The amendment released the collateralized customer contracts and the note payable is guaranteed by both a former Executive Chairman of the Board of Directors and a member of the Board of Directors.&#160; A gain on the extinguishment of the old note of $769,449 was recorded in other income.&#160; In December 2015, the note was amended to extend maturity to January 2018 payable in monthly installments beginning in July 2016, convert $31,252 from accrued interest into principal, interest at 10%, and provide that the note is convertible into common stock at its fair value per share.&#160; The Company recorded a derivative in connection with the convertible feature of the note (see Note 14) and is amortizing the initial $302,690 fair value of the derivatives liability over the life of the notes.&#160; In February 2016, the note was amended to subordinate to notes payable also issued during February 2016.</p> </td> <td width="18%" valign="bottom" style='width:18.46%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:178.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 334,464 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:178.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.16%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:178.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 303,212 </p> </td> </tr> <tr style='height:12.75pt'> <td width="53%" valign="bottom" style='width:53.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.46%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="24%" valign="bottom" style='width:24.16%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:192.0pt'> <td width="53%" valign="bottom" style='width:53.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:192.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Unsecured note payable with interest at 12%, due February 2016, convertible into common stock at $0.30 per share.&#160; In connection with the issuance of the note, the Company repriced previously issued warrants to purchase shares of common stock.&#160; The $22,397 increase in relative fair value of the warrants was included as a loss on the extinguishment of the old note in other expense in fiscal 2015.&#160; The note also required a payment of 3,000,000 shares of common stock.&#160; The fair value of $780,000 was included as a loss on the extinguishment of the old note in other expense in fiscal 2015.&#160; The maturity date was extended during November 2015 for 125,000 shares of common stock, which has been included in accrued expenses.&#160; The $8,750 fair value of the shares is being amortized over the extension period.&#160; In February 2016, the note was amended to subordinate to notes payable, also issued during February 2016, and the conversion price was reduced to $0.06 per share, which was below the fair value of the Company&#146;s stock on the date of the agreement.&#160; The note holder shall only be able to convert the loan, or a portion thereof, upon maintaining holdings at 9.99% or below.&#160; See Note 20.</p> </td> <td width="18%" valign="bottom" style='width:18.46%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:192.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 300,000 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:192.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.16%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:192.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 300,000 </p> </td> </tr> <tr style='height:12.75pt'> <td width="53%" valign="bottom" style='width:53.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&#160;</p> </td> <td width="18%" valign="bottom" style='width:18.46%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="24%" valign="bottom" style='width:24.16%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:114.75pt'> <td width="53%" valign="bottom" style='width:53.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:114.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Secured borrowings from third parties that purchased a $337,600 customer receivable for $200,000, in default.&#160; The Company was able to buy back the receivable for $233,333 less cash received by the third parties before June 2015.&#160; The $33,333 difference between the buyback and cash received plus $20,000 of commission paid to a related party, was amortized to interest expense through June 2015.&#160; In February 2016, the notes were converted into 5,800,000 shares of common stock, or $0.04 per common share, which was below the fair value of the Company&#146;s stock on the date of conversion.&#160; The stock will be issued subsequent to the filing of the Company&#146;s Quarterly Report on Form 10-Q for the three months ended December 31, 2015, which includes these financial statements.&#160; See Note 20.</p> </td> <td width="18%" valign="bottom" style='width:18.46%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:114.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'> $&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 233,333 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:114.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.16%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:114.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'> $&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 233,333 </p> </td> </tr> <tr style='height:12.75pt'> <td width="53%" valign="bottom" style='width:53.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.46%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="24%" valign="bottom" style='width:24.16%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:81.0pt'> <td width="53%" valign="bottom" style='width:53.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:81.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Unsecured notes with interest at 18%, due April 2013, in default.&#160; The Company issued 20,000 shares of Series D preferred stock as loan origination fees.&#160; The $195,000 fair value of the preferred stock was amortized over the original term of the note.&#160;&#160; Principal of $50,000 and accrued interest of $13,333 were converted to common stock in December 2013.</p> </td> <td width="18%" valign="bottom" style='width:18.46%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:81.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 64,261 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:81.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.16%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:81.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 64,261 </p> </td> </tr> <tr style='height:12.75pt'> <td width="53%" valign="bottom" style='width:53.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.46%;border:none;border-top:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'><b>&nbsp;</b></p> </td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="24%" valign="bottom" style='width:24.16%;border:none;border-top:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'><b>&nbsp;</b></p> </td> </tr> <tr style='height:12.75pt'> <td width="53%" valign="bottom" style='width:53.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:10.0pt'>Total notes payable before discount</p> </td> <td width="18%" valign="bottom" style='width:18.46%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160; &#160;&#160;&#160;&#160;&#160;&#160; 2,306,494 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.16%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1,534,709 </p> </td> </tr> <tr style='height:12.75pt'> <td width="53%" valign="bottom" style='width:53.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.46%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="24%" valign="bottom" style='width:24.16%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:12.75pt'> <td width="53%" valign="bottom" style='width:53.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:20.0pt'>Less discount</p> </td> <td width="18%" valign="bottom" style='width:18.46%;border:none;border-bottom:solid windowtext 1.0pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (894,213)</p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.16%;border:none;border-bottom:solid windowtext 1.0pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (274,793)</p> </td> </tr> <tr style='height:12.75pt'> <td width="53%" valign="bottom" style='width:53.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.46%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="24%" valign="bottom" style='width:24.16%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:12.75pt'> <td width="53%" valign="bottom" style='width:53.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:10.0pt'>Total notes payable</p> </td> <td width="18%" valign="bottom" style='width:18.46%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160; &#160;&#160;&#160;&#160;&#160;&#160;&#160; 1,412,281 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.16%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1,259,916 </p> </td> </tr> <tr style='height:12.75pt'> <td width="53%" valign="bottom" style='width:53.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.46%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="24%" valign="bottom" style='width:24.16%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:12.75pt'> <td width="53%" valign="bottom" style='width:53.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:20.0pt'>Less current portion</p> </td> <td width="18%" valign="bottom" style='width:18.46%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160; &#160;&#160;&#160;&#160;&#160; (1,315,100)</p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.16%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160; &#160;&#160;&#160;&#160; (1,259,916)</p> </td> </tr> <tr style='height:12.75pt'> <td width="53%" valign="bottom" style='width:53.48%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.46%;border:none;border-top:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="24%" valign="bottom" style='width:24.16%;border:none;border-top:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:13.5pt'> <td width="53%" valign="bottom" style='width:53.48%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:10.0pt'>Notes payable, net of current portion</p> </td> <td width="18%" valign="bottom" style='width:18.46%;border:none;border-bottom:double windowtext 2.25pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'> $&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 97,181 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="24%" valign="bottom" style='width:24.16%;border:none;border-bottom:double windowtext 2.25pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'> $&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> </tr> </table> <!--egx--> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:6.0pt;margin-left:.5in;text-align:justify;text-justify:inter-ideograph'>&nbsp;</p> <table border="0" cellspacing="0" cellpadding="0" width="100%" style='width:100.0%;border-collapse:collapse'> <tr style='height:25.5pt'> <td width="54%" valign="bottom" style='width:54.22%;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'></td> <td width="18%" valign="bottom" style='width:18.68%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b> December 31, 2015 </b></p> </td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'></td> <td width="23%" valign="bottom" style='width:23.22%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b> September 30, 2015 </b></p> </td> </tr> <tr style='height:230.25pt'> <td width="54%" valign="bottom" style='width:54.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:230.25pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Secured borrowings from entities controlled by an officer that purchased a $2,813,175 customer receivable for $1,710,500.&#160; The Company was able to buy back the receivable for $1,950,000 less cash received by the entities through March 2015.&#160; The $239,500 difference between the buyback and cash received plus $253,500 of loan origination fees was amortized to interest expense through March 2015.&#160; In September 2015, the note was modified to extend the maturity date to January 2017 with interest at 18%.&#160; The Company added $81,600 of extension fees and issued 3,000,000 shares of common stock as part of the modification and the note is convertible into common stock at $0.30 per share.&#160; The $540,000 fair value of the common stock was recognized as a loss on extinguishment of debt in fiscal 2015.&#160; In February 2016, the note was amended to subordinate to notes payable, also issued during February 2016, and the conversion price was reduced to $0.06 per share, which was below the fair value of the Company&#146;s stock on the date of the agreement.&#160; The conversion of the note is now limited to a maximum of 20,000,000 common shares in combination with other convertible notes payable held by the entities.&#160; The note also now has a default penalty of 4,203,389 shares of common stock, in combination with other convertible notes held by the entity, if not paid by maturity.&#160; See Note 20.</p> </td> <td width="18%" valign="bottom" style='width:18.68%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:230.25pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1,721,100 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:230.25pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="23%" valign="bottom" style='width:23.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:230.25pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1,721,100 </p> </td> </tr> <tr style='height:12.75pt'> <td width="54%" valign="bottom" style='width:54.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.68%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="23%" valign="bottom" style='width:23.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:153.0pt'> <td width="54%" valign="bottom" style='width:54.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:153.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Unsecured note payable to an entity controlled by an officer with interest at 18%, due January 2017, convertible into common stock at $0.30 per share.&#160; The Company issued 3,000,000 shares of common stock as loan origination fees.&#160; The $540,000 fair value of the common stock was recognized as a loss on extinguishment of debt in fiscal 2015.&#160; In February 2016, the note was amended to subordinate to notes payable, also issued during February 2016, and reduced the conversion price to $0.06 per share, which was below the fair value of the Company&#146;s stock on the date of the agreement.&#160; The conversion of the note is now limited to a maximum of 20,000,000 common shares in combination with other convertible notes payable held by the entity.&#160; The note also now has a default penalty of 4,203,389 shares of common stock, in combination with other convertible notes held by the entity, if not paid by maturity.&#160; See Note 20.</p> </td> <td width="18%" valign="bottom" style='width:18.68%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:153.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1,303,135 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:153.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="23%" valign="bottom" style='width:23.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:153.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1,303,135 </p> </td> </tr> <tr style='height:12.75pt'> <td width="54%" valign="bottom" style='width:54.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.68%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="23%" valign="bottom" style='width:23.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:89.25pt'> <td width="54%" valign="bottom" style='width:54.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:89.25pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Unsecured note payable to an entity controlled by a former Executive Chairman of the Board of Directors with no interest (18% in the event of default), due on demand and in default. The former Executive Chairman demanded payment by May 15, 2015.&#160; In February 2016, the note plus accrued interest was bifurcated into two notes payable.&#160; One of the bifurcated notes plus part of the second bifurcated note was assigned to a third party and converted into a convertible note payable.&#160; The remaining part of the second bifurcated note, in combination with another note payable held by the entity plus its accrued interest, was converted into a convertible note payable and another note payable assigned to a third party.&#160; See Note 20.</p> </td> <td width="18%" valign="bottom" style='width:18.68%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:89.25pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 396,667 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:89.25pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="23%" valign="bottom" style='width:23.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:89.25pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 396,667 </p> </td> </tr> <tr style='height:12.75pt'> <td width="54%" valign="bottom" style='width:54.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.68%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="23%" valign="bottom" style='width:23.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:25.5pt'> <td width="54%" valign="bottom" style='width:54.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Unsecured note payable to an entity controlled by a former Executive Chairman of the Board of Directors with interest at 18%, due January 2017.&#160; In February 2016, the note plus accrued interest, in combination with another note payable held by the entity, was converted into a convertible note payable.&#160; See Note 20.&#160; </p> </td> <td width="18%" valign="bottom" style='width:18.68%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 324,016 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="23%" valign="bottom" style='width:23.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:25.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 324,016 </p> </td> </tr> <tr style='height:12.75pt'> <td width="54%" valign="bottom" style='width:54.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.68%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="23%" valign="bottom" style='width:23.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:38.25pt'> <td width="54%" valign="bottom" style='width:54.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:38.25pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Unsecured note payable to a former officer with interest at 15%, due June 2012, in default.&#160; The note included a $3,000 loan origination fee added to the principal and is convertible into common stock at $0.50 per share.&#160; </p> </td> <td width="18%" valign="bottom" style='width:18.68%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:38.25pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 30,000 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:38.25pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="23%" valign="bottom" style='width:23.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:38.25pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 30,000 </p> </td> </tr> <tr style='height:12.75pt'> <td width="54%" valign="bottom" style='width:54.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.68%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="23%" valign="bottom" style='width:23.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:28.5pt'> <td width="54%" valign="bottom" style='width:54.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:28.5pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Unsecured note payable to a former officer with interest at 12%, due September 2013, in default, and convertible into common stock at $0.75 per share.</p> </td> <td width="18%" valign="bottom" style='width:18.68%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:28.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 26,721 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:28.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="23%" valign="bottom" style='width:23.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:28.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 26,721 </p> </td> </tr> <tr style='height:12.75pt'> <td width="54%" valign="bottom" style='width:54.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.68%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="23%" valign="bottom" style='width:23.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:114.75pt'> <td width="54%" valign="bottom" style='width:54.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:114.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Unsecured note payable to an entity controlled by an officer with interest at 18%, due upon demand.&#160; In February 2016, the note was amended to subordinate to notes payable, also issued during February 2016, and the note is convertible into shares of common stock at $0.06 per share, which was below the fair value of the Company&#146;s stock on the date of the agreement.&#160; The conversion of the note is now limited to a maximum of 20,000,000 common shares in combination with other convertible notes payable held by the entity.&#160; The note also now has a default penalty of 4,203,389 shares of common stock, in combination with other convertible notes held by the entity, if not paid by maturity.&#160; See Note 20.</p> </td> <td width="18%" valign="bottom" style='width:18.68%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:114.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 25,463 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:114.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="23%" valign="bottom" style='width:23.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:114.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 25,463 </p> </td> </tr> <tr style='height:12.75pt'> <td width="54%" valign="bottom" style='width:54.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.68%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="23%" valign="bottom" style='width:23.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:13.5pt'> <td width="54%" valign="bottom" style='width:54.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Unsecured note payable to a former officer with interest at 12%, due on demand.</p> </td> <td width="18%" valign="bottom" style='width:18.68%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 13,644 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="23%" valign="bottom" style='width:23.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 13,644 </p> </td> </tr> <tr style='height:12.75pt'> <td width="54%" valign="bottom" style='width:54.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.68%;border:none;border-top:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="23%" valign="bottom" style='width:23.22%;border:none;border-top:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:12.75pt'> <td width="54%" valign="bottom" style='width:54.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:15.95pt'>Total notes payable, related-party</p> </td> <td width="18%" valign="bottom" style='width:18.68%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 3,840,746 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="23%" valign="bottom" style='width:23.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 3,840,746 </p> </td> </tr> <tr style='height:12.75pt'> <td width="54%" valign="bottom" style='width:54.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.68%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="23%" valign="bottom" style='width:23.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:12.75pt'> <td width="54%" valign="bottom" style='width:54.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:23.9pt'>Less current portion</p> </td> <td width="18%" valign="bottom" style='width:18.68%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (492,495)</p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="23%" valign="bottom" style='width:23.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (492,495)</p> </td> </tr> <tr style='height:12.75pt'> <td width="54%" valign="bottom" style='width:54.22%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="18%" valign="bottom" style='width:18.68%;border:none;border-top:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="3%" valign="bottom" style='width:3.88%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="23%" valign="bottom" style='width:23.22%;border:none;border-top:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:13.5pt'> <td width="54%" valign="bottom" style='width:54.22%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:15.95pt'>Notes payable, related party, net of current portion</p> </td> <td width="18%" valign="bottom" style='width:18.68%;border:none;border-bottom:double windowtext 2.25pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 3,348,251 </p> </td> <td width="3%" valign="bottom" style='width:3.88%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="23%" valign="bottom" style='width:23.22%;border:none;border-bottom:double windowtext 2.25pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 3,348,251 </p> </td> </tr> </table> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other'>&nbsp;</p> <!--egx--><table border="0" cellspacing="0" cellpadding="0" width="100%" style='width:100.0%;border-collapse:collapse'> <tr style='height:38.25pt'> <td width="49%" valign="bottom" style='width:49.42%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:38.25pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b>Options and Warrants</b></p> </td> <td width="25%" valign="bottom" style='width:25.16%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:38.25pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b>&#160;Number of Options and Warrants </b></p> </td> <td width="4%" valign="bottom" style='width:4.02%;padding:0in 5.4pt 0in 5.4pt;height:38.25pt'></td> <td width="21%" valign="bottom" style='width:21.4%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:38.25pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b>&#160;Weighted-Average Exercise Price </b></p> </td> </tr> <tr style='height:12.75pt'> <td width="49%" valign="bottom" style='width:49.42%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Outstanding as of October 1, 2015</p> </td> <td width="25%" valign="bottom" style='width:25.16%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 9,497,551 </p> </td> <td width="4%" valign="bottom" style='width:4.02%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="21%" valign="bottom" style='width:21.4%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'> $&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 0.97 </p> </td> </tr> <tr style='height:12.75pt'> <td width="49%" valign="bottom" style='width:49.42%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:10.0pt'>Granted</p> </td> <td width="25%" valign="bottom" style='width:25.16%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; &#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="4%" valign="bottom" style='width:4.02%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="21%" valign="bottom" style='width:21.4%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> </tr> <tr style='height:12.75pt'> <td width="49%" valign="bottom" style='width:49.42%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:10.0pt'>Exercised</p> </td> <td width="25%" valign="bottom" style='width:25.16%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="4%" valign="bottom" style='width:4.02%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="21%" valign="bottom" style='width:21.4%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:12.75pt'> <td width="49%" valign="bottom" style='width:49.42%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:10.0pt'>Forfeited</p> </td> <td width="25%" valign="bottom" style='width:25.16%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="4%" valign="bottom" style='width:4.02%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'></td> <td width="21%" valign="bottom" style='width:21.4%;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:13.5pt'> <td width="49%" valign="bottom" style='width:49.42%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Outstanding as of December 31, 2015</p> </td> <td width="25%" valign="bottom" style='width:25.16%;border:none;border-bottom:double windowtext 2.25pt;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; &#160;&#160;&#160;&#160;&#160;&#160; 9,497,551 </p> </td> <td width="4%" valign="bottom" style='width:4.02%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="21%" valign="bottom" style='width:21.4%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:13.5pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 0.91 </p> </td> </tr> <tr style='height:14.25pt'> <td width="49%" valign="bottom" style='width:49.42%;padding:0in 5.4pt 0in 5.4pt;height:14.25pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>Exercisable as of December 31, 2015</p> </td> <td width="25%" valign="bottom" style='width:25.16%;border:none;border-bottom:double windowtext 2.25pt;padding:0in 5.4pt 0in 5.4pt;height:14.25pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; &#160;&#160;&#160;&#160; 7,767,551 </p> </td> <td width="4%" valign="bottom" style='width:4.02%;padding:0in 5.4pt 0in 5.4pt;height:14.25pt'></td> <td width="21%" valign="bottom" style='width:21.4%;padding:0in 5.4pt 0in 5.4pt;height:14.25pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1.00 </p> </td> </tr> </table> <!--egx--> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-top:6.0pt;margin-right:5.4pt;margin-bottom:0in;margin-left:.5in;margin-bottom:.0001pt;text-align:justify;text-justify:inter-ideograph'>&nbsp;</p> <table border="0" cellspacing="0" cellpadding="0" width="100%" style='width:100.0%;border-collapse:collapse'> <tr style='height:39.0pt'> <td width="37%" valign="bottom" style='width:37.8%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:39.0pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b>&nbsp;</b></p> </td> <td width="15%" valign="bottom" style='width:15.5%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:39.0pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b> Corporate </b></p> </td> <td width="15%" valign="bottom" style='width:15.5%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:39.0pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b> Chronic Illness Monitoring </b></p> </td> <td width="14%" valign="bottom" style='width:14.54%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:39.0pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b> CareServices (Discontinued Operations) </b></p> </td> <td width="16%" valign="bottom" style='width:16.66%;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:39.0pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:center'><b> Total </b></p> </td> </tr> <tr style='height:15.0pt'> <td width="37%" valign="bottom" style='width:37.8%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>As of December 31, 2015 and for the Three</p> </td> <td width="15%" valign="bottom" style='width:15.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> <td width="15%" valign="bottom" style='width:15.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> <td width="14%" valign="bottom" style='width:14.54%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> <td width="16%" valign="bottom" style='width:16.66%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> </tr> <tr style='height:15.0pt'> <td width="37%" valign="bottom" style='width:37.8%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:10.0pt'>Months Then Ended</p> </td> <td width="15%" valign="bottom" style='width:15.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> <td width="15%" valign="bottom" style='width:15.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> <td width="14%" valign="bottom" style='width:14.54%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> <td width="16%" valign="bottom" style='width:16.66%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>&nbsp;</p> </td> </tr> <tr style='height:15.0pt'> <td width="37%" valign="bottom" style='width:37.8%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:15.95pt'>Sales to external customers</p> </td> <td width="15%" valign="bottom" style='width:15.5%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="15%" valign="bottom" style='width:15.5%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160; 2,087,670 </p> </td> <td width="14%" valign="bottom" style='width:14.54%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="16%" valign="bottom" style='width:16.66%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160; 2,087,670 </p> </td> </tr> <tr style='height:15.0pt'> <td width="37%" valign="bottom" style='width:37.8%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:15.95pt'>Segment income (loss)</p> </td> <td width="15%" valign="bottom" style='width:15.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160; (2,537,504)</p> </td> <td width="15%" valign="bottom" style='width:15.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160; 217,966 </p> </td> <td width="14%" valign="bottom" style='width:14.54%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="16%" valign="bottom" style='width:16.66%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160; (2,319,538)</p> </td> </tr> <tr style='height:15.0pt'> <td width="37%" valign="bottom" style='width:37.8%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:15.95pt'>Interest expense, net</p> </td> <td width="15%" valign="bottom" style='width:15.5%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 491,149 </p> </td> <td width="15%" valign="bottom" style='width:15.5%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="14%" valign="bottom" style='width:14.54%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="16%" valign="bottom" style='width:16.66%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 491,149 </p> </td> </tr> <tr style='height:15.0pt'> <td width="37%" valign="bottom" style='width:37.8%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:15.95pt'>Segment assets</p> </td> <td width="15%" valign="bottom" style='width:15.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 544,308 </p> </td> <td width="15%" valign="bottom" style='width:15.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160; 1,901,666 </p> </td> <td width="14%" valign="bottom" style='width:14.54%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="16%" valign="bottom" style='width:16.66%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160; 2,445,974 </p> </td> </tr> <tr style='height:15.0pt'> <td width="37%" valign="bottom" style='width:37.8%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:15.95pt'>Property and equipment purchases</p> </td> <td width="15%" valign="bottom" style='width:15.5%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 2,674 </p> </td> <td width="15%" valign="bottom" style='width:15.5%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="14%" valign="bottom" style='width:14.54%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="16%" valign="bottom" style='width:16.66%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 2,674 </p> </td> </tr> <tr style='height:15.0pt'> <td width="37%" valign="bottom" style='width:37.8%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:15.95pt'>Depreciation and amortization</p> </td> <td width="15%" valign="bottom" style='width:15.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 13,745 </p> </td> <td width="15%" valign="bottom" style='width:15.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="14%" valign="bottom" style='width:14.54%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="16%" valign="bottom" style='width:16.66%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 13,745 </p> </td> </tr> <tr style='height:15.0pt'> <td width="37%" valign="bottom" style='width:37.8%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'></td> <td width="15%" valign="bottom" style='width:15.5%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'></td> <td width="15%" valign="bottom" style='width:15.5%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'></td> <td width="14%" valign="bottom" style='width:14.54%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'></td> <td width="16%" valign="bottom" style='width:16.66%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'></td> </tr> <tr style='height:15.0pt'> <td width="37%" valign="bottom" style='width:37.8%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt'>As of December 31, 2014 and for the Three</p> </td> <td width="15%" valign="bottom" style='width:15.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="15%" valign="bottom" style='width:15.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="14%" valign="bottom" style='width:14.54%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="16%" valign="bottom" style='width:16.66%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:15.0pt'> <td width="37%" valign="bottom" style='width:37.8%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:10.0pt'>Months Then Ended</p> </td> <td width="15%" valign="bottom" style='width:15.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="15%" valign="bottom" style='width:15.5%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="14%" valign="bottom" style='width:14.54%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> <td width="16%" valign="bottom" style='width:16.66%;background:#DBEEF3;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&nbsp;</p> </td> </tr> <tr style='height:15.0pt'> <td width="37%" valign="bottom" style='width:37.8%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-indent:15.95pt'>Sales to external customers</p> </td> <td width="15%" valign="bottom" style='width:15.5%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; -&#160;&#160; </p> </td> <td width="15%" valign="bottom" style='width:15.5%;padding:0in 5.4pt 0in 5.4pt;height:15.0pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-autospace:ideograph-numeric ideograph-other;margin-right:5.4pt;text-align:right'>&#160;$&#160;&#160;&#160; 1,508,091 </p> </td> <td width="14%" valign="bottom" style='width:14.54%;padding:0in 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Document and Entity Information - shares
 3 Months Ended
Dec. 31, 2015
Feb. 24, 2016
Document and Entity Information:    
Entity Registrant Name ACTIVECARE, INC.  
Document Type 10-Q  
Document Period End Date Dec. 31, 2015  
Trading Symbol acar  
Amendment Flag false  
Entity Central Index Key 0001429896  
Current Fiscal Year End Date --09-30  
Entity Common Stock, Shares Outstanding   78,445,171
Entity Filer Category Smaller Reporting Company  
Entity Current Reporting Status Yes  
Entity Voluntary Filers No  
Entity Well-known Seasoned Issuer No  
Document Fiscal Year Focus 2016  
Document Fiscal Period Focus Q1  
XML 29 R2.htm IDEA: XBRL DOCUMENT v3.3.1.900
Consolidated Balance Sheets - USD ($)
Dec. 31, 2015
Sep. 30, 2015
Current assets:    
Cash $ 215,338 $ 172,436
Accounts receivable, net 1,075,992 936,866
Inventory 720,964 742,471
Prepaid expenses and other 281,125 523,561
Total current assets 2,293,419 2,375,334
Property and equipment, net 124,878 135,770
Deposits and other assets 17,846 17,846
Domain name, net 9,831 10,010
Total assets 2,445,974 2,538,960
Current liabilities:    
Accounts payable 4,649,000 4,493,211
Accounts payable, related party 237,362 162,797
Accrued expenses 1,304,681 743,967
Current portion of notes payable 1,315,100 1,259,916
Current portion of notes payable, related party 492,495 492,495
Dividends payable 970,898 567,350
Derivatives liability 385,164 79,347
Total current liabilities 9,354,700 7,799,083
Notes payable, related party, net of current portion 3,348,251 3,348,251
Notes payable, net of current portion 97,181  
Total liabilities 12,800,132 11,147,334
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;79,486,837 and 78,113,971 shares outstanding, respectively 795 781
Additional paid-in capital, common and preferred 84,208,290 83,231,002
Accumulated deficit (94,563,244) (91,840,158)
Total stockholders' deficit (10,354,158) (8,608,374)
Total liabilities and stockholders' deficit $ 2,445,974 $ 2,538,960
XML 30 R3.htm IDEA: XBRL DOCUMENT v3.3.1.900
Consolidated Balance Sheets Parenthetical - $ / shares
Dec. 31, 2015
Sep. 30, 2015
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 79,486,837 78,113,971
XML 31 R4.htm IDEA: XBRL DOCUMENT v3.3.1.900
Consolidated Statements of Operations - USD ($)
 3 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Consolidated Statements of Operations    
Chronic Illness Monitoring Revenue $ 2,087,670 $ 1,508,091
Chronic Illness Monitoring Cost of Revenue 1,593,356 1,117,223
Gross profit 494,314 390,868
Operating expenses:    
Selling, general and administrative (including $1,179,922 and 1,169,977, respectively, of stock-based compensation) 2,346,705 2,351,459
Research and development 22,909 45,198
Total operating expenses 2,369,614 2,396,657
Loss from operations (1,875,300) (2,005,789)
Other income (expense):    
Interest expense, net (491,149) (350,536)
Gain on derivatives liability 46,311 106,444
Gain on disposal of property and equipment 600  
Total other expense, net (444,238) (244,092)
Loss from continuing operations (2,319,538) (2,249,881)
Loss from discontinued operations   (272,982)
Net loss (2,319,538) (2,522,863)
Dividends on preferred stock (403,548) (195,187)
Net loss attributable to common stockholders $ (2,723,086) $ (2,718,050)
Net loss per common share - basic and diluted    
Continuing operations $ (0.03) $ (0.05)
Discontinued operations 0.00 (0.01)
Net loss per common share $ (0.03) $ (0.06)
Weighted average common shares outstanding - basic and diluted 78,815,000 47,162,000
XML 32 R5.htm IDEA: XBRL DOCUMENT v3.3.1.900
Consolidated Statements of Operations Parenthetical - USD ($)
 3 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Consolidated Statements of Operations Parenthetical    
Compensation expense paid in stock or amortization of stock options and warrants $ 1,179,922 $ 1,169,977
XML 33 R6.htm IDEA: XBRL DOCUMENT v3.3.1.900
Consolidated Statements of Cash Flows - USD ($)
 3 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Cash flows from operating activities:    
Net loss $ (2,319,538) $ (2,522,863)
Adjustments to reconcile net loss to net cash used in operating activities:    
Stock-based compensation expense 1,085,294 453,565
Amortization of debt discounts 270,731 306,711
Stock and warrants issued for services 94,628 716,412
Depreciation and amortization 13,745 249,606
Gain on disposal of property and equipment (600)  
Gain on derivatives liability (46,311) (106,444)
Changes in operating assets and liabilities:    
Change in accounts receivable (139,126) 546,548
Change in inventory 21,507 237,154
Change in prepaid expenses and other (28,230) (26,664)
Change in accounts payable 125,354 (102,823)
Change in accrued expenses 419,958 (78,874)
Net cash used in operating activities (502,588) (327,672)
Cash flows from investing activities:    
Proceeds from sale of property and equipment 600  
Purchases of property and equipment (2,674)  
Proceeds from sale of discontinued operations   478,738
Net cash used in investing activities (2,074) 478,738
Cash flows from financing activities:    
Proceeds from issuance of notes payable, net 1,209,200 100,000
Principal payments on notes payable (661,636) (51,705)
Net cash provided by financing activities 547,564 48,295
Net increase in cash 42,902 199,361
Cash, beginning of the period 172,436 197,027
Cash, end of the period 215,338 396,388
Supplemental Cash Flow Information:    
Cash paid for interest 8,713 2,605
Non-Cash Investing and Financing Activities:    
Dividends on preferred stock and related interest 403,548 195,187
Accrual of common stock options for loan origination fees 130,246  
Issuance of common stock for loan origination fees 101,058  
Conversion of related-party accounts payable and accrued liabilities to related-party notes payable 31,252 105,000
Issuance of common stock for prepaid consulting services $ 22,500  
Issuance of common stock for dividends   $ 6,251
XML 34 R7.htm IDEA: XBRL DOCUMENT v3.3.1.900
1. Organization and Nature of Operations
 3 Months Ended
Dec. 31, 2015
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 US 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, 2015 and September 30, 2015, and the results of its operations and its cash flows for the three months ended December 31, 2015 and 2014.  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, 2015.  The results of operations for the three months ended December 31, 2015 may not be indicative of the results for the full fiscal year ending September 30, 2016.

 

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 December 31, 2015 and September 30, 2015 and is in default with respect to certain debt.  These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

In order for the Company to eliminate substantial doubt about its ability to continue as a going concern, it must achieve profitability, generate positive cash flows from operating activities and obtain the necessary debt or equity funding to meet its projected capital investment requirements.  Management's plans with respect to this uncertainty consist of raising additional capital by issuing debt or equity securities and increasing the sales of the Company's services and products.  There can be no assurance that the Company will be able to raise sufficient additional capital or that revenues will increase rapidly enough to achieve operating profits.  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 measures the fair values of its assets and liabilities using the US GAAP hierarchy.  The carrying amounts reported in the condensed 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 values because the underlying instruments are at interest rates which approximate current market rates.
XML 35 R8.htm IDEA: XBRL DOCUMENT v3.3.1.900
2. Discontinued Operations
 3 Months Ended
Dec. 31, 2015
Notes  
2. Discontinued Operations

2.                   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 held in stock was sold to the buyer pursuant to a written invoice.  The purchase price included cash receipts of $412,280 for the customer contracts and $66,458 for the equipment held in stock.  The sale included all segment assets that generated revenue related to the CareServices segment.  The Company no longer holds any ownership interest in these assets and has ceased incurring costs related to the operations and development of the CareServices segment.  This segment was engaged in the business of developing, distributing and marketing mobile health monitoring and concierge services to distributors and consumers.  The debt secured by the CareServices customer contracts was amended in January 2015 and December 2015 and remains an obligation of the Company (see Note 11).  There were no material liabilities of discontinued operations.

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

2015

2014

Revenues

 $                     -  

 

 $            141,523

Cost of revenues

                              -  

 

               203,294

Gross loss

                              -  

 

                (61,771)

Selling, general and administrative expenses

                              -  

 

              (211,211)

 

 

Loss from discontinued operations

 $                    -  

 

 $           (272,982)
XML 36 R9.htm IDEA: XBRL DOCUMENT v3.3.1.900
3. Net Loss per Common Share
 3 Months Ended
Dec. 31, 2015
Notes  
3. Net Loss per Common Share  

3.                   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 period.

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 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 and options, shares issuable from restricted stock grants, and shares issuable from convertible notes and convertible Series D, Series E and Series F preferred stock.  As of December 31, 2015 and 2014, there were 49,873,389 and 27,905,091 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:

 

 2015

 2014

Common stock options and warrants

                 9,497,551

 

          10,991,576

Series D convertible preferred stock

                    225,000

               225,000

Series E convertible preferred stock

                    477,830

 

               477,830

Series F convertible preferred stock

               16,065,328

          16,065,328

Convertible debt

               23,600,180

 

               135,607

Restricted shares of common stock

                        7,500

                   9,750

 

 

 

 

Total common stock equivalents

               49,873,389

          27,905,091

XML 37 R10.htm IDEA: XBRL DOCUMENT v3.3.1.900
4. Recent Accounting Pronouncements
 3 Months Ended
Dec. 31, 2015
Notes  
4. Recent Accounting Pronouncements

4.                   Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (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. In August 2015, the FASB voted to defer the effective date of the new revenue standard by one year. The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein, which will be effective for the Company for the quarter ending December 31, 2018. The Company is 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 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 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, which will be effective for the Company for the quarter ending December 31, 2017. The Company is assessing the impact, if any, of implementing this guidance on its evaluation 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, which will be effective for the Company for the quarter ending December 31, 2016. The Company is assessing the impact, if any, of implementing this guidance on its consolidated financial position, results of operations and liquidity.

In June 2015, the FASB issued ASU 2015-10, Technical Corrections and Improvements. The purpose of this ASU is to clarify guidance, correct unintended application of guidance, or make minor improvements to guidance. The ASU is effective for fiscal years and interim periods beginning after December 15, 2015, which will be effective for the Company for the quarter ending December 31, 2016. The Company is assessing the impact, if any, of implementing this guidance on its consolidated financial position, results of operations and liquidity.

In July 2015, the FASB issued ASU 2015-11, Inventory: Simplifying the Measurement of Inventory. The purpose of this ASU is to more closely align the measurement of inventory in U.S. GAAP with the measurement of inventory in International Financial Reporting Standards. This ASU requires entities to measure most inventory at the "lower of cost and net realizable value." Additionally, some of the amendments are designed to more clearly articulate the requirements for the measurement and disclosure of inventory. The ASU is effective for fiscal years and interim periods beginning after December 15, 2016, which will be effective for the Company for the quarter ending December 31, 2017. The Company is assessing the impact, if any, of implementing this guidance on its consolidated financial position, results of operations and liquidity.
XML 38 R11.htm IDEA: XBRL DOCUMENT v3.3.1.900
5. Accounts Receivable
 3 Months Ended
Dec. 31, 2015
Notes  
5. Accounts Receivable

5.                   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 $67,749 and $30,495 as of December 31, 2015 and September 30, 2015, respectively.
XML 39 R12.htm IDEA: XBRL DOCUMENT v3.3.1.900
6. Inventory
 3 Months Ended
Dec. 31, 2015
Notes  
6. Inventory

6.                   Inventory

Inventory is recorded at the lower of cost or market, cost being determined using the first-in, first-out ("FIFO") method. Inventory 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.  During the three months ended December 31, 2015, the Company disposed of $163,526 of inventory for which a reserve for obsolescence had previously been recorded.  Inventory consists of the following as of:

December 31, 2015

September 30, 2015

Finished goods

 $         1,142,127

 

 $       206,038

Finished goods held by distributors

                              -  

            1,350,368

 

 

 

 

Total inventory

                 1,142,127

            1,556,406

 

 

 

 

Inventory reserve

                  (421,163)

              (813,935)

 

 

 

 

Net inventory

 $           720,964

 $       742,471

XML 40 R13.htm IDEA: XBRL DOCUMENT v3.3.1.900
7. Customer Contracts Disclosure
 3 Months Ended
Dec. 31, 2015
Notes  
7. Customer Contracts Disclosure

7.                   Customer Contracts

The Company amortized Chronic Illness Monitoring customer contracts acquired during 2012 over their estimated useful lives through 2014.  As of December 31, 2015 and September 30, 2015, the cost associated with these customer contracts of $214,106 was fully amortized. Amortization expense related to these contracts for the three months ended December 31, 2015 and 2014 was $0.

The Company sold substantially all of the CareServices customer contracts during December 2014.  Amortization expense related to customer contracts in the CareServices segment for the three months ended December 31, 2015 and 2014 was $0 and $179,648, respectively.  
XML 41 R14.htm IDEA: XBRL DOCUMENT v3.3.1.900
8. Patents
 3 Months Ended
Dec. 31, 2015
Notes  
8. Patents

8.                   Patents

Amortization expense for the three months ended December 31, 2015 and 2014 was $0 and $31,718, respectively.  As of December 31, 2015 and September 30, 2015, the cost associated with the patents of $514,046 was fully amortized.
XML 42 R15.htm IDEA: XBRL DOCUMENT v3.3.1.900
9. Property and Equipment
 3 Months Ended
Dec. 31, 2015
Notes  
9. Property and Equipment

9.                   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, 2015

September 30, 2015

Software

 $            100,574

 

 $       100,574

Leasehold improvements

                      98,023

                 98,023

Furniture

                      68,758

 

                 68,758

Equipment

                      62,428

                 59,754

 

 

 

 

Total property and equipment

                    329,783

               327,109

 

 

 

 

Accumulated depreciation and amortization

                  (204,905)

              (191,339)

 

 

 

 

Property and equipment, net

 $            124,878

 $       135,770

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 the three months ended December 31, 2015, the Company recorded a gain on the disposal of property and equipment of $600.  During December 2014, the Company sold all of its equipment leased to customers (see Note 2).  Depreciation expense for the three months ended December 31, 2015 and 2014 was $13,745 and $38,061, respectively.
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10. Accrued Expenses
 3 Months Ended
Dec. 31, 2015
Notes  
10. Accrued Expenses

10.                Accrued Expenses

Accrued expenses consisted of the following as of:

 

December 31, 2015

September 30, 2015

 Interest

 $        370,498

 

 $      190,045

 Payroll

                    200,581

               270,974

Deferred revenue

                    184,617

 

               147,344

 Commissions and fees

                    141,868

                 64,432

Liability to issue warrants

                    130,246

 

                         -  

Warranty liability

                      95,630

                         -  

Liability to issue common stock

                      81,762

 

                 40,000

 Other

                      99,479

                 31,172

 

 

 

 

Total accrued expenses

 $        1,304,681

 $      743,967

XML 44 R17.htm IDEA: XBRL DOCUMENT v3.3.1.900
11. Notes Payable
 3 Months Ended
Dec. 31, 2015
Notes  
11. Notes Payable

11.                Notes Payable

The Company had the following notes payable outstanding as of:    

 December 31, 2015

 September 30, 2015

Secured borrowings from third parties that purchased $1,439,395 of customer receivables for 80% of their value with interest from 2.25% to 7.50%.  The remaining 20% is held in reserve by the lender until collected then is returned to the Company.  The balance of the reserve was $169,953 as of December 31, 2015 and is not included in the outstanding balance of the note.  The Company may sell additional customer receivables for a balance up to $2,000,000 and must repurchase any receivables not collected within 90 days of the original date billed.  The Company issued 791,666 shares of common stock to a third party in connection with the agreement.  The $71,250 fair value of the stock is being amortized to interest expense over the term of the agreement.  The Company accrued warrants for the purchase of 1,333,333 shares of common stock to a third party in connection with the agreement.  The $130,246 fair value of the warrants is being amortized to interest expense over the term of the agreement.  The Company was required to pay commissions related to the agreement totaling $203,784, which are being amortized to interest expense over the term of the notes. In February 2016, the Company terminated the note and paid a termination fee of $50,300 in addition to the outstanding principal and interest then outstanding.  See Note 20

$            539,528

 

 $                     -  

Secured borrowings from a third party that purchased $945,000 of customer receipts for $750,000, with due dates ranging from November 2015 to December 2016 and payable in daily payments ranging from $955 to $1,909.  The $195,000 difference between the customer receipts and cash received is being amortized to interest expense over the term of the respective notes.  The secured borrowings are guaranteed by two officers of the Company.  In November 2015, one of the notes was amended to subordinate to another note and to increase the principal by $28,385.  The additional principal amount is being amortized to interest expense over the term of the note.  In February 2016, the note was settled for $377,607 or 91% of the outstanding balance.  See Note 20.

               484,418

 

               421,413

Unsecured notes payable with interest at 12%, with due dates ranging from March 2016 to April 2016 and convertible into common stock at a 15% discount from the 10-day volume adjusted weighted average closing price per share upon maturity.  In connection with the issuance of the notes, the Company issued 841,176 shares of common stock.  The $119,205 fair value of the stock is being amortized to interest expense over the term of the notes.  The notes included loan origination fees of $35,049, which are being amortized to interest expense over the term of the notes.  The Company recorded a derivative in connection with the convertible feature of the notes (see Note 14) and is amortizing the initial $151,283 fair value of the derivatives liability over the life of the notes.  In February 2016, the notes plus interest of $21,029 were converted into 9,287,985 shares of common stock, or $0.04 per common share, which was below the fair value of the Company’s stock on the date of conversion.  The stock will be issued subsequent to the filing of the Company’s Quarterly Report on Form 10-Q for the three months ended December 31, 2015, which includes these financial statements.  See Note 20.

$            350,490

 

$            212,490

Note payable previously secured by CareServices customer contracts.  In January 2015, the note was amended to reduce the outstanding principal to $375,000, interest at 9%, and payable in 15 monthly installments beginning in February 2015.  The amendment released the collateralized customer contracts and the note payable is guaranteed by both a former Executive Chairman of the Board of Directors and a member of the Board of Directors.  A gain on the extinguishment of the old note of $769,449 was recorded in other income.  In December 2015, the note was amended to extend maturity to January 2018 payable in monthly installments beginning in July 2016, convert $31,252 from accrued interest into principal, interest at 10%, and provide that the note is convertible into common stock at its fair value per share.  The Company recorded a derivative in connection with the convertible feature of the note (see Note 14) and is amortizing the initial $302,690 fair value of the derivatives liability over the life of the notes.  In February 2016, the note was amended to subordinate to notes payable also issued during February 2016.

               334,464

 

               303,212

Unsecured note payable with interest at 12%, due February 2016, convertible into common stock at $0.30 per share.  In connection with the issuance of the note, the Company repriced previously issued warrants to purchase shares of common stock.  The $22,397 increase in relative fair value of the warrants was included as a loss on the extinguishment of the old note in other expense in fiscal 2015.  The note also required a payment of 3,000,000 shares of common stock.  The fair value of $780,000 was included as a loss on the extinguishment of the old note in other expense in fiscal 2015.  The maturity date was extended during November 2015 for 125,000 shares of common stock, which has been included in accrued expenses.  The $8,750 fair value of the shares is being amortized over the extension period.  In February 2016, the note was amended to subordinate to notes payable, also issued during February 2016, and the conversion price was reduced to $0.06 per share, which was below the fair value of the Company’s stock on the date of the agreement.  The note holder shall only be able to convert the loan, or a portion thereof, upon maintaining holdings at 9.99% or below.  See Note 20.

               300,000

 

               300,000

 

Secured borrowings from third parties that purchased a $337,600 customer receivable for $200,000, in default.  The Company was able to 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, was amortized to interest expense through June 2015.  In February 2016, the notes were converted into 5,800,000 shares of common stock, or $0.04 per common share, which was below the fair value of the Company’s stock on the date of conversion.  The stock will be issued subsequent to the filing of the Company’s Quarterly Report on Form 10-Q for the three months ended December 31, 2015, which includes these financial statements.  See Note 20.

$            233,333

 

$            233,333

Unsecured notes with interest at 18%, due April 2013, in default.  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

            2,306,494

 

            1,534,709

Less discount

             (894,213)

 

             (274,793)

 

 

Total notes payable

            1,412,281

 

            1,259,916

Less current portion

          (1,315,100)

 

          (1,259,916)

 

 

Notes payable, net of current portion

$              97,181

 

$                     -  

XML 45 R18.htm IDEA: XBRL DOCUMENT v3.3.1.900
Related Party Notes Payable
 3 Months Ended
Dec. 31, 2015
Notes  
Related Party Notes Payable

 

12.                Related-Party Notes Payable

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

 

December 31, 2015

September 30, 2015

Secured borrowings from entities controlled by an officer that purchased a $2,813,175 customer receivable for $1,710,500.  The Company was able to buy back the receivable for $1,950,000 less cash received by the entities through March 2015.  The $239,500 difference between the buyback and cash received plus $253,500 of loan origination fees was amortized to interest expense through March 2015.  In September 2015, the note was modified to extend the maturity date to January 2017 with interest at 18%.  The Company added $81,600 of extension fees and issued 3,000,000 shares of common stock as part of the modification and the note is convertible into common stock at $0.30 per share.  The $540,000 fair value of the common stock was recognized as a loss on extinguishment of debt in fiscal 2015.  In February 2016, the note was amended to subordinate to notes payable, also issued during February 2016, and the conversion price was reduced to $0.06 per share, which was below the fair value of the Company’s stock on the date of the agreement.  The conversion of the note is now limited to a maximum of 20,000,000 common shares in combination with other convertible notes payable held by the entities.  The note also now has a default penalty of 4,203,389 shares of common stock, in combination with other convertible notes held by the entity, if not paid by maturity.  See Note 20.

 $         1,721,100

 

 $         1,721,100

Unsecured note payable to an entity controlled by an officer with interest at 18%, due January 2017, convertible into common stock at $0.30 per share.  The Company issued 3,000,000 shares of common stock as loan origination fees.  The $540,000 fair value of the common stock was recognized as a loss on extinguishment of debt in fiscal 2015.  In February 2016, the note was amended to subordinate to notes payable, also issued during February 2016, and reduced the conversion price to $0.06 per share, which was below the fair value of the Company’s stock on the date of the agreement.  The conversion of the note is now limited to a maximum of 20,000,000 common shares in combination with other convertible notes payable held by the entity.  The note also now has a default penalty of 4,203,389 shares of common stock, in combination with other convertible notes held by the entity, if not paid by maturity.  See Note 20.

 $         1,303,135

 

 $         1,303,135

Unsecured note payable to an entity controlled by a former Executive Chairman of the Board of Directors with no interest (18% in the event of default), due on demand and in default. The former Executive Chairman demanded payment by May 15, 2015.  In February 2016, the note plus accrued interest was bifurcated into two notes payable.  One of the bifurcated notes plus part of the second bifurcated note was assigned to a third party and converted into a convertible note payable.  The remaining part of the second bifurcated note, in combination with another note payable held by the entity plus its accrued interest, was converted into a convertible note payable and another note payable assigned to a third party.  See Note 20.

               396,667

 

               396,667

Unsecured note payable to an entity controlled by a former Executive Chairman of the Board of Directors with interest at 18%, due January 2017.  In February 2016, the note plus accrued interest, in combination with another note payable held by the entity, was converted into a convertible note payable.  See Note 20. 

               324,016

 

               324,016

Unsecured note payable to a former officer with interest at 15%, due June 2012, 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 with interest at 12%, due September 2013, in default, and convertible into common stock at $0.75 per share.

                 26,721

 

                 26,721

Unsecured note payable to an entity controlled by an officer with interest at 18%, due upon demand.  In February 2016, the note was amended to subordinate to notes payable, also issued during February 2016, and the note is convertible into shares of common stock at $0.06 per share, which was below the fair value of the Company’s stock on the date of the agreement.  The conversion of the note is now limited to a maximum of 20,000,000 common shares in combination with other convertible notes payable held by the entity.  The note also now has a default penalty of 4,203,389 shares of common stock, in combination with other convertible notes held by the entity, if not paid by maturity.  See Note 20.

                 25,463

 

                 25,463

Unsecured note payable to a former officer with interest at 12%, due on demand.

                 13,644

 

                 13,644

 

 

Total notes payable, related-party

            3,840,746

 

            3,840,746

Less current portion

             (492,495)

 

             (492,495)

 

 

Notes payable, related party, net of current portion

 $         3,348,251

 

 $         3,348,251

 
XML 46 R19.htm IDEA: XBRL DOCUMENT v3.3.1.900
12. Fair Value Measurements
 3 Months Ended
Dec. 31, 2015
Notes  
12. Fair Value Measurements

13.                Fair Value Measurements

The Company measures 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 does not measure any of its assets or liabilities 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 14 for more information about derivatives and the inputs used for calculating fair value.
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13. Derivatives Liability
 3 Months Ended
Dec. 31, 2015
Notes  
13. Derivatives Liability

14.                Derivatives Liability

The derivatives liability as of December 31, 2015 and September 30, 2015 was $385,164 and $79,347, respectively.  The derivatives liability as of September 30, 2014 was 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.  The derivatives liability as of December 31, 2015 and September 30, 2015 is related to a variable conversion price adjustment on outstanding notes payable.

During the three months ended December 31, 2015, 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 prices ranging from $0.03 to $0.09 per share; risk free interest rates ranging from 0.16% to 1.06%; expected lives ranging from 0.17 to 2.09 years; expected dividends of 0%; volatility factors ranging from 125.33% to 231.42%; and stock prices ranging from $0.03 to $0.09.  During the fiscal year ended September 30, 2015, 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 prices ranging from $0.12 to $0.33 per share; risk free interest rates ranging from 0.010% to 0.260%; expected lives ranging from 0.001 to 0.50 years; expected dividends of 0%; volatility factors ranging from 0.01% to 138.68%; and stock prices ranging from $0.12 to $0.33.  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 US 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, 2015 and 2014 of $46,311 and $106,444, respectively.
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14. Preferred Stock
 3 Months Ended
Dec. 31, 2015
Notes  
14. Preferred Stock

15.                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 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 each of the three months ended December 31, 2015 and 2014, the Company accrued $6,251 of dividends on Series D preferred stock.  During the three months ended December 31, 2014, the Company 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 fiscal year 2014, $83,473 of debenture loans and accrued interest converted into 8,347 shares of Series E preferred stock.  During the three months ended December 31, 2015 and 2014, the Company accrued dividends of $84,572 and $81,716, respectively, to Series E preferred shareholders.  As of December 31, 2015 and September 30, 2015, 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 is convertible into common stock at $0.3337 per share (see Note 14).  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.  In February 2016, the Company converted all 5,361 outstanding shares into 10,000,000 shares of common stock and $5,900,000 of notes payable.  See Note 20.

During fiscal year 2014, the Company issued 5,361858 4,503 shares of Series F preferred stock for net proceeds of $3,580,771, after considering $675,229 of related costs, and the conversion of $574,592 of debt and accrued interest.  During the three months ended December 31, 2015 and 2014, the Company accrued dividends of $312,725 and $107,220, respectively, to Series F preferred 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 D preferred stock, Series E preferred stock, and Series F preferred stock are entitled to be paid out of the assets an amount equal to $1.00 per share plus all accrued but unpaid dividends.  If the assets of the Company are insufficient to make payment in full to all holders of preferred stock, then the assets shall be distributed among the holders of preferred stock ratably in proportion to the full amounts to which they would otherwise be entitled.
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15. Common Stock
 3 Months Ended
Dec. 31, 2015
Notes  
15. Common Stock

16.                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, 2015, the Company issued 1,372,866 shares of common stock as follows:

·         250,000 shares for future services to be provided by an independent consultant, the value at the date of grant was $22,500;

·         1,122,866 shares for notes payable origination and financing fees, the value on the date of grant was $101,058.

The fair value of unvested common stock as of December 31, 2015 was $1,918,011.
XML 50 R23.htm IDEA: XBRL DOCUMENT v3.3.1.900
16. Common Stock Options and Warrants
 3 Months Ended
Dec. 31, 2015
Notes  
16. Common Stock Options and Warrants

17.                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 options or warrants is based on the US Treasury yield curve in effect at the time of grant.  The dividend yield is zero.

During the three months ended December 31, 2015 and 2014, the Company did not grant any common stock options or warrants.          

The following table summarizes information about stock options and warrants outstanding as of December 31, 2015:

Options and Warrants

 Number of Options and Warrants

 Weighted-Average Exercise Price

Outstanding as of October 1, 2015

                 9,497,551

 

$                  0.97

Granted

                              -  

Exercised

                              -  

 

 

Forfeited

                              -  

 

Outstanding as of December 31, 2015

                 9,497,551

 

                     0.91

Exercisable as of December 31, 2015

                 7,767,551

                     1.00

As of December 31, 2015, the outstanding warrants have an aggregate intrinsic value of $0, the weighted average remaining term of the warrants was 2.66 years, and the fair value of unvested stock options and warrants was $124,784.
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17. Segment Information
 3 Months Ended
Dec. 31, 2015
Notes  
17. Segment Information

18.                Segment Information

The Company operated one business segment during the three months ended December 31, 2015 and 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 Company’s CareServices segment were sold in December 2014 and that segment was discontinued.  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, 2015 and 2014 and for the three months then ended:

 

 

Corporate

Chronic Illness Monitoring

CareServices (Discontinued Operations)

Total

As of December 31, 2015 and for the Three

 

 

 

 

Months Then Ended

 

 

 

 

Sales to external customers

 $                    -  

 $    2,087,670

 $                  -  

 $    2,087,670

Segment income (loss)

     (2,537,504)

        217,966

                    -  

    (2,319,538)

Interest expense, net

          491,149

                    -  

                    -  

          491,149

Segment assets

          544,308

       1,901,666

                    -  

       2,445,974

Property and equipment purchases

              2,674

                    -  

                    -  

              2,674

Depreciation and amortization

            13,745

                    -  

                    -  

          13,745

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

                    -  

         233,665

          249,606

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18. Commitments and Contingencies
 3 Months Ended
Dec. 31, 2015
Notes  
18. Commitments and Contingencies

19.                Commitments and Contingencies

During the three months ended December 31, 2014, the Company leased office space under a non-cancelable operating lease, which was terminated during June 2015.  In February 2015, the Company entered into a sublease agreement for part of the office space under the non-cancelable operating lease through the end of the original lease period.  Payments under the sublease were made by the sublessee directly to the Company's landlord.

The Company's rent expense for facilities under the terminated operating lease for the three months ended December 31, 2014 was approximately $76,000.

During June 2015, the Company entered into a new non-cancelable operating lease for its existing office space, excluding the previously subleased space, and with payments beginning in July 2015.  Future minimum rental payments under the non-cancelable operating lease as of December 31, 2015 were as follows:

Years Ending September 30,

2016 (nine months)

 

 

$         95,230

2017

               130,036

2018

 

 

               111,340

 

 

 

 

$       336,606

The Company's rent expense under the new non-cancelable operating lease for three months ended December 31, 2015 was approximately $31,000.

On May 28, 2015, an investor of the Company filed a lawsuit claiming damages of $1,000,000 exclusive of interest and costs against the Company, its Executive Chairman, an entity controlled by its former Executive Chairman, and 4G Biometrics, a wholly owned subsidiary of the Company for a breach of contract.  The Company has engaged legal counsel regarding the matter.  As the lawsuit is in its early stages, it is not possible to predict the outcome of the matter.  The Company intends to vigorously dispute the litigation and believes it has meritorious defenses to the claims.

On November 4, 2015, the Company received a demand for payment of $275,000 from a former employee of the Company and former principal of 4G Biometrics who was terminated for cause in regards to his employment agreement.  On December 4, 2015, the Company filed a complaint against the former owners of 4G Biometrics, including this former employee, seeking damages in excess of $300,000 related to alleged misrepresentations made to induce ActiveCare to acquire 4G Biometrics.  Between February 4, 2016 and February 8, 2016, the Company settled the complaint with each of the former owners of 4G Biometrics where all parties released each other from all outstanding claims, including any current monetary obligations to each party, excluding the former owner of 4G Biometrics who continues employment with the Company.  A Stipulation for Order of Dismissal with Prejudice of all Claims and Counterclaims has been filed and is in the process of being approved.  The settlement resulted in the termination of $39,863 of related party accounts payable.
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19. Subsequent Events
 3 Months Ended
Dec. 31, 2015
Notes  
19. Subsequent Events

20.                Subsequent Events

Subsequent to December 31, 2015, the Company entered into the following agreements and transactions:

(1)    In February 2016, the Company terminated a secured note payable with an outstanding principal balance of $706,344 and accrued interest and fees of $38,703 for a cash payment of $795,347.

(2)    In February 2016, the Company entered into a line of credit agreement with a third party in which it may draw up to $1,500,000, interest at 12.25%, maturing in February 2018, and secured by the Company’s assets.  The line of credit limit may increase up to $3,000,000 as the Company meets certain milestones.  The interest rate may reduce to 10.75% as the Company meets certain milestones.

(3)    In February 2016, the Company entered into a note payable agreement with a third party, in conjunction with the line of credit described above, for $1,500,000, interest at 12.75%, maturing in March 2019, and secured by the Company’s assets.  The Company may borrow additional amounts under the note payable agreement up to a total balance of $3,000,000 as the Company meets certain milestones.  The interest rate may reduce to 11.25% as the Company meets certain milestones.  The Company issued warrants to purchase 12,015,350 shares of common stock at $0.065 per common share in connection with the note payable.

(4)    In February 2016, the Company converted third party convertible notes payable with outstanding principal balances totaling $350,490 and interest balances totaling $21,029 for a total of 9,287,985 shares of common stock, or $0.04 per common share, which was below the fair value of the Company’s stock on the date of conversion.  The stock will be issued subsequent to the filing of the Company’s Quarterly Report on Form 10-Q for the three months ended December 31, 2015, which includes these financial statements.

(5)    In February 2016, the Company settled third party notes payable with outstanding principal balances totaling $417,160 for $377,607, or 91% of the outstanding principal balance.

(6)    In February 2016, the Company sold $380,000 of future customer receipts to a third party for $494,000 in cash.  The $114,000 difference between the future customer receipts and cash received by the Company is being amortized to interest expense over the term of the note.

(7)    In February 2016, the Company settled secured borrowings from third parties with outstanding principal balances totaling $233,333 for a total of 5,800,000 shares of common stock, or $0.04 per common share, which was below the fair value of the Company’s stock on the date of conversion.  The stock will be issued subsequent to the filing of the Company’s Quarterly Report on Form 10-Q for the three months ended December 31, 2015, which includes these financial statements.

(8)    In February 2016, the Company converted 5,361 shares of its Series F Convertible Preferred Stock plus accrued dividends of $603,113 into 10,000,000 shares of common stock with certain temporary restrictions, and $5,900,000 of notes payable, interest at 10%, due November 2018. The Company may, at its option, make payments either in cash, shares of common stock or a combination thereof.  The notes payable are convertible at $0.30 per common share and adjustable to a rate the same as any grants of warrants, conversion options, or sale of equity at a rate lower than the conversion price subsequent to the agreement date.  The conversion of these notes is limited to a maximum of 19,667,000 common shares.  The Company is also required to cancel warrants to purchase 5,022,000 shares of common stock and issue new warrants with an exercise price of $0.30 per common share.  The Company is also required to issue warrants for the purchase of up to 8,000,000 shares of common stock exercisable at $0.001 per share that vest upon certain events of default.  No shares of Series F Convertible Preferred Stock remained after the conversion.

(9)    In February 2016, the Company modified a third party convertible note payable with a principal balance of $300,000 to subordinate to newly acquired notes payable.  The Company also amended the note to reduce the conversion price from $0.30 per share to $0.06 per share, which was below the fair value of the Company’s stock on the date of the agreement.  The note holder shall only be able to convert the loan, or a portion thereof, upon maintaining holdings at 9.99% or below.

(10) In February 2016, the Company modified related party convertible notes payable with principal balances totaling $3,024,235 to subordinate to newly acquired notes payable.  The Company also amended the notes to reduce the conversion price from $0.30 per share to $0.06 per share, which was below the fair value of the Company’s stock on the date of the agreement.  In addition, the Company modified another note payable with the related party with a principal balance of $25,463 to subordinate to newly acquired notes payable.  The Company also amended the note to make it convertible into shares of common stock at $0.06 per share, which was below the fair value of the Company’s stock on the date of the agreement.  The conversion of these notes is limited to a combined maximum of 20,000,000 common shares.  These notes were also amended in combination to have a default penalty of 4,477,780 shares of common stock if not paid by maturity.

(11) In February 2016, the Company bifurcated a related party note payable with a principal balance of $396,667 and accrued interest of $56,924 into two new notes payable with principal balances of $210,510 and $243,082, respectively.  The bifurcated note with principal balance of $243,082 and $20,000 of the bifurcated note with principal balance of $210,510 was assigned to a third party and exchanged for a new convertible note payable which bears interest at 18%, is due in January 2017, and is payable at the Company’s option in cash or shares of common stock at fair value. The note holder shall only be able to convert the loans, or a portion thereof, upon maintaining holdings at 4.99% or below. 

(12) In February 2016, the Company converted related party notes payable with principal balances totaling $514,525 and accrued interest totaling $27,480 into a new convertible note payable which bears interest at 18%, is due in January 2017, and is convertible into shares of common stock at $0.06 per share, which was below the fair value of the Company’s stock on the date of the agreement.  The conversion of the note is limited to a maximum of 9,250,000 common shares, subject to a beneficial ownership cap of 4.99% of the issued and outstanding common stock and has a default penalty of 734,489 shares of common stock if not paid by maturity.

(13) In February 2016, the Company paid $150,000 to a related-party in connection with an existing consulting agreement for a commission on fund raising activities.

(14) In January 2016, the Company received 1,041,666 shares of common stock returned from a vendor, which were cancelled.  The stock will be reissued to the same vendor subsequent to the filing of the Company’s Quarterly Report on Form 10-Q for the three months ended December 31, 2015, which includes these financial statements.
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1. Organization and Nature of Operations: Going Concern (Policies)
 3 Months Ended
Dec. 31, 2015
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 December 31, 2015 and September 30, 2015 and is in default with respect to certain debt.  These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

In order for the Company to eliminate substantial doubt about its ability to continue as a going concern, it must achieve profitability, generate positive cash flows from operating activities and obtain the necessary debt or equity funding to meet its projected capital investment requirements.  Management's plans with respect to this uncertainty consist of raising additional capital by issuing debt or equity securities and increasing the sales of the Company's services and products.  There can be no assurance that the Company will be able to raise sufficient additional capital or that revenues will increase rapidly enough to achieve operating profits.  If the Company is unable to increase revenues or obtain additional financing, it will be unable to continue the development of its products and services and may have to cease operations.
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1. Organization and Nature of Operations: Use of Estimates in The Preparation of Financial Statements (Policies)
 3 Months Ended
Dec. 31, 2015
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.
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1. Organization and Nature of Operations: Fair Value of Financial Instruments (Policies)
 3 Months Ended
Dec. 31, 2015
Policies  
Fair Value of Financial Instruments

Fair Value of Financial Instruments

The Company measures the fair values of its assets and liabilities using the US GAAP hierarchy.  The carrying amounts reported in the condensed 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 values because the underlying instruments are at interest rates which approximate current market rates.
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2. Discontinued Operations: Schedule of Disposal Groups, Including Discontinued Operations, Income Statement, Balance Sheet and Additional Disclosures (Tables)
 3 Months Ended
Dec. 31, 2015
Tables/Schedules  
Schedule of Disposal Groups, Including Discontinued Operations, Income Statement, Balance Sheet and Additional Disclosures

2015

2014

Revenues

 $                     -  

 

 $            141,523

Cost of revenues

                              -  

 

               203,294

Gross loss

                              -  

 

                (61,771)

Selling, general and administrative expenses

                              -  

 

              (211,211)

 

 

Loss from discontinued operations

 $                    -  

 

 $           (272,982)
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3. Net Loss per Common Share: Schedule of Common Stock Equivalents (Tables)
 3 Months Ended
Dec. 31, 2015
Tables/Schedules  
Schedule of Common Stock Equivalents

 

 2015

 2014

Common stock options and warrants

                 9,497,551

 

          10,991,576

Series D convertible preferred stock

                    225,000

               225,000

Series E convertible preferred stock

                    477,830

 

               477,830

Series F convertible preferred stock

               16,065,328

          16,065,328

Convertible debt

               23,600,180

 

               135,607

Restricted shares of common stock

                        7,500

                   9,750

 

 

 

 

Total common stock equivalents

               49,873,389

          27,905,091

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6. Inventory: Schedule of Inventory (Tables)
 3 Months Ended
Dec. 31, 2015
Tables/Schedules  
Schedule of Inventory

December 31, 2015

September 30, 2015

Finished goods

 $         1,142,127

 

 $       206,038

Finished goods held by distributors

                              -  

            1,350,368

 

 

 

 

Total inventory

                 1,142,127

            1,556,406

 

 

 

 

Inventory reserve

                  (421,163)

              (813,935)

 

 

 

 

Net inventory

 $           720,964

 $       742,471

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9. Property and Equipment: Property, Plant and Equipment (Tables)
 3 Months Ended
Dec. 31, 2015
Tables/Schedules  
Property, Plant and Equipment

December 31, 2015

September 30, 2015

Software

 $            100,574

 

 $       100,574

Leasehold improvements

                      98,023

                 98,023

Furniture

                      68,758

 

                 68,758

Equipment

                      62,428

                 59,754

 

 

 

 

Total property and equipment

                    329,783

               327,109

 

 

 

 

Accumulated depreciation and amortization

                  (204,905)

              (191,339)

 

 

 

 

Property and equipment, net

 $            124,878

 $       135,770

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10. Accrued Expenses: 11. Schedule of Accrued Expenses (Tables)
 3 Months Ended
Dec. 31, 2015
Tables/Schedules  
11. Schedule of Accrued Expenses

 

December 31, 2015

September 30, 2015

 Interest

 $        370,498

 

 $      190,045

 Payroll

                    200,581

               270,974

Deferred revenue

                    184,617

 

               147,344

 Commissions and fees

                    141,868

                 64,432

Liability to issue warrants

                    130,246

 

                         -  

Warranty liability

                      95,630

                         -  

Liability to issue common stock

                      81,762

 

                 40,000

 Other

                      99,479

                 31,172

 

 

 

 

Total accrued expenses

 $        1,304,681

 $      743,967

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11. Notes Payable: Schedule of Debt - Other (Tables)
 3 Months Ended
Dec. 31, 2015
Tables/Schedules  
Schedule of Debt - Other

 December 31, 2015

 September 30, 2015

Secured borrowings from third parties that purchased $1,439,395 of customer receivables for 80% of their value with interest from 2.25% to 7.50%.  The remaining 20% is held in reserve by the lender until collected then is returned to the Company.  The balance of the reserve was $169,953 as of December 31, 2015 and is not included in the outstanding balance of the note.  The Company may sell additional customer receivables for a balance up to $2,000,000 and must repurchase any receivables not collected within 90 days of the original date billed.  The Company issued 791,666 shares of common stock to a third party in connection with the agreement.  The $71,250 fair value of the stock is being amortized to interest expense over the term of the agreement.  The Company accrued warrants for the purchase of 1,333,333 shares of common stock to a third party in connection with the agreement.  The $130,246 fair value of the warrants is being amortized to interest expense over the term of the agreement.  The Company was required to pay commissions related to the agreement totaling $203,784, which are being amortized to interest expense over the term of the notes. In February 2016, the Company terminated the note and paid a termination fee of $50,300 in addition to the outstanding principal and interest then outstanding.  See Note 20

$            539,528

 

 $                     -  

Secured borrowings from a third party that purchased $945,000 of customer receipts for $750,000, with due dates ranging from November 2015 to December 2016 and payable in daily payments ranging from $955 to $1,909.  The $195,000 difference between the customer receipts and cash received is being amortized to interest expense over the term of the respective notes.  The secured borrowings are guaranteed by two officers of the Company.  In November 2015, one of the notes was amended to subordinate to another note and to increase the principal by $28,385.  The additional principal amount is being amortized to interest expense over the term of the note.  In February 2016, the note was settled for $377,607 or 91% of the outstanding balance.  See Note 20.

               484,418

 

               421,413

Unsecured notes payable with interest at 12%, with due dates ranging from March 2016 to April 2016 and convertible into common stock at a 15% discount from the 10-day volume adjusted weighted average closing price per share upon maturity.  In connection with the issuance of the notes, the Company issued 841,176 shares of common stock.  The $119,205 fair value of the stock is being amortized to interest expense over the term of the notes.  The notes included loan origination fees of $35,049, which are being amortized to interest expense over the term of the notes.  The Company recorded a derivative in connection with the convertible feature of the notes (see Note 14) and is amortizing the initial $151,283 fair value of the derivatives liability over the life of the notes.  In February 2016, the notes plus interest of $21,029 were converted into 9,287,985 shares of common stock, or $0.04 per common share, which was below the fair value of the Company’s stock on the date of conversion.  The stock will be issued subsequent to the filing of the Company’s Quarterly Report on Form 10-Q for the three months ended December 31, 2015, which includes these financial statements.  See Note 20.

$            350,490

 

$            212,490

Note payable previously secured by CareServices customer contracts.  In January 2015, the note was amended to reduce the outstanding principal to $375,000, interest at 9%, and payable in 15 monthly installments beginning in February 2015.  The amendment released the collateralized customer contracts and the note payable is guaranteed by both a former Executive Chairman of the Board of Directors and a member of the Board of Directors.  A gain on the extinguishment of the old note of $769,449 was recorded in other income.  In December 2015, the note was amended to extend maturity to January 2018 payable in monthly installments beginning in July 2016, convert $31,252 from accrued interest into principal, interest at 10%, and provide that the note is convertible into common stock at its fair value per share.  The Company recorded a derivative in connection with the convertible feature of the note (see Note 14) and is amortizing the initial $302,690 fair value of the derivatives liability over the life of the notes.  In February 2016, the note was amended to subordinate to notes payable also issued during February 2016.

               334,464

 

               303,212

Unsecured note payable with interest at 12%, due February 2016, convertible into common stock at $0.30 per share.  In connection with the issuance of the note, the Company repriced previously issued warrants to purchase shares of common stock.  The $22,397 increase in relative fair value of the warrants was included as a loss on the extinguishment of the old note in other expense in fiscal 2015.  The note also required a payment of 3,000,000 shares of common stock.  The fair value of $780,000 was included as a loss on the extinguishment of the old note in other expense in fiscal 2015.  The maturity date was extended during November 2015 for 125,000 shares of common stock, which has been included in accrued expenses.  The $8,750 fair value of the shares is being amortized over the extension period.  In February 2016, the note was amended to subordinate to notes payable, also issued during February 2016, and the conversion price was reduced to $0.06 per share, which was below the fair value of the Company’s stock on the date of the agreement.  The note holder shall only be able to convert the loan, or a portion thereof, upon maintaining holdings at 9.99% or below.  See Note 20.

               300,000

 

               300,000

 

Secured borrowings from third parties that purchased a $337,600 customer receivable for $200,000, in default.  The Company was able to 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, was amortized to interest expense through June 2015.  In February 2016, the notes were converted into 5,800,000 shares of common stock, or $0.04 per common share, which was below the fair value of the Company’s stock on the date of conversion.  The stock will be issued subsequent to the filing of the Company’s Quarterly Report on Form 10-Q for the three months ended December 31, 2015, which includes these financial statements.  See Note 20.

$            233,333

 

$            233,333

Unsecured notes with interest at 18%, due April 2013, in default.  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

            2,306,494

 

            1,534,709

Less discount

             (894,213)

 

             (274,793)

 

 

Total notes payable

            1,412,281

 

            1,259,916

Less current portion

          (1,315,100)

 

          (1,259,916)

 

 

Notes payable, net of current portion

$              97,181

 

$                     -  

XML 63 R36.htm IDEA: XBRL DOCUMENT v3.3.1.900
Related Party Notes Payable: Schedule of Related Party Transactions (Tables)
 3 Months Ended
Dec. 31, 2015
Tables/Schedules  
Schedule of Related Party Transactions

 

December 31, 2015

September 30, 2015

Secured borrowings from entities controlled by an officer that purchased a $2,813,175 customer receivable for $1,710,500.  The Company was able to buy back the receivable for $1,950,000 less cash received by the entities through March 2015.  The $239,500 difference between the buyback and cash received plus $253,500 of loan origination fees was amortized to interest expense through March 2015.  In September 2015, the note was modified to extend the maturity date to January 2017 with interest at 18%.  The Company added $81,600 of extension fees and issued 3,000,000 shares of common stock as part of the modification and the note is convertible into common stock at $0.30 per share.  The $540,000 fair value of the common stock was recognized as a loss on extinguishment of debt in fiscal 2015.  In February 2016, the note was amended to subordinate to notes payable, also issued during February 2016, and the conversion price was reduced to $0.06 per share, which was below the fair value of the Company’s stock on the date of the agreement.  The conversion of the note is now limited to a maximum of 20,000,000 common shares in combination with other convertible notes payable held by the entities.  The note also now has a default penalty of 4,203,389 shares of common stock, in combination with other convertible notes held by the entity, if not paid by maturity.  See Note 20.

 $         1,721,100

 

 $         1,721,100

Unsecured note payable to an entity controlled by an officer with interest at 18%, due January 2017, convertible into common stock at $0.30 per share.  The Company issued 3,000,000 shares of common stock as loan origination fees.  The $540,000 fair value of the common stock was recognized as a loss on extinguishment of debt in fiscal 2015.  In February 2016, the note was amended to subordinate to notes payable, also issued during February 2016, and reduced the conversion price to $0.06 per share, which was below the fair value of the Company’s stock on the date of the agreement.  The conversion of the note is now limited to a maximum of 20,000,000 common shares in combination with other convertible notes payable held by the entity.  The note also now has a default penalty of 4,203,389 shares of common stock, in combination with other convertible notes held by the entity, if not paid by maturity.  See Note 20.

 $         1,303,135

 

 $         1,303,135

Unsecured note payable to an entity controlled by a former Executive Chairman of the Board of Directors with no interest (18% in the event of default), due on demand and in default. The former Executive Chairman demanded payment by May 15, 2015.  In February 2016, the note plus accrued interest was bifurcated into two notes payable.  One of the bifurcated notes plus part of the second bifurcated note was assigned to a third party and converted into a convertible note payable.  The remaining part of the second bifurcated note, in combination with another note payable held by the entity plus its accrued interest, was converted into a convertible note payable and another note payable assigned to a third party.  See Note 20.

               396,667

 

               396,667

Unsecured note payable to an entity controlled by a former Executive Chairman of the Board of Directors with interest at 18%, due January 2017.  In February 2016, the note plus accrued interest, in combination with another note payable held by the entity, was converted into a convertible note payable.  See Note 20. 

               324,016

 

               324,016

Unsecured note payable to a former officer with interest at 15%, due June 2012, 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 with interest at 12%, due September 2013, in default, and convertible into common stock at $0.75 per share.

                 26,721

 

                 26,721

Unsecured note payable to an entity controlled by an officer with interest at 18%, due upon demand.  In February 2016, the note was amended to subordinate to notes payable, also issued during February 2016, and the note is convertible into shares of common stock at $0.06 per share, which was below the fair value of the Company’s stock on the date of the agreement.  The conversion of the note is now limited to a maximum of 20,000,000 common shares in combination with other convertible notes payable held by the entity.  The note also now has a default penalty of 4,203,389 shares of common stock, in combination with other convertible notes held by the entity, if not paid by maturity.  See Note 20.

                 25,463

 

                 25,463

Unsecured note payable to a former officer with interest at 12%, due on demand.

                 13,644

 

                 13,644

 

 

Total notes payable, related-party

            3,840,746

 

            3,840,746

Less current portion

             (492,495)

 

             (492,495)

 

 

Notes payable, related party, net of current portion

 $         3,348,251

 

 $         3,348,251

 
XML 64 R37.htm IDEA: XBRL DOCUMENT v3.3.1.900
16. Common Stock Options and Warrants: Schedule of Share-based Compensation, Activity (Tables)
 3 Months Ended
Dec. 31, 2015
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, 2015

                 9,497,551

 

$                  0.97

Granted

                              -  

Exercised

                              -  

 

 

Forfeited

                              -  

 

Outstanding as of December 31, 2015

                 9,497,551

 

                     0.91

Exercisable as of December 31, 2015

                 7,767,551

                     1.00

XML 65 R38.htm IDEA: XBRL DOCUMENT v3.3.1.900
17. Segment Information: Schedule of Segment Reporting Information, by Segment (Tables)
 3 Months Ended
Dec. 31, 2015
Tables/Schedules  
Schedule of Segment Reporting Information, by Segment

 

 

Corporate

Chronic Illness Monitoring

CareServices (Discontinued Operations)

Total

As of December 31, 2015 and for the Three

 

 

 

 

Months Then Ended

 

 

 

 

Sales to external customers

 $                    -  

 $    2,087,670

 $                  -  

 $    2,087,670

Segment income (loss)

     (2,537,504)

        217,966

                    -  

    (2,319,538)

Interest expense, net

          491,149

                    -  

                    -  

          491,149

Segment assets

          544,308

       1,901,666

                    -  

       2,445,974

Property and equipment purchases

              2,674

                    -  

                    -  

              2,674

Depreciation and amortization

            13,745

                    -  

                    -  

          13,745

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

                    -  

         233,665

          249,606

XML 66 R39.htm IDEA: XBRL DOCUMENT v3.3.1.900
18. Commitments and Contingencies: Schedule of Future Minimum Rental Payments for Operating Leases (Tables)
 3 Months Ended
Dec. 31, 2015
Tables/Schedules  
Schedule of Future Minimum Rental Payments for Operating Leases

Years Ending September 30,

2016 (nine months)

 

 

$         95,230

2017

               130,036

2018

 

 

               111,340

 

 

 

 

$       336,606

XML 67 R40.htm IDEA: XBRL DOCUMENT v3.3.1.900
2. Discontinued Operations: Schedule of Disposal Groups, Including Discontinued Operations, Income Statement, Balance Sheet and Additional Disclosures (Details)
 3 Months Ended
Dec. 31, 2014
USD ($)
Loss from discontinued operations $ (272,982)
Sales  
Loss from discontinued operations 141,523
Cost of Sales  
Loss from discontinued operations 203,294
Gross profit (loss)  
Loss from discontinued operations (61,771)
Selling, General and Administrative Expenses  
Loss from discontinued operations $ (211,211)
XML 68 R41.htm IDEA: XBRL DOCUMENT v3.3.1.900
3. Net Loss per Common Share (Details) - shares
 3 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Details    
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount 49,873,389 27,905,091
XML 69 R42.htm IDEA: XBRL DOCUMENT v3.3.1.900
3. Net Loss per Common Share: Schedule of Common Stock Equivalents (Details) - shares
Dec. 31, 2015
Dec. 31, 2014
Details    
Exercise of outstanding common stock options and warrants 9,497,551 10,991,576
Conversion of Series D preferred stock 225,000 225,000
Conversion of Series E preferred stock 477,830 477,830
Conversion of Series F preferred stock 16,065,328 16,065,328
Conversion of debt 23,600,180 135,607
Issuance of employee restricted shares 7,500 9,750
Total common stock equivalents 49,873,389 27,905,091
XML 70 R43.htm IDEA: XBRL DOCUMENT v3.3.1.900
5. Accounts Receivable (Details) - USD ($)
Dec. 31, 2015
Sep. 30, 2015
Details    
Allowance for Doubtful Accounts Receivable $ 67,749 $ 30,495
XML 71 R44.htm IDEA: XBRL DOCUMENT v3.3.1.900
6. Inventory (Details)
 3 Months Ended
Dec. 31, 2015
USD ($)
Details  
Disposal of Inventory $ 163,526
XML 72 R45.htm IDEA: XBRL DOCUMENT v3.3.1.900
6. Inventory: Schedule of Inventory (Details) - USD ($)
Dec. 31, 2015
Sep. 30, 2015
Details    
Inventory, Finished Goods, Gross $ 1,142,127 $ 206,038
Finished goods held by distributors   1,350,368
Inventory, Gross 1,142,127 1,556,406
Inventory Valuation Reserves (421,163) (813,935)
Inventory $ 720,964 $ 742,471
XML 73 R46.htm IDEA: XBRL DOCUMENT v3.3.1.900
7. Customer Contracts Disclosure (Details) - Customer Contracts - USD ($)
 3 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Sep. 30, 2015
Chronic Illness Monitoring      
Cost Associated with Intangible Assets $ 214,106   $ 214,106
Amortization of Intangible Assets 0 $ 0  
CareServices      
Amortization of Acquisition Costs $ 0 $ 179,648  
XML 74 R47.htm IDEA: XBRL DOCUMENT v3.3.1.900
8. Patents (Details) - Patents - USD ($)
 3 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Amortization of Intangible Assets $ 0 $ 31,718
Cost Associated with Intangible Assets - fully amortized $ 514,046 $ 514,046
XML 75 R48.htm IDEA: XBRL DOCUMENT v3.3.1.900
9. Property and Equipment: Property, Plant and Equipment (Details) - USD ($)
Dec. 31, 2015
Sep. 30, 2015
Property and equipment, net $ 124,878 $ 135,770
Property, Plant and Equipment, Gross 329,783 327,109
Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment (204,905) (191,339)
Computer Software, Intangible Asset    
Property and equipment, net 100,574 100,574
Leaseholds and Leasehold Improvements    
Property and equipment, net 98,023 98,023
Furniture and Fixtures    
Property and equipment, net 68,758 68,758
Equipment    
Property and equipment, net $ 62,428 $ 59,754
XML 76 R49.htm IDEA: XBRL DOCUMENT v3.3.1.900
9. Property and Equipment (Details) - USD ($)
 3 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Details    
Gain on disposal of property and equipment $ 600  
Depreciation, Amortization and Accretion, Net $ 13,745 $ 38,061
XML 77 R50.htm IDEA: XBRL DOCUMENT v3.3.1.900
10. Accrued Expenses: 11. Schedule of Accrued Expenses (Details) - USD ($)
Dec. 31, 2015
Sep. 30, 2015
Accrued expenses $ 1,304,681 $ 743,967
Accrued Liabilities 1,304,681 743,967
Interest Expense    
Accrued expenses 370,498 190,045
Payroll Expense    
Accrued expenses 200,581 270,974
DeferredRevenueMember    
Accrued expenses 184,617 147,344
CommissionsAndFeesMember    
Accrued expenses 141,868 64,432
Liability to Issue Warrants    
Accrued expenses 130,246  
Warranty Liability    
Accrued expenses 95,630  
Liability To Issue Common Stock    
Accrued expenses 81,762 40,000
Other Expense    
Accrued expenses $ 99,479 $ 31,172
XML 78 R51.htm IDEA: XBRL DOCUMENT v3.3.1.900
11. Notes Payable: Schedule of Debt - Other (Details) - USD ($)
Dec. 31, 2015
Sep. 30, 2015
Gross notes payable before discount $ 2,306,494 $ 1,534,709
Discount on notes payable (894,213) (274,793)
Notes payable current and noncurrent 1,412,281 1,259,916
Current portion of notes payable (1,315,100) (1,259,916)
Notes payable, net of current portion 97,181  
Note 1    
Gross notes payable before discount 539,528  
Note 2    
Gross notes payable before discount 484,418 421,413
Note 3    
Gross notes payable before discount 350,490 212,490
Note 4    
Gross notes payable before discount 334,464 303,212
Note 5    
Gross notes payable before discount 300,000 300,000
Note 6    
Gross notes payable before discount 233,333 233,333
Note 7    
Gross notes payable before discount $ 64,261 $ 64,261
XML 79 R52.htm IDEA: XBRL DOCUMENT v3.3.1.900
Related Party Notes Payable: Schedule of Related Party Transactions (Details) - USD ($)
Dec. 31, 2015
Sep. 30, 2015
Notes Payable, Related Parties $ 3,840,746 $ 3,840,746
Current portion of notes payable, related party (492,495) (492,495)
Notes payable, related party, net of current portion 3,348,251 3,348,251
Related Party Note 1    
Notes Payable, Related Parties 1,721,100 1,721,100
Related Party Note 2    
Notes Payable, Related Parties 1,303,135 1,303,135
Related Party Note 3    
Notes Payable, Related Parties 396,667 396,667
Related Party Note 4    
Notes Payable, Related Parties 324,016 324,016
Related Party Note 5    
Notes Payable, Related Parties 30,000 30,000
Related Party Note 6    
Notes Payable, Related Parties 26,721 26,721
Related Party Note 7    
Notes Payable, Related Parties 25,463 25,463
Related Party Note 8    
Notes Payable, Related Parties $ 13,644 $ 13,644
XML 80 R53.htm IDEA: XBRL DOCUMENT v3.3.1.900
13. Derivatives Liability (Details) - USD ($)
 3 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Sep. 30, 2015
Details      
Derivatives liability $ 385,164   $ 79,347
Gain on derivatives liability $ 46,311 $ 106,444  
XML 81 R54.htm IDEA: XBRL DOCUMENT v3.3.1.900
14. Preferred Stock (Details) - USD ($)
 3 Months Ended 12 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Sep. 30, 2014
Sep. 30, 2015
Preferred stock shares authorized 10,000,000     10,000,000
Preferred stock par value $ 0.00001     $ 0.00001
Dividends payable $ 970,898     $ 567,350
Dividends on preferred stock $ 403,548 $ 195,187    
Issuance Of Series F Preferred Stock For Cash, Net     $ 3,580,771  
Related Costs Considered in Conversion of Series F Preferred Stock     675,229  
Issuance Of Series F Preferred Stock For Debt Conversions     $ 574,592  
Series D Preferred Stock        
Convertible Preferred Stock Shares Designated 1,000,000      
Dividends payable $ 6,251 6,251    
Dividends on preferred stock   $ 6,251    
Common Stock issued to settle accrued dividends   18,522    
Series E Preferred Stock        
Dividends on preferred stock 84,572 $ 81,716    
Redemption Price of Series E preferred stock 477,829     $ 477,829
Series F Preferred Stock        
Convertible Preferred Stock Shares Designated     7,803  
Dividends payable $ 312,725 $ 107,220    
Issuance Of Series F Preferred Stock For Debt Conversions - Shares     858  
Issuance Of Series F Preferred Stock For Cash, Net - Shares     4,503  
XML 82 R55.htm IDEA: XBRL DOCUMENT v3.3.1.900
15. Common Stock (Details) - USD ($)
 3 Months Ended
Dec. 31, 2015
Sep. 30, 2015
Common stock shares authorized 200,000,000 200,000,000
Stock Issued During Period, Shares, New Issues 1,372,866  
Fair Value of Unvested Common Stock $ 1,918,011  
Stock Issuance 1    
Stock Granted, Value, Share-based Compensation, Net of Forfeitures 22,500  
Stock Issuance 2    
Stock Granted, Value, Share-based Compensation, Net of Forfeitures $ 101,058  
Common stock | Stock Issuance 1    
Share-based compensation arrangement by share-based payment award, Options, Grants in period 250,000  
Common stock | Stock Issuance 2    
Share-based compensation arrangement by share-based payment award, Options, Grants in period 1,122,866  
XML 83 R56.htm IDEA: XBRL DOCUMENT v3.3.1.900
16. Common Stock Options and Warrants: Schedule of Share-based Compensation, Activity (Details)
 3 Months Ended
Dec. 31, 2015
$ / shares
shares
Details  
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Beginning Balance | shares 9,497,551
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Beginning Balance | $ / shares $ 0.97
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance | shares 9,497,551
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Ending Balance | $ / shares $ 0.91
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number | shares 7,767,551
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price | $ / shares $ 1.00
XML 84 R57.htm IDEA: XBRL DOCUMENT v3.3.1.900
16. Common Stock Options and Warrants (Details)
Dec. 31, 2015
USD ($)
Details  
Aggregate Intrinsic Value $ 0
Weighted average remaining term of the warrants 2.66
Fair Value of Unvested Stock Options and Warrants $ 124,784
XML 85 R58.htm IDEA: XBRL DOCUMENT v3.3.1.900
17. Segment Information: Schedule of Segment Reporting Information, by Segment (Details) - USD ($)
 3 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Sep. 30, 2015
Net loss $ (2,319,538) $ (2,522,863)  
Interest expense, net (491,149) (350,536)  
Total assets 2,445,974   $ 2,538,960
Corporate      
Net loss (2,537,504) (2,344,677)  
Interest expense, net 491,149 350,536  
Total assets 544,308 689,072  
Property and equipment purchases 2,674    
Depreciation, Depletion and Amortization, Nonproduction 13,745 15,941  
Chronic Illness Monitoring      
Revenue, Net 2,087,670 1,508,091  
Net loss 217,966 94,796  
Total assets 1,901,666 3,414,742  
CareServices      
Revenue, Net   141,523  
Net loss   (272,982)  
Depreciation, Depletion and Amortization, Nonproduction   233,665  
Total      
Revenue, Net 2,087,670 1,649,614  
Net loss (2,319,538) (2,522,863)  
Interest expense, net 491,149 350,536  
Total assets 2,445,974 4,103,814  
Property and equipment purchases 2,674    
Depreciation, Depletion and Amortization, Nonproduction $ 13,745 $ 249,606  
XML 86 R59.htm IDEA: XBRL DOCUMENT v3.3.1.900
18. Commitments and Contingencies (Details) - USD ($)
 3 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Details    
Operating Leases, Rent Expense, Net $ 31,000 $ 76,000
XML 87 R60.htm IDEA: XBRL DOCUMENT v3.3.1.900
18. Commitments and Contingencies: Schedule of Future Minimum Rental Payments for Operating Leases (Details)
Dec. 31, 2015
USD ($)
Details  
Operating Leases, Future Minimum Payments Due, Next Twelve Months $ 95,230
Operating Leases, Future Minimum Payments, Due in Two Years 130,036
Operating Leases, Future Minimum Payments, Due in Three Years 111,340
Operating Leases, Future Minimum Payments Due $ 336,606
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