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EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A) OF THE SECURITIES EXCHANGE ACT, AS AMENDED - ACTIVECARE, INC.ex31-2.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A) OF THE SECURITIES EXCHANGE ACT, AS AMENDED - ACTIVECARE, INC.ex31-1.htm
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EX-32 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - ACTIVECARE, INC.ex32.htm



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended: June 30, 2011
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.)
   
5095 West 2100 South West Valley City, Utah
(Address of principal executive offices)
84120
(Zip Code)

(801) 974-9474
 (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes x  No ¨
  
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x  No ¨

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

Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)
Yes  ¨   No  x

As of August 17, 2011, the registrant had 35,518,160 shares of common stock outstanding.

 
1

 

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
17
Item 3. Quantitative and Qualitative Disclosures About Market Risk
27
Item 4.  Controls and Procedures
27
   
PART II – OTHER INFORMATION
27
   
Item 1. Legal Proceedings
27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
28
Item 3. Defaults Upon Senior Securities
28
Item 5. Other Information
28
Item 6. Exhibits
29
   
SIGNATURES
30

 
2

 

PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements



ActiveCare, Inc.
Condensed Consolidated Balance Sheets (Unaudited)

 
 

   
June 30, 2011
   
September 30, 2010
 
Assets
           
  Current assets:
           
    Cash
  $ 318,443     $ 1,713,923  
    Accounts receivable, net of allowance for doubtful accounts of $9,715 and $3,000, respectively
    117,087       106,142  
    Inventories, net of inventory valuation of $4,075 and $4,326, respectively
    90,350       41,516  
    Prepaid expenses and other assets
    57,066       243,882  
      Total current assets
    582,946       2,105,463  
                 
    Property and equipment, net of accumulated depreciation of $468,351 and $427,827, respectively
    249,333       88,455  
    Deposits
    6,756       128,883  
    Domain Name, net of amortization of $1,251 and $715 respectively
    13,049       13,585  
    Leased Equipment, net of amortization of $45,703 and $21,921, respectively
    136,491       96,544  
    License agreement, net of amortization of $72,898 and $47,664,  respectively
    227,102       252,336  
    Investment, net of impairment of $50,000 and $0, respectively
    -       50,000  
      Total assets
  $ 1,215,677     $ 2,735,266  


 

See accompanying notes to condensed consolidated financial statements

 
3

 


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



   
June 30, 2011
   
September 30, 2010
 
Liabilities and Stockholders’ Equity
           
  Current liabilities:
           
    Accounts payable
  $ 504,032     $ 639,568  
    Accrued expenses
    222,437       236,219  
    Deferred revenue
    1,303       25,921  
    Related party notes payable
    -       25,000  
    Note payable, net of discount of $0 and $6,164, respectively
    300,000       23,836  
    Accrued payable on license agreement
    300,000       300,000  
      Total current liabilities
    1,327,772       1,250,544  
      Total liabilities
    1,327,772       1,250,544  
                 
Stockholders’ equity
               
    Preferred stock; $.00001 par value, 10,000,000 shares authorized; 0 shares issued and outstanding
    -       -  
Common stock, $.00001 par value, 50,000,000 shares authorized; 35,518,160 and 25,039,160 shares issued and outstanding, respectively
    355       251  
    Additional paid in capital
    23,170,320       18,522,033  
    Accumulated deficit
    (23,282,770 )     (17,037,562 )
      Total stockholders’ equity
    (112,095 )     1,484,722  
      Total liabilities and stockholders’ equity
  $ 1,215,677     $ 2,735,266  

 


See accompanying notes to condensed consolidated financial statements

 
4

 

ActiveCare, Inc.
Condensed Consolidated Statements of Operations (Unaudited)



   
Three months ended
   
Nine months ended
 
   
June 30,
   
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Revenues:
                       
Care Services
  $ 80,107     $ 19,880     $ 247,702     $ 36,371  
Reagents
    104,792       125,260       325,965       347,129  
Total revenues
    184,899       145,140       573,667       383,500  
                                 
Cost of Revenue
                               
Care Services
    172,886       74,525       503,600       196,612  
Reagents
    89,550       86,772       285,875       273,382  
Total cost of revenues
    262,436       161,297       789,475       469,994  
Gross margin
    (77,537 )     (16,157 )     (215,808 )     (86,494 )
                                 
 Operating expenses
                               
Research and development
    45,601       16,610       273,611       213,579  
Selling, general and administrative (including $1,904,687 and $1,357,126, respectively, of compensation expense paid in stock or as a result of amortization of stock options/warrants for three months ended and $3,561,287 and $2,473,733, respectively, for nine months  ended June 30)
    2,681,098       2,070,983       5,592,111       4,712,066  
                                 
           Loss from operations
    (2,804,236 )     (2,103,750 )     (6,081,530 )     (5,012,139 )
                                 
Other income (expenses):
                               
Gain (loss) on derivative liability
    -       (161,332 )     -       477,297  
Loss on disposal of equipment
    -       -       (4,236 )     -  
Interest income
    425       -       782       -  
Interest expense (including $93,103 and $356,573, respectively, of non cash expenses for three months ended, and $99,265 and $1,015,414, respectively, for nine months ended June 30)
    (98,728 )     (394,657 )     (110,224 )     (1,092,589 )
Other income (expenses)
    -       -       (50,000 )     (342 )
                                 
Net loss
  $ (2,902,539 )   $ (2,659,739 )   $ (6,245,208 )   $ (5,627,773 )
                                 
Net loss per common share – basic and diluted
  $ (0.10 )   $ (0.18 )   $ (0.24 )   $ (0.43 )
                                 
Weighted average shares – basic and diluted
    28,554,314       14,774,688       26,473,653       13,017,780  
  
                               

 

See accompanying notes to condensed consolidated financial statements

 
5

 

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


   
Nine Months Ended
 
   
June 30,
 
   
2011
   
2010
 
Cash flows from operating activities:
           
Net loss
  $ (6,245,208 )   $ (5,627,773 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
   Depreciation and amortization
    153,837       753,992  
   Amortization of deferred consulting and financing
    1,951,379       558,868  
   Stock based compensation expense
    1,495,336       200,037  
   Warrants issued for services
    39,572       1,714,828  
   Loss on impairment of investment
    50,000          
   Amortization of debt discount recorded as interest expense
    99,265       970,252  
   Common stock issued for interest
    -       45,162  
   Gain on derivative liability
    -       (477,296 )
   Loss on disposal of property & leased equipment
    5,085          
   Changes in operating assets and liabilities:
               
      Accounts receivable
    (10,945 )     (35,159 )
      Inventories
    (48,834 )     5,681  
      Prepaid expenses and other assets
    308,943       (60,168 )
      Accounts payable
    (135,535 )     199,724  
      Accrued expenses
    76,218       115,315  
      Deferred revenue
    (24,618 )     15,747  
            Net cash used in operating activities
    (2,285,505 )     (1,620,790 )
                 
Cash flows from investing activities:
               
Purchase of assets for operations
    (209,457 )     (36,930 )
Disposal of leased equipment
    -       4,761  
Purchase of leased equipment
    (124,520 )     (71,500 )
Purchase of intangibles
    -       (14,300 )
            Net cash used in investing activities
    (333,977 )     (117,969 )
                 
Cash flows from financing activities:
               
Proceeds from sale of common stock, net of commissions
    456,501       -  
Proceeds from  related-party note payable
    -       55,000  
Proceeds from note payable and associated stock issuance
    300,002       -  
Issuance of Series B preferred stock
    -       600,000  
Payment to related-party note payable
    (25,000 )     -  
Payment to  note payable
    (30,000 )     -  
Proceeds from exercise of warrants
    522,499       350,000  
            Net cash provided by financing activities
    1,224,002       1,005,000  
                 
Net decrease in cash
    (1,395,480 )     (733,759 )
Cash, beginning of period
    1,713,923       830,931  
                 
Cash, end of period
  $ 318,443     $ 97,172  

 

See accompanying notes to condensed consolidated financial statements

 
6

 

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



   
Nine Months Ended
 
   
June 30,
 
   
2011
   
2010
 
Supplemental Cash Flow Information:
           
     Cash paid for income taxes
  $ -     $ -  
     Cash paid for interest
  $ 10,349     $ -  
                 
Non-Cash Investing and Financing:
               
     Issuance of stock for loan origination fees
  $ -     $ 50,500  
     Exercise of warrants for settlement of accrued board fees
  $ 15,000     $ -  
     Issuance of stock for settlement of accrued board fees
  $ 75,000     $ -  









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 information of ActiveCare, Inc. (the “Company” or “ActiveCare”) has been prepared in accordance with the Instructions to Form 10-Q and Article 8-03 of Regulation S-X promulgated by the Securities and Exchange Commission.  Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations.  In the opinion of management, the accompanying interim condensed consolidated financial information contains all adjustments, consisting only of normal recurring adjustments necessary to present fairly the Company’s financial position as of June 30, 2011, and results of its operations for the three months and nine months ended June 30, 2011 and 2010.  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, 2010.  The results of operations for the three months and nine months ended June 30, 2011 may not be indicative of the results for the fiscal year ending September 30, 2011.
 
Going Concern
 
 
The Company incurred a negative gross margin and has negative cash flows from operating activities for the years ended September 30, 2010 and 2009, and for the periods ended June 30, 2011.  These factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
 
In order for the Company to remove substantial doubt about its ability to continue as a going concern, the Company must generate positive cash flows from operations and obtain the necessary funding to meet its projected capital investment requirements.  Management’s plans with respect to this uncertainty include raising additional capital from the sale of the Company’s common stock and increase the sales of the Company services and products.  There can be no assurance that revenues will increase rapidly enough to offset operating losses and repay debts.  If the Company is unable to increase revenues or obtain additional financing, it will be unable to continue the development of its products and may have to cease operations.
 
Use of Estimates in the Preparation of Financial Statements
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
 
2.
Revenue Recognition
 
The Company’s revenue has historically been from two sources: (i) sales from Care Services; and (ii) sales of medical diagnostic stains from reagents.
 
Care Services
 
“Care Services” include contracts in which the Company provides monitoring services to end users and sales of devices to distributors.  The Company typically enters into contracts on a month-to-month basis with customers (members) that use the Company’s Care Services.  However, these contracts may be cancelled by either party at anytime with 30 days notice.  Under the Company’s standard contract, the device becomes billable on the date the customer (member) orders the product, and remains billable until the device is returned to the Company.  The Company recognizes revenue on devices at the end of each month that Care Services have been provided.  In those circumstances in which the Company receives payment in advance, the Company records these payments as deferred revenue.
 

 
8

 
 
The Company recognizes Care Services revenue when persuasive evidence of an arrangement with the customer exists, title passes to the customer, prices are fixed or determinable and collection is reasonably assured.  Shipping and handling fees are included as part of net sales. The related freight costs and supplies directly associated with shipping products to customers are included as a component of cost of goods sold. Customers order the Company’s product lines by phone or website.  The Company does not enter into long-term contracts.  All of the Company’s Care Services sales are made with net 30-day payment terms.
 
In connection with GAAP, to qualify for the recognition of revenue at the time of sale, the Company notes the following:
 
 
·
The Company’s price to the buyer is fixed or determinable at the date of sale.
 
 
·
The buyer has paid the Company, or the buyer is obligated to pay the Company within 30 days, and the obligation is not contingent on resale of the product.
 
 
·
The buyer's obligation to the Company would not be changed in the event of theft or physical destruction or damage of the product.
 
 
·
The buyer acquiring the product for resale has economic substance apart from that provided by the Company.
 
 
·
The Company does not have significant obligations for future performance to directly bring about resale of the product by the buyer.
 
 
·
The amount of future returns can be reasonably estimated and they are negligible.
 
Accounting standards state that, “an enterprise shall report revenues from external customers for each product and service or each group of similar products and services unless it is impractical to do so.”  In the Care Services revenue line, the vast majority of the Company’s sales are Care Service revenue.  Because Care Service equipment sales are not material to the financial statements, the Company discloses sales as one line item.
 
The Company’s revenue recognition policy for sales to distributors is the same as the policy for sales to end-users.
 
A customer qualifies as a distributor by completing a distributor application and proving its sales tax status.  The Company’s distributors are not required to maintain specified amounts of product on hand, and distributors are not required to make minimum purchases to maintain distributor status.  Distributors have no stock rotation rights or additional rights of return.  Revenues from products sold with long-term service contracts are recognized ratably over the expected life of the contract.  Sales to distributors are recorded net of discounts.
 
Sales returns have been negligible, and any and all discounts are known at the time of sale.  Sales are recorded net of sales returns and sales discounts.  There are no significant judgments or estimates associated with the recording of revenues.
 
The majority of our revenue transactions do not have multiple elements.  On occasion, we have revenue transactions that have multiple elements (such as device sales to distributors). In these situations, the Company provides the distributor with the ActiveOne™ device and a monthly monitoring service, which are both included in the contracted pricing. In these multiple element revenue arrangements, we consider whether: (i) the deliverables have value on a standalone basis to the distributors, and (ii) the distributors have a general right of return.   The Company has determined that these elements do have standalone value to distributors and that the performance of undelivered items is probable and substantially within the control of the Company. Therefore, in accordance with accounting standards, the Company has determined that these revenue elements should be considered as separate units of accounting. Accounting standards state that arrangement consideration shall be allocated at the inception of the arrangement to all deliverables on the basis of their relative selling price. When applying the relative selling price method, the selling price for each deliverable shall be determined using vendor-specific objective evidence of selling price, if it exists; otherwise, third-party evidence will be used to determine the selling price. If neither vendor-specific objective evidence nor third-party evidence of selling price exists for a deliverable, the vendor shall use its best estimate of the selling price for that deliverable.
 
 
9

 
 
The Company does not currently sell, nor does it have intentions to sell the ActiveOne™ device separately from the monthly monitoring service, therefore the Company is not able to determine vendor-specific objective evidence of selling price. The Company is also unable to determine third-party evidence of selling price, because there is not a similar product in the market. The ActiveOne™ device is the only device in the market with fall detection technology. The Company is therefore required to determine its best estimate of selling price in order to determine the relative selling price of the separate deliverables in its revenue arrangements. In order to determine the best estimate of selling price of the ActiveOne™ device, the Company included the following cost components in its estimate: production costs, development costs, PTCRB certification costs, and estimated gross margin. In order to determine the best estimate of the monthly monitoring service, the Company included the following components in its estimate: monthly communication costs, monitoring labor costs, PSAP database and monthly maintenance costs, and estimated gross margin. The Company allocates the arrangement costs based on these best estimates of selling price. The relative selling price allocated to the sale of the ActiveOne™ device is recognized when the device is delivered to the distributor. The relative selling price of the monitoring service is recognized monthly when the services have been provided.
 
Reagents
 
The Company recognizes medical diagnostic stains (“Reagents”) revenue when persuasive evidence of an arrangement with the customer exists, title passes to the customer, prices are fixed or determinable and collection is reasonably assured.
 
Shipping and handling fees are included as part of net sales. The related freight costs and supplies directly associated with shipping products to customers are included as a component of cost of goods sold. Neither the sale of diagnostic equipment nor the sale of medical diagnostic stains contains multiple deliverables.
 
Customers order the Company’s diagnostic stain product lines by purchase order.  The Company does not enter into long-term contracts.  Its medical diagnostic stain sales were $104,792 the quarter ended June 30, 2011.  All of the Company’s Reagents sales are made with net 30-day payment terms.
 
In connection with GAAP, to qualify for the recognition of revenue at the time of sale, the Company notes the following:
 
 
·
The Company’s price to the buyer is fixed or determinable at the date of sale.
 
 
·
The buyer has paid the Company, or the buyer is obligated to pay the Company within 30 days, and the obligation is not contingent on resale of the product.
 
 
·
The buyer's obligation to the Company would not be changed in the event of theft or physical destruction or damage of the product.
 
 
·
The buyer acquiring the product for resale has economic substance apart from that provided by the Company.
 
 
·
The Company does not have significant obligations for future performance to directly bring about resale of the product by the buyer.
 
 
·
The amount of future returns can be reasonably estimated and they are negligible.
 
 
·
Customers may return diagnostic equipment within 30 days of the purchase date. Customers may return the medical diagnostic stains within 30 days of the purchase date provided that the stain’s remaining life is at least eight months. Customers must obtain prior authorization for a product return.
 
The Company’s diagnostic stain products have not been modified significantly for several years.  There is significant history on which to base the Company’s estimates of sales returns.  These sales returns have been negligible.
 
 
10

 
 
The Company has 70 types of products based on the number of individual stock-keeping units (“SKUs”) in its inventory.  Most of these 70 SKUs are for medical diagnostic stain inventory.  For example, certain medical diagnostic stains are packaged in different sizes, and each packaged size (i.e. 16 oz., 32 oz., and 48 oz.) has a unique SKU in inventory.  Accounting standards state that, “an enterprise shall report revenues from external customers for each product and service or each group of similar products and services unless it is impractical to do so.”  The vast majority of the Company’s stains sales are of medical diagnostic stains, with a minimal portion of sales being diagnostic equipment.  
 
Although not the focus of the Company’s new business model, the Company also sells diagnostic devices in certain situations.  The Company recognizes device sales revenue when persuasive evidence of an arrangement with the customer exists, title passes to the customer and the customer cannot return the devices, prices are fixed or determinable and collection is reasonably assured.  Because diagnostic equipment sales are not material to the financial statements, the Company discloses the sales as one line item for Reagents in the statement of operation.
 
The Company’s revenue recognition policy for sales to distributors is the same as the policy for sales to end-users.
 
A customer qualifies as a distributor by completing a distributor application and proving its sales tax status.  Upon qualifying as a distributor, a customer receives a 35% discount from retail prices, and the distributor receives an additional 5% discount when product is purchased in case quantities.  The Company’s distributors are not required to maintain specified amounts of product on hand, and distributors are not required to make minimum purchases to maintain distributor status.  Distributors have no stock rotation rights or additional rights of return.  Sales to distributors are recorded net of discounts.
 
Sales returns have been negligible, and any and all discounts are known at the time of sale.  Sales are recorded net of sales returns and sales discounts.  There are no significant judgments or estimates associated with the recording of revenues.
 
3.
Net Loss per Common Share
 
Diluted net loss per common share ("Diluted EPS") is computed by dividing net loss by the sum of the weighted average number of common shares outstanding and the weighted-average dilutive common share equivalents then outstanding.  The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutive effect.
 
Common share equivalents consist of shares issuable upon the exercise of common stock warrants.  As of June 30, 2011 and 2010, there were 14,289,000 (including 637,000 shares of contingent restricted stock issuance to employees) and 14,663,865 outstanding common share equivalents, respectively, that were not included in the computation of Diluted EPS as their effect would be anti-dilutive.
 
4.
Recent Accounting Pronouncements
 
In June 2009, the FASB issued accounting guidance on the consolidation of variable interest entities (“VIEs”). This guidance revised previous guidance by eliminating the exemption for qualifying special purpose entities, by establishing a new approach for determining who should consolidate a variable-interest entity and by changing when it is necessary to reassess who should consolidate a variable-interest entity.  This guidance was effective at the beginning of the first fiscal year beginning after November 15, 2009.  The Company adopted this guidance on October 1, 2010.  The application of this guidance did not have a material impact on the Company’s financial statements.
 
In September 2009, the FASB issued guidance that changes the existing multiple-element revenue arrangements guidance currently included under its Revenue Arrangements with Multiple Deliverables codification. The revised guidance primarily provides two significant changes: 1) eliminates the need for objective and reliable evidence of the fair value for the undelivered element in order for a delivered item to be treated as a separate unit of accounting, and 2) eliminates the residual method to allocate the arrangement consideration. In addition, the guidance also expands the disclosure requirements for revenue recognition. This was effective for the first annual reporting period beginning on or after June 15, 2010, with early adoption permitted provided that the revised guidance is retroactively applied to the beginning of the year of adoption.  The Company adopted this guidance effective October 1, 2010 and recognized $25,456 of deferred revenue.
 

 
11

 
 
In October 2009, the FASB issued guidance on share-lending arrangements entered into on an entity's own shares in contemplation of a convertible debt offering or other financing.  This guidance was effective for fiscal years beginning on or after December 15, 2009, and interim periods within those fiscal years for arrangements outstanding as of the beginning of those years.  The Company adopted this guidance on October 1, 2010.  The application of this guidance did not have a material impact on the Company’s financial statements.
 
5.
Inventory
 
Inventories are recorded at the lower of cost or market, cost being determined on a first-in, first-out ("FIFO") method. Inventories consisted of raw materials, work-in-process, and finished goods.  Inventories as of June 30, 2011 and September 30, 2010, were as follows:
 
   
June 30, 2011
   
September 30, 2010
 
             
Care Services (ActiveHome™) Inventory
  $ 48,114     $ -  
Reagent Inventory
               
Raw materials
  $ 35,860     $ 35,127  
Work in process
    4,193       3,086  
Finished goods
    6,258       7,629  
Reserve for inventory obsolescence
    -       (251 )
Inventory Valuation
    (4,075 )     (4,075 )
Total inventory
  $ 90,350     $ 41,516  
     
Provisions, when required, are made to reduce excess and obsolete inventories to their estimated net realizable values.  Due to competitive pressures and technological innovation, it is possible that estimates of the net realizable value could change in the near term.
 
6.
Property and Equipment
 
Property and equipment are stated at cost, less accumulated depreciation and amortization.  Depreciation and amortization are determined using the straight-line method over the estimated useful lives of the assets, typically three to seven years.  Leasehold improvements are amortized over the shorter of the estimated useful lives of the asset or the term of the lease.  Expenditures for maintenance and repairs are expensed while renewals and improvements over $500 are capitalized.  When property and equipment are disposed, any gains or losses are included in the results of operations.
 
 
Property and equipment consisted of the following as of June 30, 2011 and September 30, 2010:
 
 
   
June 30, 2011
   
September 30, 2010
 
Equipment
  $ 233,166     $ 195,499  
Software
    28,029       20,032  
Leasehold improvements
    402,016       274,437  
Furniture and fixtures
    54,473       26,314  
 
    717,684       516,282  
Accumulated depreciation
    (468,351 )     (427,827 )
Property and equipment, net of accumulated depreciation
  $ 249,333     $ 88,455  
 
 
Depreciation expense for the nine months ended June 30, 2011, and 2010, was $43,495, and $16,970, respectively.
 

 
12

 

7.
Leased Equipment
 
Leased equipment at June 30, 2011 and September 30, 2010, is as follows:
 
   
June 30, 2011
   
September 30, 2010
 
Leased equipment
  $ 182,194     $ 118,465  
Less accumulated depreciation
    (45,703 )     (21,921 )
Leased equipment, net
  $ 136,491     $ 96,544  
The Company began leasing monitoring equipment to customers for Care Services in October 2009.  The leased equipment is depreciated on the straight-line method over the estimated useful lives of the related assets over three years regardless if the equipment is leased to a customer or remaining in stock.  Customers have the right to cancel the service agreements anytime.  The leased equipment depreciation expense is recorded under Cost of Revenue for Care Services. Leased equipment depreciation expense for the nine months ended June 30, 2011, and 2010, was $47,832 and $16,292, respectively.
 
8.
Investment
 
On May 21, 2010, the Company entered into a “Co-Development and Exclusive Distribution Agreement” with Vista Therapeutics, Inc. (“Vista”) for the development and co-marketing of NanoBiosensor™ -based biomarker assessment products for use with the Company’s proprietary line of continuous patient monitoring products marketed to the elderly and senior market.  In connection with the Co-Development Agreement, the Company made an investment in Vista’s Series B Preferred Stock in the amount of $50,000.  The Vista Series B Preferred Stock is convertible into Common Stock of Vista under certain conditions and grants to the holder certain rights and preferences, subject to prior rights granted to the holders of Vista’s Series A-1 Preferred Stock and Series A-2 Preferred Stock.  The Company impaired the full value of the investment during the quarter ended March 31, 2011.
 
9.
Patent License Agreement
 
During the year ended September 30, 2009, the Company licensed the use of certain patents from a third party.  This license agreement will aid the Company as it furthers its business plan.  The Company is required to pay $300,000 plus a 5% royalty on the net sales of all licensed products and the Company  has the right to purchase the underlying patents for 4,000,000 shares of common stock. The Company has capitalized the patents and is amortizing them over the remaining estimated useful life of nine years.  The Company has recognized $25,234 of amortization expense as of the nine months ended June 30, 2011 and 2010, respectively.  The Company has also recognized $16,098 and $0, respectively, of royalty expense as of nine months ended June 30, 2011 and 2010.  The Company had not paid the $300,000 or the accrued royalty payable of $16,098 as of June 30, 2011, but is in negotiations to cure the default.
 
10.
Notes Payable
 
During the nine months ended June 30, 2011, the Company owed $25,000 to one of its officers.  The note had an annual interest rate of 12% and was due on demand.  The Company repaid the loan together with $1,915 of interest during the quarter ended December 31, 2010.  During the same period, the Company also owed $30,000 and $300,000 to two unrelated parties.  Both of the notes have an annual interest rate of 12% and were due on December 31, 2010 and June 30, 2011, respectively.  The Company repaid the $30,000 loan together with $1,659 of interest during the quarter ended December 31, 2010.  As of June 30, 2011, the Company still owes the $300,000 loan, and the Company recognized $5,564 of interest expense during the period of nine months ended June 30, 2011.  In connection with the $300,000 loan, the Company also issued 225,000 shares of common stocks with a total value of $93,103 as a loan origination fee.  The Company fully amortized the loan origination fee during the quarter ended June 30, 2011.
 
11.
Common Stock
 
During the nine months ended June 30, 2011, the Company issued the following shares of common stock:
 
 
·
1,962,500 shares for cash proceeds of $456,500;
 

 
13

 

 
·
2,090,000 shares for warrants exercised for cash proceeds of $522,500;
 
 
·
162,000 shares for accrued director fees of $90,000;
 
 
·
225,000 shares in consideration for loan origination fee with value of $93,103;
 
 
·
1,072,500 shares in consideration for services in connection with marketing and product branding service with value of $843,750;
 
 
·
17,000 shares as payment for research and development services with value of $15,300;
 
 
·
950,000 shares to company employees for services with value of 437,000;
 
 
·
4,000,000 shares under a new employment contract with an officer for services to be rendered through September 2014.  The value of these shares of common stock totaled $1,840,000.
 
In March 2010, the Company issued 2,000,000 shares of common stock with a fair value on the date of grant of $2,020,000 in connection with a 15-month consulting services agreement.  The Company has been recognizing the associated consulting expense over a 15-month period starting March 2010 and ended May 2011.  For the nine months ended June 30, 2011, the Company recognized $1,077,331 of consulting expense related to the issuance of these shares.
 
12.
Warrants
 
During June 2011, the Company entered into a new service contract with one of its officers for services to be rendered from October 2010 through September 2014.  As part of this service contract, the Company issued warrants for the purchase of 3,000,000 shares of common stock to this officer, as payment for past and future services.  During June 2011, the Company also issued warrants for the purchase of 150,000 shares of common stock to a consultant for marketing services previously provided.  All of these warrants vested immediately and are exercisable at a price of $0.50 per share through June 21, 2016.  The fair value of the warrants issued at the date of grant was $791,434 and $39,572, respectively, and was measured using the Black-Scholes valuation model using the following assumptions: exercise price of the warrants at $0.50; risk free interest rate of 0.68%; expected life of 2.5 years; expected dividend of zero; a volatility factor of 104%; and market price on date of grant of $0.46.  Expected volatilities are based on historical volatility of a peer 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 for periods within the contractual life of the warrants is based on the U.S. Treasury yield curve in effect at the time of grant.  During the three and nine months ended June 30, 2011, the Company recognized $187,966 of consulting expense related to the grant of these warrants.
 
The following table summarizes information about stock options and warrants outstanding as of June 30, 2011:

Options
 
Number of Options
and Warrants
   
Weighted-Average
Exercise Price
 
Outstanding as of September 30, 2010
    12,604,000     $ 0.47  
Granted
    3,150,000     $ 0.50  
Exercised
    (2,102,000 )   $ 0.26  
Forfeited
    -       -  
Outstanding as of June 30, 2011
    13,652,000     $ 0.51  

As of June 30, 2011, the total aggregate intrinsic value of the outstanding warrants is $1,953,300, and the weighted average remaining term of the warrants is 3.54 years.
 

 
14

 

13.           Segment Information
 
The Company is organized into two business segments based primarily on the nature of the Company's products. The Stains and Reagents segment is engaged in the business of manufacturing and marketing medical diagnostic stains, solutions and related equipment to hospitals and medical testing labs. The Care Services segment is engaged in the business of developing, distributing and marketing mobile health monitoring and concierge services to distributors and customers.

The following table reflects certain financial information relating to each reportable segment for the three-month and nine-month periods ended June 30, 2011 and 2010:
 
   
Care Services
   
Stains and Reagents
   
Total
 
Three Months Ended June 30, 2011
                 
Sales to external customers
  $ 80,107     $ 104,792     $ 184,899  
Segment loss
  $ (2,865,807 )   $ (36,732 )   $ (2,902,539 )
Segment assets
  $ 817,959     $ 397,718     $ 1,215,677  
Depreciation and amortization
  $ 38,589     $ 3,636     $ 42,225  
                         
Three Months Ended June 30, 2010
                       
Sales to external customers
  $ 19,880     $ 125,260     $ 145,140  
Segment loss
  $ (2,554,080 )   $ (105,659 )   $ (2,659,739 )
Segment assets
  $ 584,707     $ 209,721     $ 794,428  
Depreciation and amortization
  $ 13,170     $ 6,252     $ 19,422  
                         
Nine Months Ended June 30, 2011
                       
Sales to external customers
  $ 247,702     $ 325,965     $ 573,667  
Segment loss
  $ (6,138,658 )   $ (106,550 )   $ (6,245,208 )
Segment assets
  $ 817,959     $ 397,718     $ 1,215,677  
Depreciation and amortization
  $ 113,273     $ 10,791     $ 124,064  
                         
Nine Months Ended June 30, 2010
                       
Sales to external customers
  $ 36,371     $ 347,129     $ 383,500  
Segment loss
  $ (5,016,033 )   $ (611,740 )   $ (5,627,773 )
Segment assets
  $ 584,707     $ 209,721     $ 794,428  
Depreciation and amortization
  $ 737,022     $ 16,970     $ 753,992  

 
14.
Commitments and Contingencies
 
The Company leases a CareCenter facility and an office facility with lease contracts expiring in February 2014, and November 2015, respectively.  The Company is also party to three equipment lease contracts expiring in June 2012, August 2013, and August 2016.  Future minimum rental payments under the non-cancelable operating lease as of June 30, 2011, are approximately as follows:

 
 
15

 
 
 
Lease Obligations
     
       
Year Ending September 30:
     
2011
  $ 37,677  
2012
    145,976  
2013
    144,026  
2014
    95,028  
2015
    68,139  
2016
    12,798  
        Total
  $ 503,644  
Rent expense related to the CareCenter and office facility leases was approximately $41,329 and $22,500 including base real property taxes for the quarters ended June 30, 2011, and 2010, respectively.  For the nine months ended June 30, 2011, and 2010, the expense was $99,529 and $63,670, respectively.
 
15.
Subsequent Event
 
Subsequent events have been evaluated through the date these financial statements were issued. No events required disclosure.
 

 

 
16

 

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations
 
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader better understand our operations and our present business environment.  This MD&A is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements for the fiscal years ended September 30, 2010, and 2009, and the accompanying notes thereto contained in our Annual Report on Form 10-K. Unless otherwise indicated, the terms “ActiveCare,” the “Company,” “we,” and “our” refer to ActiveCare, Inc., a Delaware corporation.
 
Overview
 
Historically, our core business has been the manufacture, distribution and sale of medical diagnostic stains and solutions.  In February 2009, we were spun off from our former parent, SecureAlert, Inc., formerly known as RemoteMDx, Inc. (“SecureAlert”).  In connection with the spin-off, we acquired from SecureAlert the exclusive license rights to certain technology, including patent rights utilizing GPS and cellular communication and monitoring technologies for use in the healthcare and personal security markets.  In May 2009, we obtained worldwide and exclusive rights to additional patents and patent applications, including the Panic Button Phone, Emergency Phone with Single Button Activation, Emergency Phone for Automatically Summoning Multiple Emergency Response Services, and Emergency Phone with Alternate Number Calling Capability. With regard to intellectual property, the Company believes that the 12/614,242 patent filed in November 2009 is extremely important.  This systems patent serves as an “umbrella” and incorporates much of our intellectual properties.  Our business plan is to develop and market products for monitoring the health of and providing assistance to mobile and homebound seniors and the chronically ill, including those who may require a personal assistant to check on them during the day to ensure their safety and well being.
 
Recent Developments
 
We have financed operations almost exclusively through the sale of equity securities and borrowing under short-term debt instruments.  Accordingly, if our revenues continue to be insufficient to meet our needs, we will attempt to secure additional financing through traditional bank financing or the sale of debt or equity securities.  However, because of the developing nature of the business and the potential of a future poor financial condition, we may be unsuccessful in obtaining such financing or the amount of the financing may be minimal and therefore inadequate to implement our continuing plan of operations. There can be no assurance that we will be able to obtain financing on satisfactory terms or at all, or to raise funds through a debt or equity offering. If we only have nominal funds with which to conduct our business activities, this will negatively impact our results of operations and financial condition.
 
During December 2010, we announced the market launch of a comprehensive in-home wellness solution that complements and integrates with our current CareCenter service and ActiveOne™ mobile health product. The ActiveHome™ solution integrates several in-home health and wellness monitoring and convenience products and services to ensure members’ well-being, safety and convenience.  A public open house introducing the ActiveHome™ solution was held in January 2011.
 
Marketing and Market
 
There are three distinct target segments that will purchase and subscribe to our products and services:
 
 
1.
Users – The typical end user is a senior living at home and concerned with his or her ability to remain in the home.
 
 
2.
Caregivers – Includes family members concerned with an older relative’s ability to remain independent, who actively provides some assistance or desires to do so.
 
 
3.
Insurers – Medicare and private insurers who are willing to pay for the service in order to reduce future medical costs.
 
As we begin to market our products and services, it is important to understand the characteristics of each of these segments.
 

 
17

 

Users Segment
 
This segment is characterized by seniors still living in their own homes that are typically at least 75 or older, most likely female and semi-independent.  They are most likely beginning to have some difficulty maintaining their independence.  They are well aware of diminished capacities, but wary of addressing the issue.  Their greatest fears are loss of independence and moving out of their home into a nursing home or similar care facility.  These fears are triggered by health problems, memory problems and the inability to drive and/or get around on their own.  Seniors who do require help from others receive assistance with household maintenance, transportation and healthcare.  This group places value in products that simplify life and generate convenience, and that give them peace of mind in confronting their health and emergency needs.
 
Caregivers Segment
 
Caregivers are typically part of the “sandwich” generation: they are baby boomers who have a living parent as well as children of their own.  They most likely provide support to the aging parent either physically or financially.  The majority of elderly parents requiring care from children are mothers.  Baby Boomers fear that their parents will be mistreated in a nursing home and fear their parents will be depressed.  It is important for these caregivers that their senior parents are allowed to age in place and that the caregivers need not be concerned about financially supporting their parents.  The caregivers would help monitor their parents’ safety and wellbeing.  This segment is concerned about seeing that their parents’ medical needs are being handled appropriately and knowing what may happen in an emergency situation.
 
Insurers Segment
 
This segment is concerned primarily with medical costs and how to reduce them while improving care.  Insurers, whether private or government, are concerned about expensive hospital stays that drive up healthcare costs.  These costs are normally driven up by acute events caused by the mismanagement of chronic diseases.  The insurers know that the quicker a medical problem is addressed the less expensive the ultimate outcome.  Insurers will adopt technologies once they have been verified to save them money.
 
Our marketing program is focused on reaching out to each of these three segments as follows:
 
Insurers Channel
 
We have created strategic relationships with various insurance companies such as AmeriLife and Universal Health Care.  The primary business model and motivator for the insurance segment is saving money.  These savings are generated by the reduction in health care costs associated with utilization of skilled nursing facilities.  We have focused our efforts in dealing with insurance companies that are early adopters in this arena.
 
Healthcare Providers Channel
 
We have created strategic relationships with healthcare providers.  We coordinate our efforts with hospitals and physicians and assist their patients once they are released from the hospital.  This includes managed care, skilled nursing facilities, hospice, home health and personal care, therapy services, and independent assisted living.  In essence the healthcare agency would like the patient to continue to use it as his or her health provider after the patient is released from the hospital.  The current value proposition we offer to healthcare agencies is that our services and products allow the agencies to keep “ownership” of the patient as we provide all of the interim needs for two to five years while the senior desires to stay in his or her own home.  As patients are released from nursing homes and rehabilitation centers, the agency then recommends the ActiveCare product offerings to them.  In turn, when health problems arise, our CareSpecialist recommends the agency as a possible solution.  In this way the patient stays within the agency’s system.
 
Direct Marketing Channel
 
In addition to the marketing initiatives described above, we have also focused on direct marketing to caregivers.  In a lot of cases, caregivers along with their senior parents pay for the costs associated with institutionalized care.  Therefore, we estimate that not only could they derive significant savings associated with our product offerings, but using our products and services will also allow their senior parents to continue to live in their own homes with greater peace of mind and with less disruption.
 

 
18

 

One of the most effective ways to make a sale in this industry requires a person to actually experience the ActiveHome System.  Therefore, a pilot direct marketing program will be initiated in the Salt Lake City area to 90,786 seniors.  It is estimated that somewhere between 5,000 and 17,000 of these seniors are in immediate need of the ActiveCare service.  After we have perfected the sales approach in our local Utah market we will begin a roll-out to the national market.  The marketing program calls for initially acquiring lists of potential clients age 75 and over who own a home, have a credit card and live in affluent areas.  These lists of potential clients will be scrubbed and mined in compliance with national solicitation laws.  We will also generate leads for our marketers using proven and these leads will be continually expanded, shaped and culled as we progress with our plan.
 
Research and Development Program
 
General Information
 
GPS technology utilizes highly accurate clocks on 24 satellites orbiting the earth owned and operated by the U.S. Department of Defense.  These satellites are designed to transmit their identity, orbital parameters and the correct time to earthbound GPS receivers at all times.  Supporting the satellites are several radar-ranging stations maintaining exact orbital parameters for each satellite and transmitting that information to the satellites for rebroadcast at frequencies between 1500 and 1600 MHz.
 
A GPS receiver (or engine) scans the frequency range for GPS satellite transmissions.  If the receiver can detect three satellite transmissions, algorithms within the engine deduce its location, usually in terms of longitude and latitude, on the surface of the earth as well as the correct time.  If the receiver can detect four or more GPS satellite transmissions, it can also deduce its own elevation above sea level.  The effectiveness of GPS technology is limited by obstructions between the device and the satellites and, therefore, service can be interrupted or may not be available at all if the user is located in the lower floors of high-rise buildings or underground.
 
During the nine months ended June 30, 2011, we spent $228,611 on research and development (“R&D”).  R&D expense during the period involved the ActiveOne™, a one-button actuated GPS/Cellular communications device (“Companion Device”) that links to our CareCenter.  This device includes fall detection, Geo Fencing, automatic calls to the CareCenter, text messaging, hands free speakerphone and other features.  Also in development is the ActiveOne+™ (ActiveOnePlus), which will communicate through Bluetooth technology with the Companion Device.  Our goal is to develop a wristwatch-size monitoring device for senior citizens.  The wrist device will be water resistant, include fall detection, speakerphone, vibration alerts, audible alerts, and LED’s for status monitoring.  The watch will be universal for women and men with an adjustable strap.  We have identified and are working with several vendors for services that will further these objectives.  The R&D also involved the ActiveHome™, our comprehensive in-home wellness solution that complements and integrates with our current CareCenter service and ActiveOne™ mobile health products.  The ActiveHome™ solution integrates several in-home health and wellness monitoring and convenience products and services available from various manufacturers and service providers to ensure members’ well-being, safety and convenience.
 
An important part of this R&D program is our relationship with Quectel Wireless Solutions, Ltd. (“Quectel”), to assist in development of the ActiveOne™ and the next generation device, the ActiveOne+™.
 
Quectel’s focus is on the wireless machine-to-machine (“M2M”) market sector.  Quectel designs and manufactures a variety of wireless modules to fulfill many industrial standards and requirements.  Quectel products have been developed for the wireless M2M sectors such as smart metering, automotive, sales and payment, security, tracking and tracing, remote control and monitoring, and mobile computing.
 
The core team members of Quectel are the pioneers of the wireless module industry in China.  Quectel’s R&D team is dedicated to quality and reliability, and realizes that these are the key factors to continued success in the wireless M2M business.  Quectel products are capable of maintaining reliable performance, even in extreme environments.
 
CareCenter
 
In concert with the development of our products, we also created the CareCenter.  In contrast to a typical monitoring center, the CareCenter is equipped with hardware and software that pinpoints the location of the incoming caller by utilizing GPS and/or cellular triangulation technology.  This capability is referred to as telematics.  The operator (or CareSpecialist) is able to locate the caller’s precise location on a detailed map.  In addition the CareCenter software can identify the caller, provide location services, emergency dispatch, medical history to emergency responders, and concierge services.
 

 
19

 
 
We believe the CareCenter is the cornerstone of our business.  The CareCenter services include highly trained CareSpecialists to assist the elderly 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 numerous products designed to assist the elderly maintain a more active and mobile lifestyle.  The first product that we introduced is the ActiveOne™ device.  The ActiveOne™ is a patented mobile personal emergency response ("PERS") device that allows the user to contact our CareCenter at the push of a button.  The ActiveOne™ constantly communicates its location to the CareCenter by utilizing GPS technology.  This allows the CareCenter Specialists to constantly help and assist the elderly customer no matter where they may be.
 
Our plan is to continue to invest monies into R&D and patents as we broaden the services offered by our CareCenter.  Eventually we intend to add to the functionality of the ActiveOne™ to allow for vital sign monitoring for the chronically ill and additional services to assist both the mobile and homebound seniors, including those who may require a personal assistant to check on them during the day to ensure their safety and well being and know where they are at all times.
 
ActiveOne+
 
ActiveOne+™ is the second-generation PAL (“Personal AssistanceLink”) handset, which includes one button connection to the CareCenter, GPS locating and fall detection technology all in one unit.  The ActiveOne+™ features enhanced fall detection to better detect when a fall occurs as well as enhanced locating technology that combines both GPS and cellular triangulation that allows our CareCenter to locate a member within several meters 24 hours per day, 7 days a week, to better respond to any emergency condition.  In addition the ActiveOne+™ has built-in receptors utilizing Bluetooth technologies to accommodate body-worn devices that can communicate vital sign data to the CareCenter.  We are currently seeking FCC certification of the ActiveOne+.
 
ActiveWatch
 
The ActiveWatch™ incorporates all of the core features of the PAL handsets into an easy to wear wrist device.  The ActiveWatch™ combines GPS, Cellular and fall detection technology that communicates directly to the CareCenter.  The device is also water resistant and can be worn in the shower, providing protection wherever the member may be.  The ActiveWatch™ also incorporates heart rate sensors that can alert the CareCenter when the heart rate is irregular; it also incorporates Bluetooth technology that accommodates other body-worn devices.
 
ActiveHome
 
During the quarter ended March 31, 2011, we launched our comprehensive in-home wellness solution that complements and integrates with our current CareCenter service and ActiveOne™ mobile health products.  The ActiveHome™ solution integrates several in-home health and wellness monitoring and convenience products and services available from various manufacturers and service providers to ensure members’ well-being, safety and convenience.
 
The ActiveHome™ integrates technological solutions including: (1) remote home monitoring to detect changes in members’ activity patterns that might indicate health emergency situations so our CareSpecialists can proactively avert emergencies; (2) an electronic pillbox to ensure prescription compliance; (3) remote in-home actions initiated from our CareCenter, such as locking and unlocking doors and turning off unattended stoves; (4) electronic conveniences, including automatic illumination of house lights; and (5) wireless transmission of health data including weight, blood pressure, and blood glucose so our trained CareSpecialists can act upon potentially life-threatening changes.  In addition to technological solutions, the ActiveHome™ comprehensive offering includes installation of in-home safety and convenience items including easy access bathtubs and bed and chair support rails.
 
All ActiveHome™ components are linked through Bluetooth and wireless connections to an easy to use portal in the home, and the entire home is linked 24/7 to trained CareSpecialists at our ActiveCare CareCenter through the portal and the ActiveOne™ mobile unit.
 

 
20

 

Critical Accounting Policies
 
The following summary includes accounting policies that we deem to be most critical to our business.  Management considers an accounting estimate to be critical if:
 
 
·
It requires assumptions to be made that were uncertain at the time the estimate was made, and
 
 
·
Changes in the estimate or different estimates that could have been selected could have a material impact on its consolidated results of operations or financial condition.
 
Use of Estimates in the Preparation of Financial Statements
 
We have prepared and included with this report condensed consolidated unaudited financial statements in conformity with GAAP.
 
The preparation of financial statements requires management to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses during the reporting period.  By their nature, these estimates and judgments are subject to an inherent degree of uncertainty.  On an on-going basis, we evaluate our estimates, including those related to bad debts, inventories, intangible assets, warranty obligations, product liability, revenue recognition, and income taxes.  We base our estimates on historical experience and other facts and circumstances that are believed to be reasonable and the results provide a basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions, and these differences may be material.
 
With respect to concentration of credit risk, allowances for doubtful accounts receivable, inventories, impairment of assets, revenue recognition, and research and development, those material accounting policies that we believe are critical to an understanding of our financial results and condition are as described below.
 
Concentration of Credit Risk
 
We have cash in bank accounts that, at times, may exceed federally insured limits.  We have not experienced any losses in such accounts.
 
In the normal course of business, we provide credit terms to our customers.  Accordingly, we perform ongoing credit evaluations of customers' financial condition and require no collateral from customers.  We maintain an allowance for uncollectable accounts receivable based upon the expected collectability of all accounts receivable.
 
Accounts Receivable
 
Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis.  Specific reserves are estimated by management based on certain assumptions and variables, including the customer’s financial condition, age of the customer’s receivables and changes in payment histories.  Trade receivables are written off when deemed uncollectible.  Recoveries of trade receivables previously written off are recorded when received.  A trade receivable is considered to be past due if any portion of the receivable balance has not been received by the contractual pay date.  Interest is not charged on trade receivables that are past due.
 
Inventories
 
Inventories are recorded at the lower of cost or market, cost being determined on a first-in, first-out ("FIFO") method. Reagent inventories consist of raw materials, work-in-process, and finished goods.  Care Services inventory consist of ActiveHome inventories.  Provisions, when required, are made to reduce excess and obsolete inventories to their estimated net realizable values.  Due to competitive pressures and technological innovation, it is possible that estimates of the net realizable value could change in the near term. 
 
Property and Equipment
 
Property and equipment are stated at cost, less accumulated depreciation and amortization.  Depreciation and amortization are determined using the straight-line method over the estimated useful lives of the assets, typically three to seven years.  Leasehold improvements are amortized over the shorter of the estimated useful lives of the asset or the term of the lease.  Expenditures for maintenance and repairs are expensed while renewals and improvements over $500 are capitalized.  When property and equipment are disposed, any gains or losses are included in the results of operations.
 

 
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Leased Equipment
 
Our leased equipment is stated at cost less accumulated depreciation and amortization.  We amortize the cost of leased equipment on the straight line method over thirty six months, which is the estimated useful life of the equipment.  Amortization of leased equipment is recorded as cost of sales.
 
Revenue Recognition
 
Our revenue has historically been from two sources: (i) sales from Care Services; (ii) sales of medical diagnostic stains from reagents.
 
Care Services
 
“Care Services” include lease contracts in which we provide Care Services and lease devices to distributors or end users and retain ownership of the leased device.  We typically lease devices on a month-to-month contract with customers (members) that use our Care Services.  However, these contracts may be cancelled by either party at anytime with 30 days notice.  Under our standard contract, the leased device becomes billable on the date the member orders the product, and remains billable until the device is returned.  We recognize revenue on leased devices at the end of each month that Care Services have been provided.  In those circumstances in which we receive payment in advance, these payments are recorded as deferred revenue.
 
Customers order our products by phone or website.  We do not enter into long-term contracts.
 
In connection with GAAP, to qualify for the recognition of revenue at the time of sale, we note the following:
 
 
·
The price to the buyer is fixed or determinable at the date of sale.
 
 
·
The buyer has paid or the buyer is obligated to pay within 30 days, and the obligation is not contingent on resale of the product.
 
 
·
The buyer's obligation would not be changed in the event of theft or physical destruction or damage of the product.
 
 
·
The buyer acquiring the product for resale has economic substance apart from that provided by the Company.
 
 
·
We do not have significant obligations for future performance to directly bring about resale of the product by the buyer.
 
 
·
The amount of future returns can be reasonably estimated and they are negligible.
 
Accounting standards state that, “an enterprise shall report revenues from external customers for each product and service or each group of similar products and services unless it is impractical to do so.”  In the Care Services revenue line, the vast majority of our sales are Care Service revenues.  Because Care Service equipment sales are not material to the financial statements, we disclose sales as one line item.
 
Our revenue recognition policy for sales to distributors is the same as the policy for sales to end-users.
 
A customer qualifies as a distributor by completing a distributor application and proving its sales tax status.  Upon qualifying as a distributor, a customer receives a discount from retail prices or receives commission per sale according to the contract.  Our distributors are not required to maintain specified amounts of inventory on hand, and distributors are not required to make minimum purchases to maintain distributor status.  Distributors have no stock rotation rights or additional rights of return.  Sales to distributors are recorded net of discounts.
 
Sales returns have been negligible, and any and all discounts are known at the time of sale.  Sales are recorded net of sales returns and sales discounts.  There are no significant judgments or estimates associated with the recording of revenues.
 
The majority of our revenue transactions do not have multiple elements.  On occasion, we have revenue transactions that have multiple elements (such as device sales to distributors). In these situations, the Company provides the distributor with the ActiveOne™ device and a monthly monitoring service, which are both included in the contracted pricing. In these multiple element revenue arrangements, we consider whether: (i) the deliverables have value on a standalone basis to the distributors, and (ii) the distributors have a general right of return.   The Company has determined that these elements do have standalone value to distributors and that the performance of undelivered items is probable and substantially within the control of the Company. Therefore, in accordance with accounting standards, the Company has determined that these revenue elements should be considered as separate units of accounting. Accounting standards state that arrangement consideration shall be allocated at the inception of the arrangement to all deliverables on the basis of their relative selling price. When applying the relative selling price method, the selling price for each deliverable shall be determined using vendor-specific objective evidence of selling price, if it exists; otherwise, third-party evidence will be used to determine the selling price. If neither vendor-specific objective evidence nor third-party evidence of selling price exists for a deliverable, the vendor shall use its best estimate of the selling price for that deliverable.
 

 
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The Company does not currently sell, nor does it have intentions to sell the ActiveOne™ device separately from the monthly monitoring service, therefore the Company is not able to determine vendor-specific objective evidence of selling price. The Company is also unable to determine third-party evidence of selling price, because there is not a similar product in the market. The ActiveOne™ device is the only device in the market with fall detection technology. The Company is therefore required to determine its best estimate of selling price in order to determine the relative selling price of the separate deliverables in its revenue arrangements. In order to determine the best estimate of selling price of the ActiveOne™ device, the Company included the following cost components in its estimate: production costs, development costs, PTCRB certification costs, and estimated gross margin. In order to determine the best estimate of the monthly monitoring service, the Company included the following components in its estimate: monthly communication cost, monitoring labor costs, PSAP database and monthly maintenance costs, and estimated gross margin. The Company allocates the arrangement costs based on these best estimates of selling price. The relative selling price allocated to the sale of the ActiveOne™ device is recognized when the device is delivered to the distributor. The relative selling price of the monitoring service is recognized monthly when the services have been provided.
 
Reagents
 
We recognize medical diagnostic stains revenue when persuasive evidence of an arrangement with the customer exists, title passes to the customer, prices are fixed or determinable and collection is reasonably assured.  Shipping and handling fees are included as part of net sales.  The related freight costs and supplies directly associated with shipping products to customers are included as a component of cost of goods sold.  Neither the sale of diagnostic equipment nor the sale of medical diagnostic stains contains multiple deliverables.
 
Customers order the diagnostic stain product lines by purchase order.  We do not enter into long-term contracts.  The medical diagnostic stain sales were $104,792 for the quarter ended June 30, 2011.  All of these sales were made with net 30-day payment terms.
 
Under GAAP we recognize revenue from our diagnostic stain products at the time of sale by applying the following principles:
 
 
·
The price to the buyer is fixed or determinable at the date of sale.
 
 
·
The buyer has paid or the buyer is obligated to pay within 30 days, and the obligation is not contingent on resale of the product.
 
 
·
The buyer's obligation would not be changed in the event of theft or physical destruction or damage of the product.
 
 
·
The buyer acquiring the product for resale has economic substance apart from that provided by the Company.
 
 
·
We do not have significant obligations for future performance to directly bring about resale of the product by the buyer.
 
 
·
The amount of future returns can be reasonably estimated and they are negligible.
 
 
·
Customers may return diagnostic equipment within 30 days of the purchase date. Customers may return the medical diagnostic stains within 30 days of the purchase date provided that the stain’s remaining life is at least eight months. Customers must obtain prior authorization for a product return.
 

 
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Our diagnostic stain products have not been modified significantly for several years.  There is significant history on which to base our estimates of sales returns.  These sales returns have been negligible.
 
We have approximately 70 types of products based on the number of individual stock-keeping units (“SKUs”) in the inventory.  Most of these 70 SKUs are for medical diagnostic stain inventory.  For example, certain medical diagnostic stains are packaged in different sizes, and each packaged size (i.e. 16 oz., 32 oz., and 48 oz.) has a unique SKU in inventory.  Accounting standards state that, “an enterprise shall report revenues from external customers for each product and service or each group of similar products and services unless it is impractical to do so.”  The vast majority of our sales are of medical diagnostic stains, with a minimal portion of sales being diagnostic equipment.  
 
Although not the focus of our new business model, we also sell diagnostic devices in certain situations.  We recognize device sales revenue when persuasive evidence of an arrangement with the customer exists, title passes to the customer and the customer cannot return the devices, prices are fixed or determinable and collection is reasonably assured.  Because diagnostic equipment sales are not material to the financial statements, we disclose the sales as one line item for reagents in the statement of operation.
 
Our revenue recognition policy for sales to distributors is the same as the policy for sales to end-users.
 
A customer qualifies as a distributor by completing a distributor application and proving its sales tax status.  Upon qualifying as a distributor, a customer receives a 35% discount from retail prices, and the distributor receives an additional 5% discount when product is purchased in case quantities.  The distributors are not required to maintain specified amounts of product on hand, and distributors are not required to make minimum purchases to maintain distributor status.  Distributors have no stock rotation rights or additional rights of return.  Sales to distributors are recorded net of discounts.
 
Sales returns have been negligible, and any and all discounts are known at the time of sale.  Sales are recorded net of sales returns and sales discounts.  There are no significant judgments or estimates associated with the recording of revenues.
 
Results of Operations
 
Three Months Ended June 30, 2011 and 2010
 
Net Sales
 
During the fiscal quarter ended June 30, 2011, we had net sales of $184,899 compared to $145,140 in the fiscal quarter ended June 30, 2010.  Our Care Services, including revenue for the ActiveOne™ service, accounted for $80,107 and $19,880 of the total revenues in the quarters ended June 30, 2011 and 2010, respectively.  The reason for the revenue increase was the introduction and revenue from services of the ActiveOne™ during 2011. Stains and reagent revenue accounted for $104,792 and $125,260 in the quarters ended June 30, 2011 and 2010, respectively.  The reason for the decrease in Reagent revenue was fewer orders for these products during the quarter ended June 30, 2011.
 
Cost of Revenue
 
Cost of revenue totaled $262,436 in the fiscal quarter ended June 30, 2011, compared to $161,297 for the quarter ended June 30, 2010.  During the quarter ended June 30, 2011, of the total cost of revenues, Care Services accounted for $172,886 and stains and reagents accounted for $89,550, compared to $74,525 and $86,772, respectively, in the quarter ended June 30, 2010.  The increase of the cost of revenue for Care Services in the quarter ended June 30, 2011, was an increase in expenses incurred to expand services of the CareCenter and the associated cost of ActiveOne™.  The increase of the cost revenue for Reagents was due to the increased cost of raw materials.
 
Research and Development Expenses
 
During the quarter ended June 30, 2011, we incurred research and development expenses of $45,601 compared to $16,610 in research and development expense incurred during the fiscal quarter ended June 30, 2010.  The research and development expenses in the quarter ended June 30, 2011 increased due to expenses related to the development of the ActiveOne+™ and the ActiveHome™ products.    We expect research and development expenses to increase in future quarters due to the development of ActiveOne+™ and ActiveHome™.
 

 
24

 
 
Selling, General and Administrative Expenses
 
During the three months ended June 30, 2011, selling, general and administrative expenses totaled $2,681,098, compared to $2,070,983 during the same period one year ago.  The increase was due to higher compensation expense paid in common stock and warrants, and to amortization of stock options during the quarter ended June 30, 2011.  For the quarters ended June 30, 2011 and 2010, the non-cash expense associated with the issuance of common stock and warrants and the amortization of stock options was $1,904,687 and $1,357,126, respectively.  The increase in 2011 was due to increased expense related to marketing and distribution of our products and services.  The primary emphasis during the period was to establish a platform for building brand awareness and introducing our product to the market, which we believe will lead to increased sales and revenues in future periods.
 
Other Income and Expense
 
Derivative loss was $0 and $161,332 in the quarters ended June 30, 2011 and 2010, respectively.  We no longer hold convertible debt instruments that are recorded as derivative liabilities.  We do not anticipate incurring any derivative gain or loss in the current fiscal year.  Interest expense was $98,728 and $394,657 in the quarters ended June 30, 2011 and 2010, respectively.  The decrease in 2011 was due to higher non-cash expense related to the amortization of Series A and Series B preferred stock discount incurred during the quarter ended June 30, 2010.
 
Net Loss
 
We had a net loss for the three months ended June 30, 2011 totaling $2,902,539, compared to a net loss of $2,659,739 for the same period one year ago.  This increase in net loss was due to the items described above.
 
Nine Months Ended June 30, 2011 and 2010
 
Net Sales
 
During the nine months ended June 30, 2011, we had net sales of $573,667 compared to $383,500 in the nine months ended June 30, 2010.  Our Care Services, including revenue for the ActiveOne™ service, accounted for $247,702 and $36,371 of the total revenues in the nine months ended June 30, 2011 and 2010, respectively.  The reason for the revenue increase in 2011 was the introduction and revenue from services of the ActiveOne™ during the period.  Stains and reagent revenue accounted for $325,965 and $347,129 in the nine months ended June 30, 2011 and 2010, respectively.  The reason for the Reagents revenue decrease was fewer orders for these products during the nine months ended June 30, 2011.
 
Cost of Revenue
 
Cost of revenue totaled $789,475 in the nine months ended June 30, 2011, compared to $469,994 for the nine months ended June 30, 2010.  During the nine months ended June 30, 2011, of the total cost of revenues, Care Services accounted for $503,600 and stains and reagents accounted for $285,875, compared to $196,612 and $273,382, respectively, in the prior year period.  The increase of the cost of revenue for Care Services was the increase in expenses incurred in connection with the expanded services of the CareCenter and the associated cost of ActiveOne™.  The increase of the cost revenue for Reagents was due to the increased cost of raw materials.
 
Research and Development Expenses
 
During the nine months ended June 30, 2011, we incurred research and development expenses of $273,611 compared to $213,579 in research and development expense incurred during the nine months ended June 30, 2010.  Research and development expenses in the nine months ended June 30, 2011 increased due to expenses related to the development of the ActiveOne+™ and the ActiveHome™ products.  We expect research and development expenses to increase in future quarters.
 
Selling, General and Administrative Expenses
 
During the nine months ended June 30, 2011, selling, general and administrative expenses totaled $5,592,111, compared to $4,712,066 during the same period one year ago.  For the nine months ended June 30, 2011 and 2010, the non-cash expense associated with the issuance of stock, warrants, and amortization of stock options was $3,561,287 and $2,473,733, respectively.  The increase during the current period was  the result of increased marketing and distribution of our products and services.  The primary emphasis during the nine months ended June 30, 2011 was to establish a platform for building brand awareness and introducing our product to the market, which we believe will lead to increased sales and revenues in future periods.
 

 
25

 
 
Other Income and Expense
 
Derivative gain was $0 and $477,297 in the nine months ended June 30, 2011 and 2010, respectively.  We no longer hold convertible debt instruments that are recorded as derivative liabilities.  We do not anticipate incurring any derivative gain or loss in the current fiscal year.  Interest expense was $110,224 and $1,092,589 in the nine months ended June 30, 2011 and 2010, respectively.  The decrease in 2011 was due to non-cash expense related to the amortization of Series A and Series B preferred stock discount incurred during the nine months ended June 30, 2010.  Other expense was $50,000 and $342 for the nine months ended June 30, 2011 and 2010, due to the impairment of the investment in Vista Therapeutics during the nine months ended June 30, 2011.
 
Net Loss
 
We had a net loss for the nine months ended June 30, 2011 totaling $6,245,208, compared to a net loss of $5,627,773 for the same period one year ago.  This increase in net loss was due to the items described above.
 
Liquidity and Capital Resources
 
Our primary sources of liquidity are the proceeds from the sale of our equity securities and from borrowing.  We have not historically financed operations entirely 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 our securities until we begin to have positive cash flows from operating activities under our new business plan.
 
At June 30, 2011, we had cash of $318,443, compared to cash of $1,713,923 at September 30, 2010.  At September 30, 2010, we had working capital of $854,919, compared to a working capital deficit of $744,826 at June 30, 2011.  The decrease of cash and working capital was due to less cash proceeds from financing activities during the nine months ended June 30, 2011, compared to the fiscal year ended September 30, 2010.
 
During the nine months ended June 30, 2011 and 2010, operating activities used cash of $2,285,505 and $1,620,790, respectively.  The increased cash used in operating activities was due to increased marketing and distribution of our products and services.  Investing activities for the nine months ended June 30, 2011 and 2010, used cash of $333,977 and $117,969, respectively.  The increased use of cash in investing activities was due to the addition of fixed assets and leased equipment during the period.  Financing activities for the nine months ended June 30, 2011 and 2010, provided cash of $1,224,002 and $1,005,000, respectively.  The increase was due to our sales of common stock and the issuance of short-term loans during the nine months ended June 30, 2011.
 
For the nine months ended June 30, 2011, we had a net loss of $6,245,208 and negative cash flows from operating activities totaling $2,285,505, compared to a net loss of $5,627,773 and negative cash flows from operating activities of $1,620,790 for the nine months ended June 30, 2010.  The increase in net loss and negative cash flow from operating activities was due to the expanded service of CareCenter and higher stock-based consulting expenses for marketing and distribution of our ActiveCare products and services during the period ended June 30, 2011.
 
As of June 30, 2011, we had an accumulated deficit of $23,282,770 compared to $17,037,562 at September 30, 2010.  Stockholders’ equity at June 30, 2011 was a deficit of $112,095, compared to stockholder’s equity of $1,484,722 at September 30, 2010.  These changes were due to continued negative cash flow from operating activities during the nine months ended June 30, 2011.
 
Recent Accounting Pronouncements
 
In June 2009, the FASB issued accounting guidance on the consolidation of variable interest entities (“VIEs”). This guidance revised previous guidance by eliminating the exemption for qualifying special purpose entities, by establishing a new approach for determining who should consolidate a variable-interest entity and by changing when it is necessary to reassess who should consolidate a variable-interest entity.  This guidance was effective at the beginning of the first fiscal year beginning after November 15, 2009.  The Company adopted this guidance on October 1, 2010.  The application of this guidance did not have a material impact on the Company’s financial statements.
 

 
26

 
 
In September 2009, the FASB issued guidance that changes the existing multiple-element revenue arrangements guidance currently included under its Revenue Arrangements with Multiple Deliverables codification. The revised guidance primarily provides two significant changes: 1) eliminates the need for objective and reliable evidence of the fair value for the undelivered element in order for a delivered item to be treated as a separate unit of accounting, and 2) eliminates the residual method to allocate the arrangement consideration. In addition, the guidance also expands the disclosure requirements for revenue recognition. This was effective for the first annual reporting period beginning on or after June 15, 2010, with early adoption permitted provided that the revised guidance is retroactively applied to the beginning of the year of adoption.  The Company adopted this guidance effective October 1, 2010 and recognized $25,456 of deferred revenue.
 
In October 2009, the FASB issued guidance on share-lending arrangements entered into on an entity's own shares in contemplation of a convertible debt offering or other financing.  This guidance was effective for fiscal years beginning on or after December 15, 2009, and interim periods within those fiscal years for arrangements outstanding as of the beginning of those years.  The Company adopted this guidance on October 1, 2010.  The application of this guidance did not have a material impact on the Company’s financial statements.
 
Item 3.  Quantitative and Qualitative Disclosures about Market Risk
 
Information about the Company’s exposure to market risk was disclosed in its Annual Report on Form 10-K for the year ended September 30, 2010, which was filed with the Securities and Exchange Commission on November 30, 2010. There have been no material quantitative or qualitative changes in market risk exposure since the date of that filing.
 
Item 4.  Controls and Procedures
 
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 Exchange Act reports is recorded, processed, summarized, and reported within the time periods that are specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding any required disclosure.  In designing and evaluating these disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
 
As of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a- 15(e) under the Exchange Act).  Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2011.
 
Changes in Internal Control Over Financial Reporting
 
There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
PART II – OTHER INFORMATION
 
Item 1.  Legal Proceedings
 
We are not involved in any legal proceedings which management believes will have a material effect upon the financial condition of the Company, nor are any such material legal proceedings anticipated.  We are not aware of any contemplated legal or regulatory proceeding by a governmental authority in which we may be involved.
 

 
27

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
 
Recent Sales of Unregistered Securities
 
During the nine months ended June 30, 2011, the Company issued the following shares of common stock:
 
 
·
1,962,500 shares on June 7th, 2011 for cash proceeds of $456,500;
 
·
2,090,000 shares on October 27, 2010, March 7, 2011, and April 7, 2011, respectively, under warrants exercised by an officer at $0.25 per share for cash proceeds of $522,500;
 
·
12,000 shares on March 31, 2011 upon the cashless exercise of warrants at $1.25 per share for accrued director fees of $15,000, and 150,000 shares on June 22, 2011 for accrued director fees of $75,000;
 
·
225,000 shares on May 6, 2011 as a loan origination fee to an unrelated party with value of $93,103;
 
·
682,500 shares issued under several service agreements with third parties in connection with marketing and product branding services valued at $613,650;
 
·
17,000 shares as payment for research and development services valued at $15,300 under a consulting services agreement dated January 25, 2011;
 
·
950,000 shares on June 22, 2011 to employees for services valued at $437,000;
 
·
4,000,000 shares were issued on June 22, 2011 under a new employment contract with our Chief Executive Officer for services to be rendered during the term of the agreement from October 1, 2010 through September 2014.  The value of these shares of common stock on the date of grant totaled $1,840,000.
 
The shares of common stock issued in the above transactions were not registered under the Securities Act in reliance upon exemptions from registration under Section 4(2) of the Securities Act, promulgated under the Securities Act.
 
Item 3.  Defaults Upon Senior Securities
 
None.
 
Item 5.  Other Information
 
On June 22, 2011, the Company entered into an employment agreement with Mr. James Dalton for his services as Chief Executive Officer for the period October 1, 2010 through September 30, 2014.  Under this contract, the Company granted Mr. Dalton warrants for the purchase of 3,000,000 shares of common stock at an exercise price of $0.50 per share and issued 4,000,000 shares of common stock to Mr. Dalton with a fair value on the date of grant of $1,840,000, as payment for past and future services.
 
 
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Item 6.  Exhibits
 
Exhibit Number                                                                Description
 
(10)(x)
 
Office Lease Agreement between the Company and Reef Parkway, LLC (filed previously as exhibit to report on Form 10-Q, filed February 10, 2011). 
     
(10)(xi)
 
Lease Addendum between the Company and Reef Parkway, LLC (filed previously as exhibit to report on Form 10-Q, filed February 10, 2011). 
     
(10)(xii)
 
Office Lease Agreement between the Company and Phoenix 2006 Partners, LLC (filed previously as exhibit to report on Form 10-Q, filed February 10, 2011). 
     
(10)(xiii)
 
Employment Contract with James Dalton, Chief Executive Officer dated June 22, 2011.
     
(10)(xiv)
 
Common Stock Purchase Warrant Agreement with James Dalton dated June 22, 2011.
     
31.1
 
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
     
31.2
 
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
     
32
 
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.INS   XBRL Instance 
     
101.SCH   XBRL Schema
     
101.CAL    XBRL Calculation
     
101.DEF    XBRL Definition
     
101.LAB   XBRL Label
     
101.PRE   XBRL Presentation

 
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SIGNATURES

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

     
 
     ActiveCare, Inc.
   
     
   
/s/  James Dalton
   
James Dalton
Chairman of the Board of Directors
and Chief Executive Officer (Principal Executive Officer)
 
Date: August 17, 2011
 
     
   
/s/  Michael G. Acton
   
Michael G. Acton
Chief Financial Officer (Principal Financial and Accounting Officer)
 
Date: August 17, 2011
 
 
 
30