ACTIVECARE, INC. - FORM 10-Q/A

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - ACTIVECARE, INC.	Financial_Report.xls
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - ACTIVECARE, INC.	activeexh311.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - ACTIVECARE, INC.	activeexh312.htm
EX-32.1 - 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.	activeexh321.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

Amendment No. 1

(Mark One)

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

For the quarterly period ended: March 31, 2014

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

For the transition period from ____________ to _____________

Commission File Number: 0-53570

ActiveCare, Inc.

(Exact name of registrant as specified in its charter)

Delaware	87-0578125
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1365 West Business Park Drive Orem, UT (Address of principal executive offices)	84058 (Zip Code)

(877) 219-6050

(Registrant’s telephone number, including area code)

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

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

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

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

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

As of May 19, 2014, the registrant had 34,334,067 shares of common stock outstanding.

Explanatory Note

ActiveCare, Inc. (the “Company”) is filing this Amendment to its previously filed Form 10-Q for the three and six months ended March 31, 2014 and 2013 to restate its condensed consolidated financial statements as of and for the three and six months ended March 31, 2014 and 2013. The restatement is described in Note 2 in the “Notes to Condensed Consolidated Financial Statements (Unaudited)”, which is part of this Form 10-Q/A. The information in this Form 10-Q/A is amended to read in its entirety as set forth in this Amendment.

Except to reflect the restatement of the condensed consolidated financial statements, the information in this Amendment has not been updated or otherwise changed to reflect any events, conditions or other developments that have occurred or existed since May 19, 2014, the date the original Form 10-Q was filed. Accordingly, except solely with regard to the restatement, all information in this Amendment speaks only as of May 19, 2014. References to "this Form 10-Q/A" mean this Amendment on Form 10-Q/A unless the context requires otherwise.

For more information about the restatement, see ActiveCare's Current Report on Form 8-K filed on October 3, 2014 and amended Form 10-K/A filed on November 10, 2014. For information about the Company’s results of operations and other developments since May 19, 2014, see the Company's amended Form 10-Q/A for the three and nine months ended June 30, 2014 filed on November 10, 2014

ActiveCare, Inc.

Quarterly Report on Form 10-Q/A

Table of Contents

	Page

PART I – FINANCIAL INFORMATION	3

Item 1. Financial Statements	3

Condensed Consolidated Balance Sheets (Unaudited)	3

Condensed Consolidated Statements of Operations (Unaudited)	5

Condensed Consolidated Statements of Cash Flows (Unaudited)	6

Notes to Condensed Consolidated Financial Statements (Unaudited)	8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3. Quantitative and Qualitative Disclosures About Market Risk	28

Item 4. Controls and Procedures	28

PART II – OTHER INFORMATION	29

Item 1. Legal Proceedings	29

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	29

Item 3. Defaults Upon Senior Securities	29

Item 5. Other Information	30

Item 6. Exhibits	30

SIGNATURES	31

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

ActiveCare, Inc.
Condensed Consolidated Balance Sheets (Unaudited)

	March 31,		September 30,
	2014		2013
	(Restated)		(Restated)
Assets

Current assets:
Cash	$	295,906	$	223,835
Accounts receivable, net		1,373,793		1,852,328
Inventory		2,694,382		4,677,526
Prepaid expenses and other		69,728		38,998

Total current assets		4,433,809		6,792,687

Customer contracts, net		1,018,005		1,434,521
Goodwill		825,894		825,894
Patents, net		503,485		566,920
Property and equipment, net		518,448		570,360
Deposits and other assets		29,594		106,950
Domain name, net		11,083		11,440

Total assets	$	7,340,318	$	10,308,772

See accompanying notes to consolidated financial statements.

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

	March 31,			September 30,
	2014			2013
	(Restated)			(Restated)
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	4,700,393		$	6,621,234
Accounts payable, related-party		408,424			251,386
Accrued expenses		992,504			708,519
Derivatives liability		-			795,151
Current portion of notes payable		932,148			1,278,585
Notes payable, related-party		85,365			1,892,415
Dividends payable		108,290			3,471

Total current liabilities		7,227,124			11,550,761

Notes payable, net of current portion		636,421			1,055,918

Total liabilities		7,863,545			12,606,679

Stockholders’ deficit:
Preferred stock, $.00001 par value: 10,000,000 shares authorized; 0 and 480,000 shares of Series C; 45,000 and 938,218 shares of Series D; 70,070 and 61,723 shares of Series E; and 5,361 and 0 shares of Series F, respectively		1			15
Common stock, $.00001 par value: 50,000,000 shares authorized; 34,334,067 and 21,775,303 shares outstanding, respectively		343			218
Additional paid-in capital, common and preferred		70,725,651			62,519,544
Accumulated deficit		(71,249,222	)		(64,817,684	)

Total stockholders’ deficit		(523,227	)		(2,297,907	)

Total liabilities and stockholders’ deficit	$	7,340,318		$	10,308,772

See accompanying notes to financial statements.

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

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2014			2013			2014			2013
	(Restated)			(Restated)			(Restated)			(Restated)
Revenues:
Chronic illness monitoring	$	1,036,533		$	605,011		$	3,046,299		$	2,558,615
CareServices		276,764			457,113			625,555			876,801
Total revenues		1,313,297			1,062,124			3,671,854			3,435,416

Cost of revenues:
Chronic illness monitoring		2,476,671			319,725			3,618,309			1,781,511
CareServices		216,014			746,097			518,239			1,467,624
Total cost of revenues		2,692,685			1,065,822			4,136,548			3,249,135

Gross profit (deficit)		(1,379,388	)		(3,698	)		(464,694	)		186,281

Operating expenses:
Selling, general and administrative (including $1,002,196, $73,783, $1,574,390, and $1,502,502, respectively, of stock-based compensation)		2,885,504			2,300,860			5,595,205			4,872,224
Research and development		47,516			266,672			122,806			468,713
Total operating expenses		2,933,020			2,567,532			5,718,011			5,340,937

Loss from operations		(4,312,408	)		(2,571,230	)		(6,182,705	)		(5,154,656	)

Other income (expense):
Gain on derivatives liability		-			7,360			479,737			45,697
Loss on induced conversion of debt		-			-			(114,098	)		-
Interest expense, net		(171,422	)		(767,391	)		(1,440,498	)		(1,790,983	)
Loss on disposal of property and equipment		(4,216	)		-			(4,216	)		-
Other income		37,838			13,113			40,205			15,438
Total other expense, net		(137,800	)		(746,918	)		(1,038,870	)		(1,729,848	)

Net loss from continuing operations		(4,450,208	)		(3,318,148	)		(7,221,575	)		(6,884,504	)

Gain from discontinued operations		-			20,731			-			6,370

Net loss		(4,450,208	)		(3,297,417	)		(7,221,575	)		(6,878,134	)

Deemed dividend on conversion of preferred stock to common stock		-			-			(2,234,924	)		-
Dividends on preferred stock		(181,810	)		(74,432	)		(346,833	)		(133,974	)

Net loss attributable to common stockholders	$	(4,632,018	)	$	(3,371,849	)	$	(9,803,332	)	$	(7,012,108	)

Net loss per common share - basic and diluted:
Continuing operations	$	(0.14	)	$	(0.72	)	$	(0.33	)	$	(1.51	)
Discontinued operations		-			0.00			-			0.00
Net loss per common share - basic and diluted	$	(0.14	)	$	(0.72	)	$	(0.33	)	$	(1.51	)

Weighted average common shares outstanding – basic and diluted		33,494,000			4,654,000			29,375,000			4,650,000

See accompanying notes to financial statements.

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

	Six Months Ended
	March 31,
	2014			2013
	(Restated)			(Restated)
Cash flows from operating activities:
Net loss	$	(7,221,575	)	$	(6,878,134	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		586,151			612,218
Gain on derivatives liability		(479,737	)		(45,697	)
Stock-based compensation expense		1,292,190			1,502,502
Stock and warrants issued for services		282,200			-
Stock issued for interest expense		837,625			257,362
Amortization of debt discounts		562,428			480,614
Loss on induced conversion of debt		114,098			-
Loss on disposal of property and equipment		4,216			1,499
Inventory reduction for obsolescence		1,400,000			-
Changes in operating assets and liabilities:
Accounts receivable		478,535			(1,714,288	)
Inventory		583,144			(2,871,057	)
Prepaid expenses and other		(45,630	)		(20,394	)
Accounts payable		(1,763,803	)		1,447,011
Accrued expenses		106,734			2,534,001
Deposits and other assets		77,355			(51,584	)
Net cash used in operating activities		(3,186,069	)		(4,745,947	)

Cash flows from investing activities:
Purchases of property and equipment		(58,145	)		(267,410	)
Net cash used in investing activities		(58,145	)		(267,410	)

Cash flows from financing activities:
Proceeds from the sale of preferred stock, net		3,580,771			-
Proceeds from related-party notes payable, net		865,666			1,990,799
Proceeds from notes payable, net		500,000			3,041,746
Principal payments on related-party notes payable		(893,666	)		(191,831	)
Principal payments on notes payable		(576,376	)		(315,130	)
Payment of dividends		(160,110	)		-
Net cash provided by financing activities		3,316,285			4,525,584

Net increase (decrease) in cash		72,071			(487,773	)
Cash, beginning of the period		223,835			529,839

Cash, end of the period	$	295,906		$	42,066

See accompanying notes to condensed consolidated financial statements

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

	Six Months Ended
	March 31,
	2014		2013
	(Restated)		(Restated)
Supplemental Cash Flow Information:
Cash paid for interest	$	115,390	$	469,749

Non-Cash Investing and Financing Activities:
Related-party notes payable converted to common stock		1,782,738		-
Notes payable converted to preferred stock		633,254		-
Issuance of stock for loan origination fees		370,633		-
Liability to issue shares of common stock for loan origination fees		234,793		-
Dividends on preferred stock		273,150		151,660
Issuance of stock for dividends		68,254		35,411
Reclassification of derivatives liability to equity		-		4,484,801
Issuance of preferred stock for accrued liabilities		-		865,552
Issuance of derivatives liability		-		514,643

See accompanying notes to condensed consolidated financial statements

ActiveCare, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Basis of Presentation

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

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

Going Concern

The Company continues to incur negative cash flows from operating activities and recurring net losses. The Company had negative working capital as of March 31, 2014 and September 30, 2013. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

In order for the Company to eliminate substantial doubt about its ability to continue as a going concern, it must achieve profitability, generate positive cash flows from operating activities and obtain the necessary debt or equity funding to meet its projected capital investment requirements. Management’s plans with respect to this uncertainty include raising additional capital by issuing debt or equity securities and increasing the sales of the Company’s services and products. During the six months ended March 31, 2014, the Company (1) completed the sale of Series F convertible preferred stock (“Series F preferred stock”) for net proceeds of $3,580,771, after considering $675,229 of related costs; (2) converted $2,326,801 of debt and accrued interest to common stock; (3) converted $574,592 of debt and accrued interest to Series F preferred stock; and (4) converted $83,473 of debt and accrued interest to Series E preferred stock. There can be no assurance that the Company will be able to raise sufficient additional capital or that revenues will increase rapidly enough to offset operating losses. If the Company is unable to increase revenues or obtain additional financing, it will be unable to continue the development of its products and may have to cease operations.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the balance sheet dates and the reported amounts of revenues and expenses for the reporting periods. Actual results could differ from these estimates.

Fair Value of Financial Instruments

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

2. Restatement of Previously Reported Financial Information

The Company restated the condensed consolidated financial statements as of and for the periods presented herein to correct the accounting related to revenue recognition for Chronic Illness supplies shipped to distributors. Specifically, the Company determined it was better practice to defer revenue recognition until the products are shipped to the end users as opposed to the distributors, even though the distributors had taken title to the products and there were no significant rights of return. The recognition of revenue is deferred until later periods and cash flows related to these transactions are not impacted.

The condensed consolidated financial statements have been restated to properly reflect revenues, costs of revenues, inventory, and related balance sheet accounts related to the Chronic Illness Monitoring segment. The following schedules reconcile the amounts as originally reported to the corresponding restated amounts.

See description of the September 30, 2013 restated balance sheet captions in Note 2 to the consolidated financial statements in the Form 10-K/A.

Restated balance sheet captions

	March 31, 2014
	As previously reported			Restatement adjustments			As restated
Accounts receivable, net	$	6,714,732		$	(5,340,939	)	$	1,373,793
Inventory		768,940			1,925,442			2,694,382
Total current assets		7,849,306			(3,415,497	)		4,433,809

Total assets		10,755,815			(3,415,497	)		7,340,318

Accrued expenses		2,927,742			(1,935,238	)		992,504
Total current liabilities		9,162,362			(1,935,238	)		7,227,124

Total liabilities		9,798,783			(1,935,238	)		7,863,545

Accumulated deficit		(69,768,963	)		(1,480,259	)		(71,249,222	)
Total stockholders’ equity (deficit)		957,032			(1,480,259	)		(523,227	)

Total liabilities and stockholders’ deficit	$	10,755,815		$	(3,415,497	)	$	7,340,318

Restated statement of operations captions

	Three months ended March 31, 2014
	As previously reported			Restatement adjustments		As restated
Revenues:
Chronic illness monitoring	$	814,187		$	222,346	$	1,036,533
Total revenues		1,090,951			222,346		1,313,297

Cost of revenues:
Chronic illness monitoring		2,300,187			176,484		2,476,671
Total cost of revenues		2,516,201			176,484		2,692,685

Gross deficit		(1,425,250	)		45,862		(1,379,388	)

Loss from operations		(4,358,270	)		45,862		(4,312,408	)

Net loss from continuing operations		(4,496,070	)		45,862		(4,450,208	)

Net loss		(4,496,070	)		45,862		(4,450,208	)

Net loss attributable to common stockholders		(4,677,880	)		45,862		(4,632,018	)

Net loss per common share - basic and diluted	$	(0.14	)	$	0.00	$	(0.14	)

	Three months ended March 31, 2013
	As previously reported			Restatement adjustments			As restated
Revenues:
Chronic illness monitoring	$	4,256,011		$	(3,651,000	)	$	605,011
Total revenues		4,713,124			(3,651,000	)		1,062,124

Cost of revenues:
Chronic illness monitoring		3,123,637			(2,803,912	)		319,725
Total cost of revenues		3,869,734			(2,803,912	)		1,065,822

Gross profit (deficit)		843,390			(847,088	)		(3,698	)

Loss from operations		(1,724,142	)		(847,088	)		(2,571,230	)

Net loss from continuing operations		(2,471,060	)		(847,088	)		(3,318,148	)

Net loss		(2,450,329	)		(847,088	)		(3,297,417	)

Net loss attributable to common stockholders		(2,524,761	)		(847,088	)		(3,371,849	)

Net loss per common share - basic and diluted	$	(0.55	)	$	(0.17	)	$	(0.72	)

	Six months ended March 31, 2014
	As previously reported			Restatement adjustments			As restated
Revenues:
Chronic illness monitoring	$	2,893,654		$	152,645		$	3,046,299
Total revenues		3,519,209			152,645			3,671,854

Cost of revenues:
Chronic illness monitoring		3,492,001			126,308			3,618,309
Total cost of revenues		4,010,240			126,308			4,136,548

Gross deficit		(491,031	)		26,337			(464,694	)

Loss from operations		(6,209,042	)		26,337			(6,182,705	)

Net loss from continuing operations		(7,247,912	)		26,337			(7,221,575	)

Net loss		(7,247,912	)		26,337			(7,221,575	)

Net loss attributable to common stockholders		(9,829,669	)		26,337			(9,803,332	)

Net loss per common share - basic and diluted	$	(0.33	)	$	(0.00	)	$	(0.33	)

	Six months ended March 31, 2013
	As previously reported			Restatement adjustments			As restated
Revenues:
Chronic illness monitoring	$	6,209,615		$	(3,651,000	)	$	2,558,615
Total revenues		7,086,416			(3,651,000	)		3,435,416

Cost of revenues:
Chronic illness monitoring		4,585,423			(2,803,912	)		1,781,511
Total cost of revenues		6,053,047			(2,803,912	)		3,249,135

Gross profit		1,033,369			(847,088	)		186,281

Loss from operations		(4,307,568	)		(847,088	)		(5,154,656	)

Net loss from continuing operations		(6,037,416	)		(847,088	)		(6,884,504	)

Net loss		(6,031,046	)		(847,088	)		(6,878,134	)

Net loss attributable to common stockholders		(6,165,020	)		(847,088	)		(7,012,108	)

Net loss per common share - basic and diluted	$	(1.33	)	$	(0.18	)	$	(1.51	)

Restated statement of cash flows captions

	Six months ended March 31, 2014
	As previously reported			Restatement adjustments			As restated
Cash flows from operating activities:
Net loss	$	(7,247,912	)	$	26,337		$	(7,221,575	)
Inventory reduction for obsolescence		-			1,400,000			1,400,000
Changes in operating assets and liabilities:
Accounts receivable		631,180			(152,645	)		478,535
Inventory		480,280			102,864			583,144
Accrued expenses	$	1,483,290		$	(1,376,556	)	$	106,734

	Six months ended March 31, 2013
	As previously reported			Restatement adjustments			As restated
Cash flows from operating activities:
Net loss	$	(6,031,046	)	$	(847,088	)	$	(6,878,134	)
Changes in operating assets and liabilities:
Accounts receivable		(5,365,288	)		3,651,000			(1,714,288	)
Inventory		(476,057	)		(2,395,000	)		(2,871,057	)
Accrued expenses	$	2,942,913		$	(408,912	)	$	2,534,001

3. Discontinued Operations

In June 2013, the Company sold the assets and liabilities of its reagents segment. This segment was engaged in the business of manufacturing and marketing medical diagnostic stains, solutions and related equipment to hospitals and medical testing labs. The purchaser was a former employee.

The Company no longer holds any ownership interest in the reagents segment and has ceased incurring costs related to its operations and development. The sale included all applicable segment assets and liabilities including, accounts receivable, inventory, accounts payable, property, equipment and leased equipment.

As a result of the sale of the reagents business, the Company has reflected this segment as discontinued operations in the condensed consolidated financial statements for the three and six months ended March 31, 2013. The following table summarizes certain operating data for discontinued operations for the three and six months ended March 31, 2013:

	Three months ended			Six months ended
	March 31, 2013			March 31, 2013
Revenues	$	130,029		$	254,499
Cost of revenues		(71,739	)		(169,599	)
Gross margin		58,290			84,900

Selling, general and administrative expense		(37,559	)		(78,530	)

Gain from discontinued operations	$	20,731		$	6,370

4. Net Loss per Common Share

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

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

Common share equivalents consist of shares of common stock issuable upon the exercise of stock options, stock purchase warrants and the conversion of convertible preferred stock or debt instruments into common stock. As of March 31, 2014 and 2013, there were 16,841,563 and 9,687,052 outstanding common share equivalents, respectively, that were not included in the computation of diluted net loss per common share as their effect would be anti-dilutive. The anti-dilutive common stock equivalents outstanding consisted of the following as of:

	March 31, 2014		March 31, 2013
Common stock options and warrants		10,598,576		4,136,887
Series C convertible preferred stock		-		480,000
Series D convertible preferred stock		225,000		4,207,715
Series E convertible preferred stock		559,737		-
Series F convertible preferred stock		5,361,000		-
Convertible debt		80,000		822,250
Restricted shares of common stock		17,250		40,200

Total common stock equivalents		16,841,563		9,687,052

5. Recent Accounting Pronouncements

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

6. Inventory

Inventory is recorded at the lower of cost or market, cost being determined using the first-in, first-out (“FIFO”) method. Inventory is for the Chronic Illness Monitoring segment and consists of diabetic supplies. Inventory held by distributors is reported as inventory until the supplies are shipped to the end user by the distributor. During the three months ended March 31, 2014, the Company established an inventory reserve for estimated obsolescence and excessive quantities of $1,400,000. Due to competitive pressures and technological innovation, it is possible that estimates of net realizable values could change in the near term. As of March 31, 2014 and September 30, 2013, net inventory was $2,694,382 and $4,677,526, respectively.

7. Customer Contracts

During fiscal year 2012, the Company recorded customer contracts of $2,369,882 acquired in its purchase of 4G Biometrics, LLC and Green Wire, LLC and affiliates. The Company is amortizing the customer contracts over their estimated useful lives (through 2015). Amortization expense for each of the six-month periods ended March 31, 2014 and 2013 was $416,516. As of March 31, 2014 and September 30, 2013, accumulated amortization was $1,351,877 and $935,361, respectively. The Company’s future customer contract amortization as of March 31, 2014, is as follows:

Years Ending September 30,
2014	$	359,296
2015		658,709

	$	1,018,005

8. Patents

The Company is amortizing its patents over their remaining useful lives (through 2018). Amortization expense for each of the six-month periods ended March 31, 2014 and 2013 was $63,436. As of March 31, 2014 and September 30, 2013, accumulated amortization was $418,893 and $355,458, respectively. The Company’s future patent amortization as of March 31, 2014, is as follows:

Years Ending September 30,
2014	$	63,435
2015		126,870
2016		126,870
2017		126,870
2018		59,440

	$	503,485

9. Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are determined using the straight-line method over the estimated useful lives of the assets, which range between 3 and 7 years. Leasehold improvements are amortized over the shorter of the estimated useful lives of the assets or the terms of the lease. Equipment leased to customers is depreciated over the 3-year estimated useful lives of the related equipment, regardless of whether the equipment is leased to a customer or remaining in stock, and is recorded in cost of revenues for CareServices. Expenditures for maintenance and repairs are expensed as incurred. Upon the sale or disposal of property and equipment, any gains or losses are included in the results of operations. Property and equipment consist of the following as of:

	March 31, 2014			September 30, 2013
Equipment leased to customers	$	389,492		$	389,492
Equipment		195,265			255,339
Leasehold improvements		148,834			145,147
Software		98,334			87,361
Furniture		73,886			32,855
Total property and equipment		905,811			910,194

Accumulated depreciation and amortization		(387,363	)		(339,834	)

Property and equipment, net	$	518,448		$	570,360

Depreciation and amortization expense for the six months ended March 31, 2014 and 2013 was $105,842 and $131,913, respectively.

10. Accrued Expenses

Accrued expenses consist of the following as of:

	March 31, 2014		September 30, 2013
	(Restated)		(Restated)
Payroll expense	$	430,727	$	272,451
Liability to issue common stock		230,293		-
Deferred rent		91,027		55,242
Commissions		76,365		88,490
Interest		37,140		211,722
Other		126,952		80,614

Total accrued liabilities	$	992,504	$	708,519

11. Notes Payable

The Company had the following notes payable outstanding as of:

	March 31, 2014		September 30, 2013
Note payable to the former owners of Green Wire, secured by customer contracts, imputed interest rate of 12%, monthly installments over a 38-month term. In March 2013, the Company issued 15,000 shares of common stock (fair value of $24,000) to extend the term of the note. The fair value is being amortized to interest expense over the remaining life of the note.	$	1,414,274	$	1,766,971

Unsecured note payable with no interest, due March 2015. The Company issued warrants to purchase 450,000 shares of common stock (fair value of $143,634). The note also requires a payment of 667,000 shares of common stock at the end of the term (fair value of $230,293), recorded as an accrued liability.		350,000		-

Unsecured notes with interest at 15% (18% after due date), due April 2013. The Company issued 20,000 shares of Series D preferred stock as loan origination fees (fair value of $195,000). Principal of $50,000 and accrued interest of $13,333 were converted to common stock in December 2013.		64,261		185,476

Notes payable with interest at 12%, secured by the Company's assets, due August 2014. The Company issued warrants to purchase 36,667 shares of common stock (fair value of $51,452) as due diligence fees and issued 25,000 shares of common stock (fair value of $31,250) to a related party as consideration for a personal guarantee. The notes and accrued interest were converted to Series F preferred stock in December 2013.		-			550,000

Unsecured note with interest at 12%, due March 2013. The note and accrued interest were converted to common stock in November 2013.		-			250,000

Series A debenture loan payable with interest at 12%, secured by customer contracts, payable in monthly installments, and due February 2016. The debenture was converted to Series E preferred stock in October 2013.		-			85,719

Unsecured note with interest at 15%, due March 2013. The note and accrued interest were converted to common stock in November 2013.		-			25,000

Total notes payable before discount		1,828,535			2,863,166
Less discount		(259,966	)		(528,663	)

Total notes payable		1,568,569			2,334,503
Less current portion		(932,148	)		(1,278,585	)

Notes payable, net of current portion	$	636,421		$	1,055,918

12. Related-Party Notes Payable

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

	March 31, 2014		September 30, 2013
Unsecured note payable to an officer of the Company with interest at 15%, due June 2012, currently in default. The note included a $3,000 loan origination fee added to the principal and is convertible into common stock at $0.50 per share.	$	30,000	$	33,000

Unsecured note payable to an officer of the Company with interest at 12%, due September 2013, currently in default, and convertible into common stock at $0.75 per share.		26,721		26,721

Unsecured note payable to an entity controlled by the Company’s CEO, interest at 12%, due on demand, and convertible into common stock at $0.75 per share. The Company issued 17,500 shares of common stock (fair value of $26,250) as loan origination fees. In December 2013, $160,000 of the note was converted to common stock.		15,000		175,000

Unsecured note payable to an officer of the Company with interest at 12%, due on demand.		13,644		13,644

Unsecured notes payable to an entity controlled by an officer of the Company with interest at 15%, due September 2013. The Company issued 60,000 shares of common stock (fair value of $93,000) as loan origination fees. The notes and accrued interest were converted to common stock in December 2013.		-		600,000

Unsecured note payable to an entity controlled by an officer of the Company with interest at 12%, due September 2013. The Company issued 30,000 shares of common stock (fair value of $38,100) as loan origination fees. The note and accrued interest were converted to common stock in December 2013.		-		300,000

Unsecured note payable to an entity controlled by an officer of the Company with interest at 12%, due September 2013. The Company issued 30,000 shares of common stock (fair value of $37,500) as loan origination fees. The note and accrued interest were converted to common stock in December 2013.		-		300,000

Unsecured notes payable to an entity controlled by an officer of the Company with interest at 12%, due April 2013. The note and accrued interest were converted to common stock in December 2013.		-		200,000

Unsecured note payable with no interest to an entity controlled by an officer of the Company, repaid during the three months ended December 31, 2013.		-		150,000

Unsecured note payable to an entity controlled by an officer of the Company with interest at 12%, due June 2013. The Company issued 5,600 shares of Series D preferred stock (fair value of $56,252) as loan origination fees. The note and accrued interest were converted to common stock in December 2013.		-		82,500

Unsecured notes payable with no interest to an individual related to an officer of the Company; repaid during the three months ended December 31, 2013.		-		10,000

Series B unsecured debenture to an entity controlled by an officer of the Company with interest at 12%, due December 2015. The debenture and accrued interest were converted to common stock during the three months ended December 31, 2013.		-		5,270

Total notes payable, related-party, before discount		85,365		1,896,135
Less discount		-		(3,720	)

Total notes payable, related-party	$	85,365	$	1,892,415

13. Fair Value Measurements

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

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

The Company’s embedded derivative liabilities are re-measured to fair value as of each reporting date until the contingency is resolved, see Note 14.

14. Derivatives Liability

The derivatives liability as of March 31, 2014 and September 30, 2013 was $0 and $795,151, respectively. The elimination of the derivatives liability was due to the conversion of notes payable with variable conversion features. During the three and six months ended March 31, 2014, the Company estimated the fair value of the embedded derivatives prior to their conversion and elimination using a binomial option-pricing model with the following assumptions, according to the instrument: exercise price of $0.75 per share; risk free interest rate of 0.10%; expected life of 0.63 years; expected dividends of 0%; a volatility factor of 108%; and a stock price of $1.00. The expected lives of the instruments were equal to the average term of the conversion option. The expected volatility is based on the historical price volatility of the Company’s common stock. The risk-free interest rate represents the U.S. Treasury constant maturities rate for the expected life of the related conversion option. The dividend yield represents anticipated cash dividends to be paid over the expected life of the conversion option. The gain on derivative liabilities for the six months ended March 31, 2014 and 2013 was $479,737 and $45,697, respectively.

15. Preferred Stock

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

Series C Convertible Preferred Stock

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

Series D Convertible Preferred Stock

The Board of Directors has designated 1,000,000 shares of preferred stock as Series D convertible preferred stock (“Series D preferred stock”). The Series D preferred stock is voting on an as-converted basis. The Series D preferred stock has a dividend rate of 8%, payable quarterly. The Company may redeem the Series D preferred shares at a redemption price equal to 120% of the original purchase price with 15 days notice. In December 2013, 893,218 shares of Series D preferred stock were converted to 6,252,526 shares of common stock. The conversion rate of 7 shares of common stock was greater than the designated conversion rate of 5 shares of common stock and, therefore, the fair value of the additional 1,786,436 shares was recorded as a deemed dividend. In addition, the Company recognized $50,764 of dividends on Series D preferred stock and settled the accrued dividends by issuing 54,738 shares of common stock.

Series E Convertible Preferred Stock

During fiscal year 2013, the Board of Directors designated shares of preferred stock as Series E convertible preferred stock (“Series E preferred stock”). Series E preferred stock is convertible into common stock at $1.00 per share, the conversion price is adjustable if there are distributions of common stock or stock splits by the Company. The designation also provides that the Series E preferred stock is non-voting and receives a monthly dividend of 3.322% for 25 to 32 months. In addition, the convertibility and the redemption price of the Series E preferred stock is gradually reduced by dividend payments over 25 to 32 months. After the dividend payment term, the redemption price of Series E preferred stock is $0 and the Series E preferred stock has no convertibility to common stock. During the three months ended December 31, 2013, the Company issued 8,347 shares of Series E preferred stock for the conversion of an $83,473 note payable and accrued interest.

During the three and six months ended March 31, 2014, the Company paid dividends of $81,716 and $156,639, respectively, to Series E preferred stockholders. As of March 31, 2014, the redemption price for the Series E preferred stock was $559,737.

Series F Convertible Preferred Stock

During the three months ended December 31, 2013, the Board of Directors designated 7,803 shares of preferred stock as Series F convertible preferred stock (“Series F preferred stock”). Series F preferred stock is non-voting, has a stated value of $1,000 and is convertible into common stock at $1.00 per share. The Series F preferred stock has a dividend rate, payable quarterly, of 8% until April 30, 2015, 16% from May 1, 2015 to July 31, 2015, 20% from August 1, 2015 to October 31, 2015 and 25% thereafter.

During the three months ended March 31, 2014, the Company issued 1,008 shares of Series F preferred stock for net proceeds of $810,000, after considering $198,000 of related costs. During the six months ended March 31, 2014, the Company issued 5,361 shares of Series F preferred stock for net proceeds of $3,580,771, after considering $675,229 of related costs, and the conversion of $574,592 of debt and accrued interest.

Liquidation Preference

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

16. Common Stock

During the six months ended March 31, 2014, the Company issued 12,558,764 shares of common stock as follows:

·	3,712,549 shares to settle notes payable and related accrued interest, the value on the date of grant was $2,447,857;

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

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

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

·	125,000 shares for services provided by independent consultants, the value on the date of grant was $110,000;

·	60,000 shares for employee bonuses, the value on the date of grant was $52,200;

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

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

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

·	73,921 shares to settle accrued dividends for Series C preferred stock and Series D preferred stock, the value on the date of grant was $68,245.

17. Common Stock Options and Warrants

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

During fiscal years 2014 and 2013, the Company measured the fair values of the warrants using a binomial valuation model with the following assumptions:

	Six Months Ended
	March 31,
	2014			2013
Exercise price	$	0.95 - $1.10		$	1.00 - $1.50
Expected term (years)		2 - 3			2.5 - 5
Volatility		213% - 216	%		223% - 298	%
Risk-free rate		0.28% - 0.71	%		0.35% - 0.88	%
Dividend rate		0	%		0	%

During the six months ended March 31, 2014, the Company granted the following common stock options and warrants:

·	Options to purchase 650,000 shares were granted to an entity controlled by an officer of the Company for notes payable and accrued interest converted into common stock, with an exercise price of $1.10 per share. The options expire in December 2018. The Company recognized $590,887 of interest expense during the three months ended December 31, 2013;

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

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

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

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

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

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

Options and Warrants	Number of Options and Warrants			Weighted- Average Exercise Price
Outstanding as of October 1, 2013		3,598,554		$	1.33
Granted		8,058,122			1.09
Exercised		(1,058,100	)		1.00
Forfeited		-			-
Outstanding as of March 31, 2014		10,598,576			1.18
Exercisable as of March 31, 2014		9,568,576			1.19

As of March 31, 2014, the outstanding warrants have an aggregate intrinsic value of $0, and the weighted average remaining term of the warrants is 4.3 years.

18. Segment Information

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

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

The following table reflects certain financial information relating to each reportable segment as of March 31, 2014 and 2013 and for the three months then ended, as restated:

	Corporate			Chronic Illness Monitoring			CareServices			Reagents		Total
Three months ended March 31, 2014
Revenues	$	-		$	1,036,533		$	276,764		$	-	$	1,313,297
Net loss		(2,382,809	)		(1,821,768	)		(245,631	)		-		(4,450,208	)
Interest expense, net		171,422			-			-			-		171,422
Total assets		628,370			4,893,727			1,818,221			-		7,340,318
Property and equipment purchases		7,057			-			-			-		7,057
Depreciation and amortization		26,259			28,610			235,700			-		290,569

Three months ended March 31, 2013
Revenues	$	-		$	605,011		$	457,113		$	130,029	$	1,192,153
Net income (loss)		(2,011,486	)		(391,696	)		(914,966	)		20,731		(3,297,417	)
Interest expense, net		767,391			-			-			-		767,391
Total assets		20,816			6,261,626			3,255,691			161,064		9,699,197
Property and equipment purchases		-			-			132,993			888		133,881
Depreciation and amortization		179			28,610			278,557			3,211		310,557

The following table reflects certain financial information relating to each reportable segment as of March 31, 2014 and 2013 and for the six months then ended, as restated:

	Corporate			Chronic Illness Monitoring			CareServices			Reagents		Total
Six months ended March 31, 2014
Revenues	$	-		$	3,046,299		$	625,555		$	-	$	3,671,854
Net loss		(5,179,511	)		(1,493,651	)		(548,413	)		-		(7,221,575	)
Interest expense, net		1,440,498			-			-			-		1,440,498
Total assets		628,370			4,893,727			1,818,221			-		7,340,318
Property and equipment purchases		58,705			-			-			-		58,705
Depreciation and amortization		56,092			57,220			472,839			-		586,151

Six months ended March 31, 2013
Revenues	$	-		$	2,558,615		$	876,801		$	254,499	$	3,689,915
Net income (loss)		(4,302,830	)		(622,931	)		(1,958,743	)		6,370		(6,878,134	)
Interest expense, net		1,790,983			-			-			-		1,790,983
Total assets		20,816			6,261,626			3,255,691			161,064		9,699,197
Property and equipment purchases		-			-			266,522			888		267,410
Depreciation and amortization		357			57,220			548,190			6,451		612,218

19. Commitments and Contingencies

The Company leases office space under non-cancelable operating leases. Future minimum rental payments under non-cancelable operating leases are as follows:

Years Ending September 30,
2014	$	152,539
2015		308,330
2016		317,580
2017		327,107
2018		280,077

	$	1,385,633

The Company’s rent expense for facilities held under non-cancelable operating leases for the six months ended March 31, 2014 and 2013 was approximately $150,000 and $107,000, respectively.

In May 2013, the Company entered into a settlement agreement and patent license agreement through which all claims of a lawsuit were dismissed. The final payment required by the settlement agreement and patent license agreement was made in December 2013.

20. Subsequent Events

Subsequent to March 31, 2014 and through the release date of the financial statements as originally reported, the Company entered into the following agreements and transactions:

(1)	In April 2014, the Company filed a preliminary information statement to (1) amend the Company’s Certificate of Incorporation increasing the total number of authorized shares of common stock from 50,000,000 shares to 200,000,000 shares; and (2) amend the Series F preferred stock designation to increase the authorized shares of Series F preferred stock from 7,803 to 10,000.
(2)	In April 2014, James Carter resigned as a member of the Board of Directors of the Company. There were no disagreements between Mr. Carter and the Company or any officer or director of the Company which led to Mr. Carter’s resignation. In May 2014, the Board of Directors appointed Jeffery Peterson to fill the vacancy on the Board of Directors created by Mr. Carter’s resignation.
(3)	In April 2014, the Board of Directors appointed Michael Jones as President of the Company and Jonathan Olson as Chief Operating Officer of the Company.
(4)	In April and May 2014, the Company received advances totaling $225,000 from the Company’s Chief Executive Officer.
(5)	In April 2014, the Company issued 90,000 warrants to purchase shares of common stock for $1.10 to third parties for services.

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 consolidated financial statements for the fiscal years ended September 30, 2013 and 2012, and the accompanying notes thereto, contained in our Annual Report on Form 10-K/A for the fiscal year ended September 30, 2013 and our condensed consolidated financial statements for the three and six months ended March 31, 2014, and the accompanying notes thereto, contained in this Quarterly Report on Form 10-Q/A. Unless otherwise indicated, the terms “ActiveCare,” the “Company,” “we,” and “our” refer to ActiveCare, Inc., a Delaware corporation and its subsidiaries.

Overview

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

Our primary focus is on markets addressing chronic conditions and disease states. During fiscal years 2013 and 2012, we received valuable feedback through sales and focus groups reaching thousands of patients. In fiscal year 2012, we launched an additional product line focused on technology for assisting the chronically ill. Remote patient monitoring (“RPM”) is a technology to enable monitoring of patient vital signs and physical functions outside of conventional clinical settings (e.g., in the home, work or travel). Physiological data such as blood sugar levels, blood pressure, pulse rate, and blood oxygen levels are collected by sensors on medical peripheral devices. Examples of these devices include glucometers, blood pressure cuffs, and pulse oximeters. The data is stored for future assessment or transmitted to healthcare providers or third parties via wireless telecommunication devices. Disease states targeted by RPM technology providers typically include diabetes, congestive heart failure, sleep apnea, activity monitoring, and diet management. We believe that we can improve the lives of the chronically ill and the elderly through the use of technology, while reducing the cost of care. Central to these efforts is our state-of-the-art “CareCenter.” This service is designed to monitor and track patients’ health conditions and chronic illnesses on a real time basis. As part of these efforts we have staffed this CareCenter with highly trained specialists to assist the chronically ill and 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 improve the health of the chronically ill and to enable the elderly to maintain a more active and mobile lifestyle.

Restatement of Previously Issued Financial Statements

As discussed further in Note 2 of the “Notes to Condensed Consolidated Financial Statements (Unaudited)”, which is part of this Form 10-Q/A, we have restated our condensed consolidated financial statements as of and for the three and six months ended March 31, 2014 and 2013. Specifically, we have restated our condensed consolidated financial statements to correct certain errors that existed in our previously filed condensed consolidated financial statements related to the manner in which revenue was recognized for our Chronic Illness Monitoring segment.

The impact of these errors on the applicable line items in the condensed consolidated financial statements is set forth in Note 2 to the “Notes to Condensed Consolidated Financial Statements (Unaudited)”. The net impact of the restatement reduced our net loss for the six months ended March 31, 2014 by approximately $26,000 and increased our net loss for the six months ended March 31, 2013 by approximately $848,000, respectively.

Recent Developments

We have financed operations primarily through the sale of equity securities, long-term debt and short-term debt. Until revenues are sufficient to meet our needs, we will attempt to secure financing through financial institutions or through the sale of our equity or debt securities. There is no assurance that we will be able to obtain financing on satisfactory terms or at all. If we only have nominal funds with which to conduct our business activities, it will negatively impact the results of our operations and our financial condition.

During the six months ended March 31, 2014, we (1) completed the sale of Series F preferred stock for net proceeds of $3,580,771, after considering $675,229 of related costs; (2) converted $2,326,801 of debt and accrued interest to common stock; (3) converted $574,592 of debt and accrued interest to Series F preferred stock; and (4) converted $83,473 of debt and accrued interest to Series E preferred stock. These transactions strengthened our balance sheet and allowed us to fulfill and finalize larger contracts.

Our Product and Service Strategy

Our product and service strategy falls into two segments: (1) Chronic Illness Monitoring, and (2) CareServices or personal emergency response systems (“PERS”).

Chronic Illness Monitoring

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

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

CareCenter

The central point of our product offerings is our state-of-the-art CareCenter. Our CareCenter is staffed 24x7 with CareCenter specialists who are 911-certified and trained. In addition, we have nurses on duty and on call that are available to assist with medical issues or questions. Our CareCenter specialists and CareCenter provide services ranging from responding to fall alerts detected and communicated by our devices, to full service concierge services. The staff at the CareCenter provides assistance with everyday living needs of our members, and in an emergency situation, the 911-trained CareSpecialist evaluates the situation and determines whether to call emergency services and/or a designated friend or family member.

In contrast to a typical monitoring center, our 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 “telemetric”. The operator (or CareSpecialist) can locate the caller’s precise location on a detailed map. In addition, the CareCenter’s software will identify the caller, access the individual’s medical information, and provide location services, emergency dispatch, and medical history to emergency responders. We believe the CareCenter is the cornerstone of our business and will support current technology as well as evolve to support the integration of future technologies.

CareServices

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

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

Research and Development Program

During the six months ended March 31, 2014, we spent approximately $123,000 compared to $469,000 during the same period in 2013, on research and development primarily related to chronic illness monitoring, including work related to the development of prototype methods and systems for the capture and analysis of data, as well as the development of scalable architectures to migrate to production applications and deployments. We will continue to identify claims and medical data sets as well as analytical and informatics technologies that advance our ability to provide unique services. Core competency will continue to evolve in the methods and technologies for data analytics and predictive informatics.

Critical Accounting Policies

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

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

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

Use of Estimates in the Preparation of Financial Statements

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

The preparation of financial statements requires management to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. 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, inventory, intangible assets, product liability, revenue recognition, and income taxes. We base our estimates on historical experience and other facts and circumstances that we believe to be reasonable and the results provide a basis for making judgments about the carrying values of the related assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions, and these differences may be material.

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

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

Fair Value of Financial Instruments

The carrying values of cash, accounts receivable, accounts payable and accrued liabilities approximate their respective fair values due to the short-term nature and liquidity of these financial instruments. Derivative financial instruments are recorded at fair value based on current market pricing models. We estimate that, based on current market conditions, the fair values of long-term debt obligations approximate their carrying values as of March 31, 2014.

Concentrations of Credit Risk

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

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

Accounts Receivable

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

Inventory

Inventory is recorded at the lower of cost or market, cost being determined using the first-in, first-out (“FIFO”) method. Chronic Illness Monitoring inventory consists of diabetic supplies. Inventory held by distributors is reported as inventory on our condensed consolidated balance sheet until the supplies are shipped to the end user by the distributor. 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 values could change in the near term.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are determined using the straight-line method over the estimated useful lives of the assets, 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. Equipment leased to customers is depreciated over the three-year useful lives of the related equipment, regardless of whether the equipment is leased to customers or remaining in stock, and is recorded in the cost of revenues for CareServices. Expenditures for maintenance and repairs are expensed as incurred.

Goodwill

Goodwill is reviewed for impairment annually or more frequently when an event occurs or circumstances change that indicate that the carrying value may not be recoverable. Our annual testing date is September 30. The identification and measurement of goodwill impairment involves the estimation of the fair value of our reporting units. The estimates of fair value of reporting units are based on the best information available as of the date of the assessment, which primarily incorporate management assumptions about expected future cash flows. Future cash flows can be affected by changes in industry or market conditions. Goodwill was not impaired as of September 30, 2013 and no event has occurred or circumstance has changed during the six months ended March 31, 2014 that would require an impairment test.

Impairment of Long-Lived Assets

Purchased intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets, which range from two to twenty years. Long-lived assets, including intangible assets with finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. No long-lived assets were considered to be impaired during fiscal year 2013 or through the six months ended March 31, 2014.

Revenue Recognition

Our revenues have historically been from three sources: (1) sales of Chronic Illness Monitoring services and supplies; (2) sales from CareServices; (3) sales of medical diagnostic stains from our Reagents segment, which was sold during fiscal year 2013. Information regarding revenue recognition policies relating to our current business segments is contained in the following paragraphs.

Chronic Illness Monitoring

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

We enter into agreements with insurance companies, disease management companies, third-party administrators, and self-insured companies (collectively, the customers) to lower medical expenses by distributing diabetic testing products and supplies to employees (end users) covered by their health plans or the health plans they manage. Cash is due from the customer or the end user’s health plan as the products and supplies are deployed to the end user.

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

Shipping and handling fees are typically not charged to end users. The related freight costs and supplies directly associated with shipping products to end users are included as a component of cost of revenues.

CareServices

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

We recognize CareServices revenue when persuasive evidence of an arrangement exists, delivery of the device or service has occurred, prices are fixed or determinable and payment has occurred or collection is reasonably assured. Shipping and handling fees are included as part of net revenues. The related freight costs and supplies directly associated with shipping products to end users are included as a component of cost of revenues. All CareServices sales are made with net 30-day payment terms.

Results of Operations

Three Months Ended March 31, 2014 and 2013

Revenues

Revenues for the three months ended March 31, 2014 were $1,313,000 compared to $1,062,000 for the same period in 2013. Revenues from Chronic Illness Monitoring were $1,037,000 for the three months ended March 31, 2014, compared to $605,000 for the same period in 2013. The increase is due to sales to new and existing customers and improving our services. Revenues from CareServices were $277,000 for the three months ended March 31, 2014, compared to $457,000 for the same period in 2013. The decrease is due to customer attrition.

Cost of revenues

Cost of revenues for the three months ended March 31, 2014 was $2,693,000, compared to $1,066,000 for the same period in 2013. The increase in cost of revenues is due to increased Chronic Illness Monitoring sales and a reserve for inventory obsolescence of $1,400,000. Chronic Illness Monitoring cost of revenues was $2,477,000 and CareServices cost of revenues was $216,000.

Gross Deficit

Gross deficit for the three months ended March 31, 2014 was $1,379,000, compared to $4,000 for the same period in 2013. The increase in gross deficit resulted primarily from an increase in the reserve for inventory obsolescence offset, in part, by an increase in Chronic Illness Monitoring sales. We expect gross profit to improve in fiscal year 2014 as we acquire more Chronic Illness Monitoring members and retain existing members.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended March 31, 2014 were $2,886,000, compared to $2,301,000 for the same period in 2013. The increase in expenses incurred is primarily due to an increase in stock-based compensation. Stock based compensation for the three months ended March 31, 2014 was $1,002,000 compared to $74,000 for the same period in 2013.

Research and Development Expenses

Research and development expenses for the three months ended March 31, 2014 were $48,000, compared to $267,000 for the same period in 2013. The decrease is due to the completion of certain Chronic Illness Monitoring platforms during fiscal year 2013. We expect to continue investing in research and development as we develop new platforms for Chronic Illness Monitoring.

Interest Expense

Interest expense for the three months ended March 31, 2014 was $195,000, compared to $767,000 for the same period in 2013. The decrease is due to the conversion of $2,985,000 of debt and accrued interest to equity during the three months ended December 31, 2013.

Discontinued Operations

In June 2013, we sold the net assets and operations of the reagents business segment to a third party for $184,000 in cash. Gain from discontinued operations for the three months ended March 31, 2013 was $21,000.

Net Loss

Net loss for the three months ended March 31, 2014 was $4,450,000, compared to $3,297,000 for the same period in 2013 for the reasons described above.

Dividends on Preferred Stock

We accrued $182,000 of dividends on preferred stock for the three months ended March 31, 2014, compared to $74,000 for the same period in 2013. The increase in dividends was due to the increased number of shares of Series E preferred stock and Series F preferred stock issued and outstanding during the three months ended March 31, 2014.

Six Months Ended March 31, 2014 and 2013

Revenues

Revenues for the six months ended March 31, 2014 were $3,672,000 compared to $3,435,000 for the same period in 2013. Revenues from Chronic Illness Monitoring were $3,046,000 for the six months ended March 31, 2014, compared to $2,559,000 for the same period in 2013. The increase is due to sales to existing customers and improving our services. Revenues from CareServices were $625,000 for the six months ended March 31, 2014, compared to $877,000 for the same period in 2013. The decrease is due to customer attrition.

Cost of revenues

Cost of revenues for the six months ended March 31, 2014 was $4,137,000, compared to $3,249,000 for the same period in 2013. The increase in cost of revenues is due to increased Chronic Illness Monitoring sales and a reserve for inventory obsolescence of $1,400,000. Chronic Illness Monitoring cost of revenues was $3,618,000 and CareServices cost of revenues was $518,000.

Gross Profit (Deficit)

Gross deficit for the six months ended March 31, 2014 was $465,000, compared to gross profit of $186,000 for the same period in 2013. The decrease in gross profit resulted primarily from an increase in the reserve for inventory obsolescence offset, in part, by an increase in Chronic Illness Monitoring sales. We expect gross profit to improve in fiscal year 2014 as we acquire more Chronic Illness Monitoring customers and retain existing customers.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the six months ended March 31, 2014 were $5,595,000, compared to $4,872,000 for the same period in 2013. The increase in expenses incurred was primarily due to additional support needed for recurring Chronic Illness Monitoring customers and an increase to stock-based compensation. Stock-based compensation for the six months ended March 31, 2014 was $1,574,000 compared to $1,503,000 for the same period in 2013.

Research and Development Expenses

Research and development expenses for the six months ended March 31, 2014 were $123,000, compared to $469,000 for the same period in 2013. The decrease is due to the completion of certain Chronic Illness Monitoring platforms during fiscal year 2013. We expect to continue investing in research and development as we develop new platforms for Chronic Illness Monitoring.

Interest Expense

Interest expense for the six months ended March 31, 2014 was $1,440,000, compared to $1,791,000 for the same period in 2013. The decrease is due to the conversion of $2,985,000 of debt and accrued interest to equity during the three months ended December 31, 2013.

Discontinued Operations

In June 2013, we sold the net assets and operations of the reagents business segment to a third party for $184,000 in cash. Gain from discontinued operations for the six months ended March 31, 2013 was $6,000.

Other Income and Expense

The gain on derivatives liability for the six months ended March 31, 2014 was $480,000, compared to $46,000 for the same period in 2013. During the six months ended March 31, 2014, the derivatives liability was eliminated due to the conversion of notes payable with variable conversion features.

Net Loss

Net loss for the six months ended March 31, 2014 was $7,222,000, compared to $6,878,000 for the same period in 2013 for the reasons described above.

Dividends on Preferred Stock

We accrued $347,000 of dividends on preferred stock for the six months ended March 31, 2014, compared to $134,000 for the same period in 2013. The increase in dividends was due to the increased number of shares of Series E preferred stock and Series F preferred stock issued and outstanding during the six months ended March 31, 2014. In addition, we recognized a deemed dividend of $2,235,000 on the conversion of Series C preferred stock and Series D preferred stock to shares of common stock at conversion rates more favorable to the holders than their original designations .

Liquidity and Capital Resources

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

Our cash balance as of March 31, 2014 was $296,000. As of March 31, 2014, we had a working capital deficit of $2,793,000, compared to $4,758,000 as of September 30, 2013. The increase in working capital is primarily due to the sale of Series F preferred stock and the conversion of debt and accrued interest into equity and a reduction to accounts payable due to vendor payments offset by a decrease in inventory due to additional sales.

Operating activities for the six months ended March 31, 2014 used cash of $3,486,000, compared to $4,746,000 for the same period in 2013. The decrease in cash used in operating activities is due to the collection of accounts receivable for sales in fiscal year 2013.

Investing activities for the six months ended March 31, 2014 used cash of $58,000, compared to $267,000 for the same period in 2013. The decreased use of cash in investing activities was due to the fact that we made no purchases of equipment leased to customers for our CareServices segment during the six months ended March 31, 2014.

Financing activities for the six months ended March 31, 2014 provided cash of $3,616,000, compared to $4,526,000 for the same period in 2013. The decrease in cash provided by financing activities is due to the decrease in debt and equity financing during the six months ended March 31, 2014.

We had an accumulated deficit as of March 31, 2014 of $71,249,000, compared to $64,818,000 as of September 30, 2013. Our total stockholders’ deficit as of March 31, 2014 was $523,000 compared to total stockholders’ deficit of $2,298,000 as of September 30, 2013. These changes were primarily due the sale of Series F preferred stock and the conversion of debt to equity, offset by our net loss for the six months ended March 31, 2014.

Recent Accounting Pronouncements

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Information about our exposure to market risk was disclosed in our Annual Report on Form 10-K for the year ended September 30, 2013, which was filed with the Securities and Exchange Commission (“SEC”) on January 14, 2014. There have been no material quantitative or qualitative changes in market risk exposure since the date of that filing.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

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

During the audit process for the year ended September 30, 2013, management identified material weaknesses in internal control over financial reporting as follows:

Control Environment

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

·	Period end financial disclosure and reporting processes;

·	Segregation of incompatible duties of various accounting functions;

·	Review and approval of manual journal entries.

·	Evaluation of distributor contracts for revenue recognition

Financial Reporting Process

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

Changes in Internal Control over Financial Reporting

During the six months ended March 31, 2014, we integrated new staff, improved supervision and trained staff to improve internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

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

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

Recent Sales of Unregistered Securities

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

·	584,100 shares to the Chief Executive Officer for the exercise of a modified stock option agreement, modification was approved by disinterested members of the Board of Directors, the value of the modification was $134,897;

·	474,000 shares to a former Chief Executive Officer for the exercise of a modified stock option agreement, value of the modification was $400,585;

·	56,238 shares to related parties for origination fees, the value on the date of grant was $52,170;

·	100,000 shares to a third-party consultant for services, the value on the date of grant was $85,000;

·	60,000 shares to three employees for bonuses, the value on the date of grant was $52,200;

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

·	7,930 shares to an unrelated party for an equity investment finders’ fees, the value on the date of grant was $7,000;

·	7,584 shares to the holders of preferred stock to settle accrued dividends for Series C preferred stock and Series D preferred stock, the value on the date of grant was $6,115.

During the three months ended March 31, 2014, we issued the following shares of Series F preferred stock to three accredited investors without registration under the Securities Act:

·	1,008 shares for net proceeds of $810,000.

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

Item 3. Defaults Upon Senior Securities

As of the release date of the financial statements as originally reported, a $64,000 note payable to an unrelated party is past due, in default and unpaid. The Company continues to make payments on this note payable. In addition, notes payable due to related parties with total principal amounts of $57,000 are past due, in default and unpaid, the parties have not made a demand for payment.

Item 5. Other Information

In March 2014, disinterested members of the Board of Directors approved the modification of the Chief Executive Officer’s employment agreement. The Chief Executive Officer’s compensation was reduced by $15,000 per month and 584,100 previously granted and fully vested stock options were modified and converted to common shares. The value of the modification was $134,897 and recorded as stock-based compensation during the three months ended March 31, 2014. In March 2014, the Board of Directors approved the modification of 474,000 previously granted and fully vested stock options for the former Chief Executive Officer for services rendered in promoting the Company to potential investors. The value of the modification was $400,585 and recorded as stock-based compensation during the three months ended March 31, 2014.

Item 6. Exhibits

Exhibit Number	Description

(10)(i)	Form of Securities Purchase Agreement, dated December 16, 2013 *

(10)(ii)	Form of Warrant to Purchase Common Stock *

(10)(iii)	Form of Exchange Agreement *

(10)(iv)	Form of Loan Conversion Agreement *

(10)(v)	Form of Preferred Stock Series C and Series D Conversion Notice *

(10)(vi)	Form of Stock Purchase Warrant *

(10)(vii)	Form of Amendment Agreement for exhibit number (10)(i) and (10)(ii) *

(10)(viii)	Information statement to amend articles of incorporation to increase authorized shares *

31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101 INS	XBRL Instance Document**

101 SCH	XBRL Schema Document**

101 CAL	XBRL Calculation Linkbase Document**

101 DEF	XBRL Definition Linkbase Document**

101 LAB	XBRL Labels Linkbase Document**

101 PRE	XBRL Presentation Linkbase Document**

* Previously filed

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

SIGNATURES

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

	ActiveCare, Inc.


		/s/ Michael Z. Jones
		Michael Z. Jones Chief Executive Officer (Principal Executive Officer) and President

Date: November 10, 2014

		/s/ Marc C Bratsman
		Marc C Bratsman Chief Financial Officer (Principal Financial and Accounting Officer)

Date: November 10, 2014

ACTIVECARE, INC. - FORM 10-Q/A - November 10, 2014

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ACTIVECARE, INC. Reports