10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)
x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2009
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission file number: 0-53570

ActiveCare, Inc.

(Formerly Volu-Sol Reagents Corporation)

(Exact name of registrant as specified in its charter)

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

5095 West 2100 South, Salt Lake City, Utah 84120

(Address of principal executive offices, Zip Code)

(801) 974-9474

(Registrant's telephone number, including area code)

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

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

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

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

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 o No o

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

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

Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company x

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

There were 11,822,639 shares of the registrant's common stock outstanding as of December 15, 2009.

ACTIVECARE, INC.

FORM 10-K

For the Fiscal Year Ended September 30, 2009

INDEX

		Page
Part I
Item 1	Business	3
Item 1A	Risk Factors	8
Item 2	Properties	13
Item 3	Legal Proceedings	13
Item 4	Submission of Matters to a Vote of Security Holders	13
Part II
Item 5	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	13
Item 7	Management's Discussion and Analysis of Financial Condition and Results of Operations	15
Item 8	Financial Statements and Supplementary Data	22
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	22
Item 9A(T)	Controls and Procedures	22
Item 9B	Other Information	23
Part III
Item 10	Directors, Executive Officers and Corporate Governance	23
Item 11	Executive Compensation	26
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	31
Item 13	Certain Relationships and Related Transactions, and Director Independence	33
Item 14	Principal Accounting Fees and Services	34
Part IV
Item 15	Exhibits, Financial Statement Schedules	35
Signatures

PART I

The statements contained in this Report on Form 10-K that are not purely historical are considered to be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements represent our expectations, beliefs, anticipations, commitments, intentions, and strategies regarding the future, and include, but are not limited to the risks and uncertainties outlined in Item 1A. “Risk Factors,” and Item. 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations.” Readers are cautioned that actual results could differ materially from the anticipated results or other expectations that are expressed in forward-looking statements within this Report.

Item 1.  Business

Background

ActiveCare, Inc. (formerly Volu-Sol Reagents Corporation) (the "Company" or "ActiveCare") was formed March 5, 1998 as a wholly owned subsidiary of RemoteMDx, Inc. [OTCBB:RMDx], a Utah Corporation ("RemoteMDx").  During the twelve months ended December 31, 2008, the ownership interest of RemoteMDx in ActiveCare was reduced through (a) the sale of shares of our common stock by us to investors in private transactions and (b) the sale and transfer of shares of our common stock by RemoteMDx in private transactions.  RemoteMDx completed its divestiture of ActiveCare in February 2009, through the distribution of approximately 1,421,667 shares of our common stock to the shareholders of RemoteMDx.  Each shareholder of RemoteMDx received one share of ActiveCare common stock for every 117 shares of RemoteMDx common stock owned of record on January 30, 2009. The distribution date was February 27, 2009.  Following the distribution of our shares RemoteMDx retained no ownership interest in ActiveCare.  Effective July 15, 2009, we changed our name to ActiveCare, Inc., and our state of incorporation to Delaware.

General

Our original business involves the manufacture and distribution of medical diagnostic equipment and laboratory stains and solutions.  Over the past several years we have expanded our vision and business plan to incorporate products and services focused on the elderly market.  As part of these efforts we have established a sophisticated CareCenter with highly trained specialists to assist the elderly in managing their daily lives 24 hours per day 7 days per week.  In order for the CareCenter to service our customers, we have developed and continue to develop numerous products designed to assist the elderly maintain a more active and mobile lifestyle.  The first product that we introduced is the ActiveOneTM device.  The ActiveOneTM is a patented mobile personal emergency response ("PERS") device that allows the user to contact our CareCenter at the push of a button.  The ActiveOneTM constantly communicates its location to the CareCenter by utilizing GPS technology.  This allows the CareCenter Specialists to constantly help and assist the elderly customer no matter where they may be.

Our plan is to continue to invest monies into research, development and patents as we broaden the services offered by our CareCenter.  Eventually we intend to add to the functionality of the ActiveOneTM to allow for vital sign monitoring for the chronically ill and additional services to assist both the mobile and homebound seniors, including those who may require a personal assistant to check on them during the day to ensure their safety and well being and know where they are at all times.

Our business model focuses on seniors who are mobile and want the "peace of mind" of recognizing that their location is known at all times and that they can request assistance at any time.  Our business plan is to sell or give customers a device and require payment of a monthly recurring subscription for services.  Different services which we provide range from requesting emergency services to receiving calls throughout the day from the CareCenter to remind our customers of specific events and ensuring their health and state of mind.  All of our clientele will have access to a CareCenter specialist who can immediately contact emergency services and provide directions on how to reach the subscriber in the event of an emergency.

In the future, we plan to offer the capability to both monitor the vital signs of the elderly and alert the patient and appropriate family members and emergency personnel when abnormal vital signs are identified at the CareCenter.  We also plan to integrate third party bio-medical sensors to capture specific vital signs such as glucose, blood pressure, and oxygen saturation levels and to transmit the measurements to the CareCenter.

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We believe that through the technologies we are developing, we can enhance the lives of the elderly, a growing segment of today's population, and enable them to live a more "normal" lifestyle and, most important, permit them to remain in their own homes longer. The CareCenter is staffed around the clock with advisors that receive calls originating from the product. Our services will enhance our clientele’s mobility and provide peace of mind knowing that their vital signs are being monitored and their locations are known at all times.  We can immediately communicate with the patient and emergency personnel in times of need and communicate the patient's location and an abbreviated medical history.

Our Growth Strategy

Like the products we have in development, the ActiveOne™ device incorporates 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 carried in a purse, and it sends a cellular signal to our CareCenter. When the wearer of the device pushes the button, the staff at the CareCenter evaluates the situation, deciding 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 and products that provide geographical locations, and clinical health parameters.  However, we believe that no product on the market today has successfully integrated both of these technologies in a single effective device.  We feel that it is imperative to bring such a solution to the market.  We are developing end user products and CareCenter applications and infrastructure to interface with the patient and the CareCenter specialist.

With U.S. healthcare costs spiraling upward, we believe that cost containment is a primary issue facing the industry.  These escalating costs will only intensify during the 21st century as the baby-boom generation ages.  As of 2005, 35 million Americans were 65 years of age or older according to the US Census Bureau, and this number is projected to increase to 54 million by the year 2020, according to a study by the Economic Research Service of the U.S. Department of Agriculture.1  By that year, 1 in 6 Americans will be over the age of 65 and by the middle of the century, the number of elderly could reach more than 86 million people, more than double its present size.  With an aging population, and because approximately 80% of healthcare costs occur in the last two years of life, according to an article published in the National Review Online, the nation is in dire need of viable cost saving options.

Aside from the obvious problems associated with aging, approximately one in every four Americans suffers from a chronic illness, according to a 2004 presentation to the American Telemedicine Association, which typically becomes more severe and prominent with age.  The demographics of chronic illnesses include over 15 million people with diabetes and close to 14 million with coronary heart disease (according to reports published by the American Heart Association), and over 10 million with osteoporosis (according to a study by the University of Maryland Medical Center).  Various industry studies, including a study published in the IBM Systems Journal in 2007 and a study conducted by heart specialists from Columbia Presbyterian Medical Center Cardiac Transplant Service, have been conducted showing the cost savings that can be realized by the daily monitoring of the chronically ill. 

Through the technologies we are developing, we believe we can enhance the lives of the elderly and enable them to live more "normal" lifestyles by providing them mobility and peace of mind with the knowledge that their vital signs are being monitored and their locations are known at all times. At the same time we can save millions of dollars to the health care sector as we identify problems and issues in advance.  

ActiveOne

Under the trademark ActiveOne™ we have developed a product that incorporates GPS, cellular capability, and fall detection, all of which are connected to a 24 hour care center with the push of a button. The transmitter can be worn on a neck pendant or carried in a purse, and it sends a cellular signal to our care center. When the wearer of the device pushes the button, the staff at the care center evaluates the situation and decides whether to call emergency services or a designated friend or family member.

Marketing

We have begun selling the ActiveOneTM service through a direct mail and direct telephone campaign. Our sales team has already established a distributor network in different parts of the country and we intend to grow this distributor network as we build relationships across the U.S.  It is also our intention to place print ads in news papers and periodicals that reach the general public and specifically those that target seniors.  There are also plans for television ads that convey our message to seniors and others that have monitoring needs.

1 Copies of this and other studies, reports, articles and presentations referenced in this section of our report on Form 10-K are on file with the Company.

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Research and Development Program

General Information

GPS technology utilizes highly accurate clocks on 24 satellites orbiting the earth owned and operated by the U.S. Department of Defense.  These satellites are designed to transmit their identity, orbital parameters and the correct time to earthbound GPS receivers at all times.  Supporting the satellites are several radar-ranging stations maintaining exact orbital parameters for each satellite and transmitting that information to the satellites for rebroadcast at frequencies between 1500 and 1600 MHz. 

A GPS receiver (or engine) scans the frequency range for GPS satellite transmissions. If the receiver can detect three satellite transmissions, algorithms within the engine deduce its location, usually in terms of longitude and latitude, on the surface of the earth as well as the correct time. If the receiver can detect four or more GPS satellite transmissions, it can also deduce its own elevation above sea level.  The effectiveness of GPS technology is limited by obstructions between the device and the satellites and, therefore, service can be interrupted or may not be available at all if the user is located in the lower floors of high-rise buildings or underground.

During the year ended September 30, 2009, we spent $375,293 on research and development.  Research and development (“R&D”) has taken place on a GPS/Cellular communications device and on a water resistant wrist device that will detect falls and include a speaker and microphone. Our goal is to develop a wristwatch-size PERS device.  The watch will be universal for women and men with an adjustable strap.  The expanded CareCenter and the related products will be developed by our team.  We have identified and are working with several vendors for services that will further our objectives.  

An important part of this R&D program is our relationship with SIM Technology Group Limited (“SIM Technology”).  We have entered into an agreement with Quectel Wireless Solutions, Ltd. (“Quectel”), a subsidiary of SIM Technology, to assist us in development of the ActiveOne™ and its companion device, the ActiveOne+™.  According to its 2008 Annual Report and 2009 Interim Report (www.sim.com/english/investor/Reports), SIM Technology was founded in 2002 and has been listed on the Main Board of the Hong Kong Stock Exchange since 2005 [2000.HK]. SIM Technology is an investments holding company. In addition to Quectel, SIM Technology’s subsidiaries include Shanghai Simcom, Shanghai Sunrise Simcom and several other companies that are leading mobile handset and wireless communication developers in China. Over the past few years, SIM Technology Group has been a leader of the Chinese mobile phone design industry in revenue, profit and stock market.  The company employs approximately 2,500 people with about 1,100 in research and development.

SIM Technology was listed as one of the “Deloitte Technology Fast 50 China” and “Deloitte Technology Fast 500 Asia Pacific” for three consecutive years (2005, 2006, and 2007).  SIM Technology also was recognized as one of “The BCG 50 Local Dynamos” by Boston Consulting Group, a leading global consulting firm.  Quectel is a professional supplier of high quality wireless modules and trackers in GSM/GPRS and GPS and related technologies. Its module products are used for automotive, smart metering, control and monitoring, tracking and tracing, payment, security, and many other Machine-to-Machine (M2M) products.

CareCenter

In concert with the development of our products, we also created the CareCenter.  In contrast with a typical monitoring center, our CareCenter is equipped with hardware and software that pinpoints the location of the incoming caller by utilizing GPS technology.  This capability is referred to as telematic.  The operator’s computer screen can identify the caller as well as locate the caller’s precise location on a detailed map.  We believe the CareCenter is and will be the cornerstone of our business. 

Competition

Our products incorporate technologies and services also found in devices sold in several diverse markets.  The major markets in which we compete or plan to compete may be referred to as the “Telehealth” and the Personal Emergency Response or “PERS” markets. We have identified the entities listed below that appear to compete directly in one or more of our markets.  Note that these entities mostly focus on specific needs and do not offer a personal assistant as we do in our CareCenter.  In addition, the entities operating in the PERS market target the senior who is confined to the home, as opposed to our intended customer who is typically more mobile.

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Competitors in the Telehealth Market

· BodyTel Europe GmbH – uses glucose meter to transmit glucose information via cell phone to BodyTel’s database, where users can log on to view results

· CardioNet, Inc.- specializing in monitoring the heart for detection of arrhythmia, utilizing a monitoring center and two way communication with patient’s physician

· LifeWatch, Inc. and its subsidiary, CardGuard Scientific Survival, Ltd. - monitors  heartbeat data for arrhythmia detection and transmits data through the patients mobile phone to LifeWatch’s Monitoring center

· Diabetech LP – monitors glucose for diabetic patients,  and sends text or e-mail to patient and doctors

· GE Healthcare’s Living Independently – uses motion detectors in the home to monitor a seniors movements in order to detect patterns and inform caregivers when there may be an emergency, also monitors medication and sends alerts

· GrandCare Systems LLC – monitors motion in the home through motion detectors and other sensors to monitor well being of seniors, blood pressure cuff, glucometer and weight scale to monitor health

· HealthPia USA – glucose meter that attaches to certain mobile phones, results uploaded and sent to caregivers via wireless network

· Philips Remote Cardiac Services/Raytel Imaging Network – records up to 30-days worth of heart data and transmits via internet connectivity, not yet wireless 

Competitors in Personal Emergency Response System (PERS) Market

The current PERS market is based on technology that has not changed in 30 years.  The hardware given to a PERS customer generally includes a base unit that is connected to the customer’s home phone line and a pendant that is worn on the person which activates a call for help.  The base unit serves as a call forwarding device that dials the number to the call center when the button on the pendant is pressed.  The pendant can only operate within 200 to 600 ft of the base unit. Since there is no voice communication through the pendant the customer must be within earshot of the base unit for the system to work correctly.  This effectively tethers a customer to their home if they do not want to risk being out of range of this emergency service.  In contrast, our ActiveOne products incorporate cellular and GPS technologies, freeing the wearer to leave their home without being within a short distance of a base unit.

Competitors in this market include:

· ADT Security Services, Inc. – specializes in home security, they offer a pendent device/home communications station.

· Alert One Services, Inc. – offers a wristband and pendent device / home communications device.

· American Medical Alarms, Inc. – offers a pendent device/home communications device.

· Life Alert Emergency Response, Inc. – offers a pendent device/home communications device.

· Philips Lifeline – is the largest provider in the industry with over 500,000 subscribers.  Offers a pendent device/home communications station. They also send out messages to family members or caregivers when the monitoring center receives an alarm.

· LifeStation, Inc. – offers a wristband, belt clip, pendent devices / home communications station.

· Rescue Alert – offers a pendent device/home communications station.  Claims to have the best panic button range of 600 feet to the home communication device.   Monitoring center that is staffed with certified EMD advisors.

Information necessary to determine or reasonably estimate our market share or that of any competitor in any of these markets is not readily available.

Dependence on Major Customers

To date, most of our revenue has been derived from the sale of our diagnostic devices and stains.  During the fiscal years ended September 30, 2009 and 2008, we had sales of medical and laboratory stains and solutions to entities which represented more than 10% of our revenues.  Thermo Fisher Scientific, Inc. (“Thermo”) accounted for 17.03% ($76,947) and Richard Allan Scientific accounted for 12.89% ($58,227) for the year ended September 30, 2009.  Thermo accounted for 31.36% ($141,664) and Cardinal Health Medical for 15.44% ($69,769) of sales for the year ended September 30, 2008.  No other customer accounted for more than 10% of our revenues for the fiscal years ended September 30, 2009 and 2008.

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Intellectual Property

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

Patents.  Under a February 2009 agreement with our former parent, RemoteMDx, we obtained the exclusive, irrevocable, perpetual, worldwide, transferable, sublicensable license of all rights conferred by the patents, patent applications, and provisional patent applications listed in the table below for the healthcare and personal safety industries/markets.

Patent or Application No.	Country	Issue/Filing Date	Title of Patent
11/486,989	United States	Pending/ 7/14/2006	Remote Tracking Device and System and Method for Two-Way Voice Communication Between Device and a Monitoring Center
11/486,991	United States	Pending/ 7/14/2006	Remote Tracking System and Device with Variable Sampling
11/830,398	United States	Pending/ 7/30/2007	Methods for Establishing Emergency Communications Between a Communications Device and a Response Center
12/614,242	United States	Pending/ 11/6/2009	Systems and Devices for Emergency Tracking and Health Monitoring

We were also granted worldwide and exclusive rights to the patents and patent applications listed in the table below under a license granted to us by Futuristic Medical Devices, LLC (“Futuristic”), dated May 25, 2009 (“Patent Agreement”).

Patent or Application No.	Country	Issue Date	Title of Patent
6,044,257	United States	March 28, 2000	Panic Button Phone
6,636,732	United States	October 21, 2003	Emergency Phone with Single Button Activation
6,226,510	United States	May 1, 2001	Emergency Phone for Automatically Summoning Multiple Emergency Response Services
7,092,695	United States	August 15, 2006	Emergency Phone with Alternate Number Calling Capability
7,251,471	United States	July 31, 2007	Emergency Phone with Single Button Activation

Patent Agreement  

In May 2009, we entered into the Patent Agreement with Futuristic. Under the Patent Agreement, we were granted the exclusive, irrevocable, worldwide, transferable, sublicensable license of all rights conferred by the underlying patents.  We were also granted the exclusive right to grant and authorize, from time to time and in our sole and absolute discretion, one or more sublicenses.  The Patent Agreement required an upfront royalty payment of $300,000 and ongoing royalty payment equal to 5% of net sales revenues for licensed products.  The upfront royalty payment has not been paid and the Patent Agreement is in default.  We are currently negotiating with Futuristic to cure this default.

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

Employees

As of December 1, 2009, we had 15 full time employees and 1 part-time employee.  None of these employees are represented by a labor union or subject to a collective bargaining agreement. We have never experienced a work stoppage and our management believes that our relations with employees are good.

Additional Available Information

We maintain executive offices and principal facilities at 5095 West 2100 South, Salt Lake City, Utah 84120.  Our telephone number is (801) 974-9474. We maintain a World Wide Web site at www.activecare.com. The information on our web site should not be considered part of this report on Form 10-K. We make available, free of charge at our corporate web site, copies of our annual reports filed with the Securities and Exchange Commission (“SEC”) on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and all amendments to these reports, as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act. We also provide copies of our Forms 8-K, 10-K, 10-Q, Proxy and Annual Report at no charge to investors upon request.

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

Item 1A.  Risk Factors  

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

We have not achieved profitable operations and continue to operate at a loss.

From incorporation to date, we have not achieved profitable operations and continue to operate at a loss.  Our present business strategy is to improve cash flow by adding to our existing product line and expanding our sales and marketing efforts, including the addition of in-house sales personnel.  There can be no assurance that we will ever be able to achieve profitable operations or that we will not require additional financing to fulfill our business plan.

Because of our history of accumulated deficits and recurring cash flow losses, we must improve profitability and may be required to obtain additional funding if we are to continue as a "Going Concern."

We have a history of accumulated deficits.  As of September 30, 2009, and September 30, 2008, our accumulated deficit was $5,057,151 and $2,640,788, respectively.  As of September 30, 2007, we had an accumulated deficit of $362,057. Our financial statements have been prepared on the assumption that we will continue as a going concern.  Our independent registered public accounting firm has issued their report dated December 24, 2009, that includes an explanatory paragraph stating that our recurring losses raise substantial doubt about our ability to continue as a going concern.  Our product line is limited and it has been necessary to rely upon loans and capital contributions and the sale of our equity securities to sustain operations.  In addition, we have recently begun to emphasize a new product line and business plan, which will require additional investment in research and development and marketing.  Our management anticipates that we may require approximately $5,000,000 in additional capital over the next twelve months to implement this business plan and to fund ongoing operations, although this is only an estimate, and there can be no guarantee that such funds would be sufficient. If such additional funding is needed and cannot be obtained, we may be required to scale back or discontinue operations.

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

Profitability depends upon many factors, including the success of our marketing program, our ability to identify and obtain the rights to additional products to add to our existing product line, expansion of distribution and customer base, maintenance or reduction of expense levels and the success of our business activities.  For a discussion of risks related to our accumulated deficits, please see the preceding risk factor. We anticipate that we will continue to incur operating losses in the future. Our ability to achieve profitable operations will also depend on our success in developing and maintaining an adequate marketing and distribution system. There can be no assurance that we will be able to develop and maintain adequate marketing and distribution resources. If adequate funds are not available, we may be required to materially curtail or cease operations.

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

We use certain trademarks and trade names with certain of our products. Nevertheless, our current core products, medical diagnostic stains and solutions and other biochemical products, as well as the Definitive Slide Stainer Device (the “Definitive”), are not based on technology proprietary to us. Indeed, the majority of our present product line is based on technology that is in the public domain and therefore there are effectively no entry barriers for potential competitors.  We purchased an inventory of Definitive machines under an exclusive license agreement with GG&B Engineering, Inc. (“GG&B”).  GG&B owns the intellectual property rights associated with the Definitive.  There can be no assurance that GG&B will be able in the future to adequately protect its proprietary rights upon which the Definitive is based.

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

Our future products could be based on patents derived from our Patent Agreement with Futuristic.  This agreement is currently in default.

In May 2009, we entered into the Patent Agreement with Futuristic.  Under the Patent Agreement, we were required to make an upfront royalty payment of $300,000 and to make future payments of royalties equal to 5% of net sales revenues for licensed products.  We did not make the upfront royalty payment and the Patent Agreement is in default.  We are negotiating with Futuristic and expect to cure this default.  If we are not able to cure the default, our future use of technologies or products based on the patents covered by the Patent Agreement may infringe the rights of Futuristic and we may be subject to lawsuits or claims for damages as a result of such infringement.

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

The medical diagnostic supply and biochemical industries, including those segments devoted to manufacturing and distributing laboratory equipment, stain solutions and chemical reagents, are characterized by intense competition. We face, and will continue to face, competition in the stain solution, reagent and related equipment fields.  In addition, competition in the PERS market is also significant. Many, if not most, of our competitors and potential competitors are much larger and consequently have greater access to capital as well as mature and highly sophisticated distribution channels. Some of our larger competitors are able to manufacture chemical products on a much larger scale and therefore presumably would be able to take advantage of economies of scale that we do not presently enjoy.  Moreover, many of our competitors have far greater name recognition and experience in the medical diagnostic supply industry.  There can be no assurance that competition from other companies will not render our products noncompetitive.

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

Our current revenues are derived primarily from our current core products, medical diagnostic stains and solutions and other biochemical products, as well as the Definitive.  We depend heavily on our executive officers and certain scientific, technical, and operations employees, including Christine Kilpack, James Dalton, and Michael Acton.  As of the date of this report, we do not have employment agreements with any of these individuals. We have entered into a management agreement with Mr. Dalton, who serves as our Chief Executive Officer. The loss of services of any of these personnel could impede the achievement of our objectives. There can be no assurance that we will be able to attract and retain qualified executive, scientific, or technical personnel on acceptable terms.

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We rely on third parties to manufacture some of our product line.

Our manufacturing experience and capabilities are limited to the manufacture of staining solution, reagent and certain related chemical compounds.  With respect to the manufacturing of devices and equipment related to the staining solution products, including without limitation the Definitive, we have in the past used, and intend to continue to use, third-party manufacturing resources. We also use and intend to continue using third-party manufacturers for our new PERS and other devices. Consequently, we are dependent on contract manufacturers for the production of existing products and will depend on third-party manufacturing resources to manufacture equipment and devices we may add to our product line in the future.  In the event we are unable to obtain or retain third-party manufacturing, we will not be able to continue operations as they relate to the sale of equipment and devices.

Our medical solutions business is subject to certain environmental risks and the requirement that we comply with regulations which increases the cost of doing business.

Our chemical manufacturing processes involve the controlled use of hazardous materials. We are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of such materials and certain waste products.  We carry limited product liability insurance relating to the use of potentially hazardous materials, with coverage amounts of $1,000,000 per claim and per accident, and $2,000,000 in the aggregate.  The premium for such insurance coverage is $94,000.  Although we believe that our activities currently comply with the standards prescribed by such laws and regulations, the risk of accidental contamination or injury from these materials cannot be eliminated.  In the event of such an accident, we could be held liable for any damages that result and any such liability could exceed our resources.  In addition, there can be no assurance that we will not be required to incur significant costs to comply with environmental laws and regulations in the future.

We market and sell our medical stains and solutions products through independent distributors who are free to sell other, and at times competing, products. We therefore have no direct control over our sales force.

We sell our legacy staining products to approximately 75 independent distributors who are free to resell the products.  In order to achieve profitable operations, we must maintain its current base of sales staff and must expand that base in the future.  There can be no assurance that we will be able to enter into arrangements with qualified sales staff if and when such additional staff are required.  Our sales staff will compete with other companies that currently have experienced and well funded marketing and sales operations.  To the extent that we enters into co-promotion or other marketing and sales arrangements with other companies, any revenues to be received by us will be dependent on the efforts of others, and there can be no assurance that such efforts will be successful.

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

The use of any of our existing or potential products in laboratory or clinical settings may expose us to liability claims. These claims could be made directly by persons who assert that inaccuracies or deficiencies in their test results were caused by defects in our products.  Alternatively, we could be exposed to liability indirectly by being named as a third-party defendant in actions brought against companies or persons who have purchased our products.  We have obtained limited product liability insurance coverage in the amount of $1 million per occurrence and $2 million in the aggregate. We intend to expand our insurance coverage on an as-needed basis as sales revenue increases.  However, insurance coverage is becoming increasingly expensive, and no assurance can be given that we will be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. There can also be no assurance that we will be able to obtain commercially reasonable product liability insurance for any products added to our product line in the future. A successful product liability claim or series of claims brought against us could have a material adverse effect on our business, financial condition and results of operations.

The uncertainty of health care litigation and regulatory measures in our primary markets can have an adverse effect on our business.

Political, economic and regulatory influences are likely to lead to fundamental change in the health care industry in the United States.  Numerous proposals for comprehensive reform of the nation's health care system have been introduced in Congress over the past years and a significant measure is currently pending action in the U.S. Senate.  In addition, certain states are considering various health care reform proposals. We anticipate that Congress and state legislatures will continue to review and assess alternative health care delivery systems and payment methodologies, and that public debate of these issues will likely continue in the future.  Due to uncertainties regarding the ultimate features of reform initiatives and their enactment and implementation, we cannot predict which, if any, reforms will be adopted, when they may be adopted, or what impact they may have on us.  Our ability to earn sufficient returns on our products may also depend in part on the extent to which reimbursement for the costs of such products will be available from government health administration authorities, private health insurers and other organizations.  Third-party payers are increasingly challenging the price and cost effectiveness of medical products and services, including medical diagnostic procedures.  There can be no assurance that adequate reimbursement will be available or sufficient to allow us to sell products on a competitive basis.

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Risks Related to Ownership of Our Common Stock

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

Our executive officers, directors and principal stockholders own, in the aggregate, approximately 30.26% of our outstanding common stock. In addition, certain of our officers and all of our directors have been granted options to purchase common stock.  All of the options and warrants held by these officers and directors are subject to vesting provisions conditioned on certain performance criteria and goals and none of these options or warrants have vested or are exercisable as of the date of this report.  If none of these criteria or less than all of them are satisfied, then the options or warrants will not become exercisable in whole or in part.  As a result of the ownership of the shares currently held and, if they become exercisable, their ownership and potential exercise of these options and warrants, these stockholders may be able to exercise control over all matters requiring stockholder approval, including the election of directors, amendment of our certificate of incorporation and approval of significant corporate transactions and will have significant control over our management and policies. The interests of these stockholders may not be consistent with your interests as a stockholder.

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

There may not be a viable public market for our common stock.

There is not now and there has not been any public market for our common stock. Consequently, unless and until such a market does develop, our stockholders may not be able to resell their ActiveCare shares at or above the price for which they were acquired. We cannot predict the extent to which investor interest will lead to the development of an active trading market in our securities or how liquid that market might become. An active public market for our common stock may not develop or be sustained in the future. If an active public market does not develop or is not sustained, it may be difficult for you to sell your shares of common stock at a price that is attractive to you, or at all.

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

Any market price for our common stock that does develop is likely to be volatile, in part because our shares have not been traded publicly. In addition, the market price of our common stock may fluctuate significantly in response to a number of factors, most of which we cannot control, including:

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

•  timing of promotional events;

•  changes in key personnel;

•  entry into new markets;

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

•  actions by competitors;

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

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

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

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

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

•  ratings downgrades by any securities analysts who follow our common stock;

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

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

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

•  changes in accounting principles.

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

Anti-takeover provisions in our charter documents and Delaware law might discourage or delay acquisition attempts for us that you might consider favorable.

Our certificate of incorporation and bylaws contain provisions that may make the acquisition of our company more difficult without the approval of our board of directors. These provisions:

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

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

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

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

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

We do not expect to pay any cash dividends for the foreseeable future.

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

We are prohibited from taking certain actions and entering into certain transactions without the consent of holders of our Series A preferred stock.

For as long as any shares of our Series A preferred stock remain outstanding we are prohibited from taking certain actions or entering into certain transactions without the prior consent of specific holders of outstanding shares of Series A preferred stock (currently consisting of Harborview Master Fund, L.P. and Gemini Master Fund, Ltd.).  We are prohibited from paying dividends to common stockholders, amending our certificate of incorporation or bylaws, issuing any equity security or any security convertible into or exercisable for any equity security at a price of $1.75 or less or with rights senior to the Series A preferred stock (except for certain exempted issuances), increasing the number of shares of Series A preferred stock or issuing any additional shares of Series A preferred stock other than the 1,000,000 shares designated in our Certificate of Incorporation, as amended, or changing the number of our directors.  We are also prohibited from entering into certain transactions such as:

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· selling or otherwise disposing of all or substantially all of our assets (and in the case of licensing, any material intellectual property) or entering into a merger or consolidation with another company unless we are the surviving corporation, the Series A preferred stock remains outstanding and there are no changes to the rights and preferences of the Series A preferred stock;

· redeeming or repurchasing any capital stock other than Series A preferred stock or the related warrants; or

· incurring any new debt for borrowed money in excess of $250,000.

Even though our board of directors may determine that any of these actions are in the best interest of us or our stockholders, we may be unable to complete them if we do not get the approval of specific holders of the outstanding shares of Series A preferred stock.  The interests of the holders of Series A preferred stock may differ from those of stockholders generally.  If we are unable to obtain consent from each of the holders identified above, we may be unable to complete actions or transactions that our board of directors has determined are in the best interest of our company and its shareholders.

Item 2.    Properties

We lease premises consisting of approximately 11,500 square feet of laboratory and office facilities located at 5095 West 2100 South, West Valley City, Utah. These premises also serve as our manufacturing, warehouse and shipping facilities.  This lease expires in November 2010 and the monthly base rent is $5,750, subject to annual adjustments according to changes in the Consumer Price Index.  Management believes the facilities described above are adequate to accommodate presently expected growth and needs of our operations.  As we continue to grow, additional facilities or the expansion of existing facilities likely will be required.

Item 3.    Legal Proceedings

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

By way of information, on August 15, 2008, plaintiffs Frederico and Erica Castellanos filed a lawsuit in the Superior Court of the State of California, Los Angeles County, Case No. BC396402, entitled "Frederico and Erica Castellanos vs. Allegheny Ludlum Corporation, et al."  The complaint names twenty-four defendants and one hundred unnamed “Doe Defendants.”  The complaint asserts claims for negligence, strict liability - failure to warn, strict liability - design defect, fraudulent concealment, breach of implied warranties, and loss of consortium based on Mr. Castellanos' alleged exposure to certain chemicals during the course of his employment.  One of the original named defendants was Logos Scientific, Inc.  On September 4, 2008, plaintiffs amended their complaint to substitute "Volu-Sol, Inc. as successor in interest to Logos Scientific, Inc." for the previously unnamed Doe 1. Volu-Sol, Inc. was the original name of RemoteMDx, our former parent corporation.  As of the date of this report, we were not a party to the lawsuit.

We are not aware of any contemplated legal or regulatory proceeding by a governmental authority in which we may be involved.

Item 4.    Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of shareholders during the quarter ended September 30, 2009.

PART II

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

Market Information

Our common stock is not traded on any exchange.

Holders

As of December 1, 2009, there were approximately 600 holders of record of the common stock and 11,822,639 shares of common stock outstanding. We also have 571,428 shares of Series A preferred stock outstanding, held by two stockholders, convertible into a minimum of approximately 571,428 shares of common stock.

We have granted warrants for the purchase of approximately 14,642,856 shares of common stock.  13,500,000 of these warrants are not vested and only vest upon completion of specific performance criteria.  As discussed elsewhere in this report, we may be required to issue additional shares of common stock or preferred stock to pay accrued dividends, or to comply with anti-dilution adjustments to the conversion rights of present or former preferred stockholders. 

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Dividends

Since incorporation, we have not declared any cash dividends on our common stock.  We do not anticipate declaring cash dividends on our common stock for the foreseeable future.  The Series A preferred stock accrues dividends at the rate of 8% annually, which may be paid in cash or additional shares of preferred or common stock, at our option.  To date no dividends have been paid.

Dilution

We have a large number of shares of common stock authorized in comparison to the number of shares issued and outstanding.  The board of directors determines when and under what conditions and at what prices to issue stock.  In addition, a significant number of shares of common stock are reserved for issuance upon exercise of purchase or conversion rights. The issuance of any shares of common stock for any reason will result in dilution of the equity and voting interests of existing stockholders. 

Transfer Agent and Registrar

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

Equity Compensation Plans

We currently do not have any equity compensation plans covering our employees.  We have entered into a management agreement with our Chief Executive Officer providing for equity compensation in the form of restricted stock and options for the purchase of common stock.  We have also granted options for the purchase of common stock to our directors and other officers.

Equity Compensation Plan Information

Plan Category(1)	Number of securities to be issued upon exercise of outstanding options, warrants, and rights (#)		Weighted-average exercise price of outstanding options, warrants, and right ($)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column) (#)
Equity compensation plans
approved by security holders		0	$	0		0
Equity compensation plans
not approved by security holders		13,500,000	$	0.29		0
Totals		13,500,000	$	0.29		0

(1)   Includes 500,000 shares of common stock issuable upon exercise of outstanding options granted to directors and 13,000,000 shares of common stock issuable upon exercise of outstanding options granted under a personal compensation plan to our Chief Executive Officer. As of the date of this report these warrants have not vested and they will only vest in the future upon completion of specific performance criteria.

Recent Sales of Unregistered Securities

During the past three fiscal years, we have sold or issued shares of our common stock and other equity securities without registration of the offer and sale of the securities under the Securities Act of 1933 (the “Securities Act”) in reliance upon exemptions from registration pursuant to rules and regulations promulgated under the Securities Act as summarized below.

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In fiscal year 2007, between March and September 2007, we sold 1,687,500 shares of common stock in private transactions to eighteen accredited investors.  Each of the transactions was privately negotiated, and no public offering took place.  The offer and sale of these securities was believed to be exempt from registration under Section 4(2) of the Securities Act related to private sales of securities by an issuer. Each of the purchasers represented to us that they were accredited investors as defined under the rules and regulations of the Securities Act. No public solicitation or advertising was undertaken in connection with the transactions and the purchasers of the shares sold in the offering represented that they were purchasing the shares for their own account and for investment purposes and not for purposes of distribution or resale. The certificates evidencing such shares were marked with a restrictive legend, indicating that any resale or transfer thereof was subject to restrictions under the Securities Act and applicable rules and regulations.

During the year ended September 30, 2008, we sold 2,690,972 restricted shares of our common stock for $2,198,333 in cash.  Of these shares, we sold 2,135,417 shares for sale proceeds of $2,098,333 to ADP Management.  The remaining 555,555 shares were sold to unrelated third parties. At the time of the offer and sale of these securities, ADP Management was an affiliate of our parent corporation, RemoteMDx and was also an accredited investor.  The offer and sale of these shares to ADP Management and to the unrelated third parties, who were also accredited, was exempt under Section 4(2) of the Securities Act. Each of the purchasers represented to us that they were accredited investors as defined under the rules and regulations of the Securities Act. No public solicitation or advertising was undertaken in connection with the transactions and the purchasers of the shares sold in the offering represented that they were purchasing the shares for their own account and for investment purposes and not for purposes of distribution or resale. The certificates evidencing such shares were marked with a restrictive legend, indicating that any resale or transfer thereof was subject to restrictions under the Securities Act and applicable rules and regulations.

Additionally during the year ended September 30, 2008, we issued 437,500 restricted shares of common stock for services rendered (with a value of $350,000, or $0.80 per share) to three non-affiliated third parties for services rendered.  The services included providing technical evaluations, patent reviews, creation and identification of sales channels, evaluation of competition, market research, and potential market penetration.  The three consultants were paid in restricted stock, and each received approximately $116,000 worth of shares of our common stock.  We had no consulting or other agreements with these three individuals. The issuance of these securities was exempt under Section 4(2) of the Securities Act.

During the fiscal year ended September 30, 2009, we issued 840,000 restricted shares of common stock valued at $735,840 in connection with an acquisition. The recipients of these shares represented in the original acquisition agreements that they were accredited investors as defined in Rule 501 under the Securities Act.  Each of these entities also purchased from us shares of our Series A preferred stock, which is convertible into common stock under certain circumstances and subject to certain limitations.  These shares of common and preferred stock were issued without registration under the Securities Act in reliance on Section 4(2) of the Securities Act and the rules and regulations promulgated thereunder, including Regulation D and Rule 506.  There were no non-accredited investors involved in this issuance. A Form D was filed by us in connection with the issuance of these securities. We have agreed with the holders of the Series A preferred stock to register the shares of common stock underlying and issuable upon conversion of the Series A preferred stock prior to its issuance in any attempted conversion of the preferred stock.  As of the date of this report, no registration statement has been filed in connection with this obligation and no shares of Series A preferred stock have been converted.

Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader better understand ActiveCare, 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, 2009 and 2008 and the accompanying notes thereto contained in this report.

Overview

Historically, our core business has been the manufacture, distribution and sale of medical diagnostic stains and solutions.  In February 2009, we were spun off from our former parent, RemoteMDx, Inc. (“RemoteMDx”).  In connection with the spin-off, we acquired from RemoteMDx the exclusive license rights to certain technology, including patent rights utilizing GPS and cellular communication and monitoring technologies for use in the healthcare and personal security markets.  We subsequently acquired by license the exclusive rights to certain patents owned by Futuristic Medical Devices, LLC (“Futuristic”) for technologies that are complementary to the patented technology we acquired from RemoteMDx.  We are currently in default under our agreement with Futuristic and we are currently negotiating with Futuristic to cure this default.  Our business plan is to develop and market a new product line for monitoring and providing assistance to mobile and homebound seniors and the chronically ill, including those who may require a personal assistant to check up on them during the day to ensure their safety and well being and know where they are at all times. 

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Recent Developments

We have financed operations exclusively through equity security sales and short-term debt.  Accordingly, if our revenues continue to be insufficient to meet our needs, we will attempt to secure additional financing through traditional bank financing or a debt or equity offering. However, because of the development stage nature of our business and the potential of a future poor financial condition, we may be unsuccessful in obtaining such financing or the amount of the financing may be minimal and therefore inadequate to implement our continuing plan of operations. There can be no assurance that we will be able to obtain financing on satisfactory terms or at all, or raise funds through a debt or equity offering. In addition, if we only have nominal funds with which to conduct our business activities, this will negatively impact the results of operations and our financial condition.

In May 2009, we entered into a license and distribution agreement (“License Agreement”) with euromicron AG, a German corporation.  The euromicron Group is a solution provider of communication systems and security networks with production expertise in the field of fiber optics technology.  Its range of services covers the planning, implementation and maintenance of communication and security networks and the development, production and distribution of network components based on copper, optical fiber and wireless technology.  The product portfolio includes smaller active network components, connectors and connection technology for optical fiber networks, pre-assembled fiber optic cable and assembly and measuring equipment.  These are integrated components of WANs and LANs used for data communication at data centers, and in the field of medical and security technology.  Under the License Agreement, we granted to euromicron an exclusive license to manufacture market and distribute our products in the healthcare and personal security markets and to provide related services in the countries of Albania, Austria, Bosnia & Herzegovina, Bulgaria, Croatia, Czech Republic, Germany, Greece, Hungary, Italy, Kosovo, Macedonia, Poland, Serbia, Slovakia, Slovenia, Switzerland, and Turkey.  We are required to maintain the applicable patents and use our best efforts to extend the patents and register them in the jurisdictions that are included within the territory. In addition, we will transfer to euromicron all know how, intellectual property (including software) and technology that are related to our products and provide support, training and service to euromicron and its customers during the term of the License Agreement either directly or through one or more contracted service providers, including our former parent corporation, RemoteMDx. We also agreed to supply products and to provide monitoring services until such time as euromicron has established a monitoring center dedicated to the territory.

In September 2009, our board of directors designated 1,000,000 shares of preferred stock as Series A preferred stock.  We sold an aggregate of 571,428 shares of these securities to two investment funds, Gemini Master Fund, Ltd. and Harborview Master Fund, L.P. for gross proceeds of $1,000,000.  These investors also received Class A and Class B Warrants for the purchase of common stock of the company at exercise prices of $1.75 and $2.25 per share, respectively, exercisable over a five-year term.  In a related transaction, we acquired from these two investors all of the issued and outstanding shares of a Nevada corporation, HG Partners, Inc., formerly Solutions Mechanical, Inc., for 840,000 shares of our common stock.

How We Assess the Performance of Our Business

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

Net Sales

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

Gross Profit

Gross profit is equal to our net sales minus our cost of goods sold. Gross margin measures gross profit as a percentage of our net sales. Cost of goods sold includes the direct cost of purchased merchandise, distribution costs, all freight costs and purchasing costs.

Our cost of goods sold is substantially higher in higher volume quarters because cost of goods sold generally increases as net sales increase. Changes in the mix of our products, such as changes in the proportion of accessories, may also impact our overall cost of goods sold.

Selling, General and Administrative Expense

Selling, general and administrative expense includes administration, share-based compensation and occupancy costs. These expenses do not generally vary proportionally with net sales. As a result, selling, general and administrative expense as a percentage of net sales is usually higher in lower volume quarters and lower in higher volume quarters. We expect that our selling, general and administrative expense will increase in future periods, in part to additional legal, accounting, insurance and other expenses we incur as a result of being a public company since our spin-off from RemoteMDx completed in February 2009. Among other things, we expect that compliance with the Sarbanes-Oxley Act and related rules and regulations will result in significant legal and accounting costs.

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Share-based Compensation Expense

Share-based compensation expense related to stock options was nil for fiscal years 2007 and 2008. We granted no options to purchase shares of common stock in fiscal years 2007 and 2008. During the year ended September 30, 2009, we granted options for the purchase of 13,500,000 shares at an expense of $665,201.  These and any future stock option grants will increase our share-based compensation expense in fiscal year 2010 and in future fiscal years compared to fiscal year 2009. See “—Critical Accounting Policies” below.

Fiscal Year 2009 Compared to Fiscal Year 2008

Net Sales

Net sales decreased to $452,000 in fiscal year 2009, from $608,000 in fiscal year 2008.  The change from 2008 to 2009 was due to a reduction in orders of Wright-Giemsa stain.  During the 2008 fiscal year, our prior management changed the formula for Wright-Giemsa stain and customers did not respond well to the changed formula. We have reintroduced the old formula and we are working to get customers to once again order these products.

Cost of Goods Sold

Cost of goods sold totaled $396,000 in fiscal 2009, compared to $466,000 for the year ended September 30, 2008.  The decrease in 2009 is due to lower sales in the fiscal year compared to the prior year.  As a percentage of sales, cost of goods sold was 87.6% in fiscal year 2009, compared to 76.6% in fiscal year 2008.

Research and Development Expenses

Research and development expenses decreased to $375,000 in fiscal year 2009, from $632,000 in the year ended September 30, 2008. The decrease in research and development expenses in 2009 was primarily related to our selection of more moderately priced research and development vendors.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $2,032,000 in fiscal year 2009, from $1,804,000 in fiscal year 2008.  The increase in these expenses in 2009 was due primarily to the following:

• Increase in consulting expense of approximately $363,000, all of which was non-cash, paid with restricted shares of common stock, and the amortization of warrant expense;

• Increase in board fees of approximately $90,000;

• Increase in accounting and legal services of approximately $306,000 for services related to our spin-off and expenses associated with being public;

• Increase in advertising of $44,404;

• Increase in other selling, general, and administrative expenses of $180,000 due to increased phone usage, copy machine usage, meal charges, amortization, dues, investor relations and related items for the additional employees

All of these increases, which total $861,000, were offset by a decrease in payroll of $359,000 and a decrease in allocations from the former parent company of $396,000.

Other Income and Expense

Interest income decreased to $470 in fiscal year 2009 from $15,000 in fiscal year 2008.  The reason for the decrease is due to the payment of a related-party note receivable and no interest accruing on that note in fiscal year 2009.

Net Loss

Net loss for the year ended September 30, 2009 increased to $2,416,000 from a net loss of $2,279,000 in fiscal year 2008.  

Liquidity and Capital Resources

Our primary sources of liquidity are from the proceeds from the sale of our equity securities and from borrowings from our former parent, RemoteMDx.  We have not historically financed operations from cash flows from operating activities.  We anticipate that we will continue to seek funding through the sale of our securities until we begin to have sales under our new business plan.

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As of September 30, 2009, we had unrestricted cash of $831,000, compared to cash of $474,000 as of September 30, 2008. As of September 30, 2009, working capital deficit was $131,471, compared to working capital of $407,000 as of September 30, 2008.

Operating activities used cash of $1,122,000 in fiscal year 2009, compared to $1,247,000 cash used in 2008.

Investing activities for the year ended September 30, 2009 used cash of $25,000, compared to $12,000 of cash used by investing activities in the year ended September 30, 2008.

Financing activities in fiscal year 2009 provided $1,503,000 of net cash, compared to $981,000 of net cash provided by financing activities in the year ended September 30, 2008.

During fiscal year 2009, we incurred a net loss of $2,416,000 and had negative cash flows from operating activities of $1,122,000, compared to a net loss of $2,279,000 and negative cash flows from operating activities of $1,247,000 in the year ended September 30, 2008.  As of September 30, 2009, our working capital deficit was $131,471 and we had an accumulated deficit of $5,057,000 and total stockholders’ equity of $986,000.

Fiscal Year 2008 Compared to Fiscal Year 2007

Net Sales

Net sales decreased 7.1%, or $47,000 to $608,000 in fiscal year 2008, from $655,000 in fiscal year 2007.  The decrease from 2007 to 2008 was due to a temporary stop in production because of a fire at our production facility in May 2008.

Cost of Goods Sold

Cost of goods sold totaled $466,000 in fiscal 2008, compared to $486,000 for the year ended September 30, 2007.  The decrease of approximately $20,000 relates to the temporary stop in production because of the fire at our production facility.

Research and Development Expenses

Research and development expenses increased 339%, or $488,000 to $632,000 in fiscal year 2008, from $144,000 in the year ended September 30, 2007. The increased research and development expenses in 2008 were primarily related to the development of home medical monitoring products for the home health market.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased 240%, or $1,274,000 to $1,804,000 in fiscal year 2008, from $530,000 in fiscal year 2007.  The increase in these expenses in 2008 was due primarily to the following:

• Increase in consulting of approximately $581,000, $350,000 of which was a non-cash item paid with shares of common stock to three consultants for market and sales and marketing research (discussed in more detail below), and $200,000 of which was paid to ADP Management Corporation (“ADP Management”), an entity controlled by our Chairman and Chief Executive Officer for strategic planning and other services (discussed in more detail below);

• Increase in contract labor of approximately $47,000 from hiring one additional part-time contractor to perform quality assurance testing, and hiring contractors to expand our medical device website;

• Increase in accounting and legal services of approximately $34,000 for services related to our spin-off;

• Increase in payroll of approximately $220,000 due to the hiring of additional sales and marketing employees and the accruing of $120,000 of salary for our Chief Executive Officer;

• Increase in office expenses of $16,000 due to increased number of employees;

• Increase in other selling, general, and administrative expenses of $61,000 due to increased phone usage, copy machine usage, meal charges and related items for the additional employees.  These increases were offset by decreases in insurance, outside services, utilities and printing costs of approximately $77,000; and

• Increase in other expenses of $402,000.  The non-cash, one-time expenses are related to the spin-off from RemoteMDx.  They include charges for labor and management that RemoteMDx has provided to our company.  (For a more detailed discussion, of this expense, see “Certain Relationships and Related Transactions, and Director Independence.”)

The consulting services provided by ADP Management included high-level strategic planning, consulting on the national and international direction of our company, identifying research and development firms, and identifying potential strategic partners or acquisition targets through the services of Mr. Derrick and Mr. Dalton, both of whom are control persons with respect to ADP Management.

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The consulting services provided by the three other unaffiliated third-party consultants described above included providing technical evaluations, patent reviews, creation and identification of sales channels, evaluation of competition, market research, and potential market penetration.  The three consultants were paid in restricted stock, and each received approximately $116,000 worth of shares of our common stock.  We had no consulting or other agreements with these three individuals.

Other Income and Expense

Interest income increased 25%, or $3,000 to $15,000 in fiscal year 2008 from $12,000 in fiscal year 2007.  The increase in interest income was due to the sale of common shares in 2008 and the deposit of the proceeds from the sale of the securities in interest-bearing accounts with banks.

Net Loss

Net loss for the year ended September 30, 2008 increased 363% to $2,279,000 from a net loss of $492,000 in fiscal year 2007.  This increase in net loss is due primarily to an increase in direct labor costs, research and development, and selling, general, and administrative expense.

Off Balance Sheet Arrangements

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

Impact of Inflation

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

Recent Accounting Pronouncements

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and Hierarchy of Generally Accepted Accounting Principles (a replacement of SFAS No. 162).” FASB Accounting Standards Codification (ASC) has become the source of authoritative generally accepted accounting principles GAAP recognized by the FASB to be applied by nongovernmental entities.  Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants.  On the effective date of this statement, the codification will supersede all then-existing non-SEC accounting and reporting standards; and all non-grandfathered, non-SEC accounting literature not included in the codification will be superseded and deemed non-authoritative.  We have adopted the new codification standards in our annual report on Form 10-K as of September 30, 2009.  Reference to the new ASC topic, subtopic, or section will be provided along with the superseded historical accounting literature. The adoption of codification standards did not impact our consolidated financial position, Results of Operations or cash flows.

In September 2006, the Financial Accounting Standards Board (FASB) issued guidance which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements.  It is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.  In February 2008, the FASB extended the effective date to fiscal years beginning after November 15, 2008.  We do not expect the adoption of this guidance to have a material impact on our financial statements.

In February 2007, the FASB issued guidance which permits companies to choose to measure many financial instruments and certain other items at fair value.  It is effective for financial statements issued for fiscal years beginning after November 15, 2007.  We do not expect the adoption of this guidance to have a material impact on our financial statements.

In December 2007, the FASB issued guidance which requires an acquirer of a business to measure the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired.  It clarifies that a non-controlling interest in a subsidiary should be reported as equity in the financial statements, net income shall be adjusted to include the net income attributed to the non-controlling interest and comprehensive income shall be adjusted to include the comprehensive income attributed to the non-controlling interest.  The calculation of earnings per share will continue to be based on income amounts attributable to the parent.  This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2008.  Early adoption is prohibited.  We have not yet determined the effect on our financial statements, if any, upon adoption of this guidance.

In September 2008, the FASB provided guidance for measuring liabilities issued with an attached third-party credit enhancement (such as a guarantee). It clarifies that the issuer of a liability with a third-party credit enhancement (such as a guarantee) should not include the effect of the credit enhancement in the fair value measurement of the liability. This guidance is effective for the first reporting period beginning after December 15, 2008. We have not yet determined the effect on our financial statements, if any that will occur upon adoption of this guidance.

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In October 2008, the FASB issued guidance which clarifies the application of fair value accounting in an inactive market. It demonstrated how the fair value of a financial asset is determined when the market for that financial asset is inactive. This guidance was effective upon issuance, including prior periods for which financial statements had not been issued. The effect of adopting this guidance did not have a material effect on our financial statements.

In November 2008, the FASB provided guidance which clarifies the accounting for certain transactions and impairment considerations involving equity method investments. This guidance is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. We have not yet determined the effect on our financial statements, if any that will occur upon adoption of this guidance.

In June 2008, the FASB provided guidance which assists in determining whether an instrument (or embedded feature) is indexed to an entity’s own stock. This amendment is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early application is not permitted. A contract that would otherwise meet the definition of a derivative but is both (a) indexed to our own stock and (b) classified in stockholders’ equity in the statement of financial position would not be considered a derivative financial instrument. This amendment provides a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer’s own stock and thus able to qualify for the this exception. This standard is expected to trigger liability accounting on our Class A and B warrants, which have an exercise price that adjusts downward if we issue shares of common stock at prices less than the warrant’s exercise price then in effect. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.

Critical Accounting Policies

We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based on the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the periods presented. There can be no assurance that actual results will not differ from those estimates. We believe the following represent our most critical accounting policies. 

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 consolidated Results of Operations or financial condition.

 Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements requires management to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses during the reporting period.  By their nature, these estimates and judgments are subject to an inherent degree of uncertainty.  On an on-going basis, we evaluate our estimates, including those related to bad debts, inventories, intangible assets, warranty obligations, product liability, revenue recognition, and income taxes.  We base our estimates on historical experience and other facts and circumstances that are believed to be reasonable and the results provide a basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions, and these differences may be material.

Concentration of Credit Risk

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

In the normal course of business, we provide credit terms to our customers. Accordingly, we perform ongoing credit evaluations of customers' financial condition; we typically do not require collateral or security from our customers.  We maintain an allowance for uncollectable accounts receivable based upon the expected collectability of all accounts receivable. 

Accounts Receivable

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

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Inventories

Inventories are recorded at the lower of cost or market, cost being determined on a first-in, first-out ("FIFO") method. Inventories consist of raw materials, work-in-process, and finished goods.  Provisions, when required, are made to reduce excess and obsolete inventories to their estimated net realizable values. Due to competitive pressures and technological innovation, it is possible that estimates of the net realizable value could change in the near term.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation and amortization.  Depreciation and amortization are determined using the straight-line method over the estimated useful lives of the assets, typically three to seven years.  Leasehold improvements are amortized over the shorter of the estimated useful lives of the asset or the term of the lease.  Expenditures for maintenance and repairs are expensed while renewals and improvements over $500 are capitalized.  When property and equipment are disposed, any gains or losses are included in the results of operations.

Revenue Recognition

Our revenue has historically been from two sources: (i) sales of diagnostic equipment and accessories; and (ii) sales of medical diagnostic stains.  The policies for recognizing revenue from these sources are summarized below. 

Diagnostic Equipment Product Sales.  Although this has not been the primary focus of our business model, we sell diagnostic equipment devices in certain situations. We recognize product sales revenue when persuasive evidence of an arrangement with the customer exists, title passes to the customer, prices are fixed or determinable, and collection is reasonably assured.

Medical Diagnostic Stain Sales.  We recognize revenue from the sale of medical diagnostic stains when persuasive evidence of an arrangement with the customer exists, title passes to the customer, prices are fixed or determinable, and collection is reasonably assured.

Shipping and handling fees are included as part of net sales. The related freight costs and supplies directly associated with shipping products to customers are included as a component of cost of goods sold.

We have no sales that contain multiple deliverables.  All of our revenues consist of sales of products (either diagnostic equipment or diagnostic stains).  The diagnostic equipment does not require installation or customization.

Our sales are made generally on net 30-day payment terms.  We have not changed our payment terms in the past five years and have no plans to change our payment terms in the future.

Our equipment and stain products have not been modified significantly for several years.  There is significant history on which to base our estimates of sales returns.  These sales returns have been negligible.  Customers may return diagnostic equipment within 30 days of the purchase date.  Customers may return the medical diagnostic stains within 30 days of the purchase date provided that the stain’s remaining life is at least 8 months.  Customers must obtain prior authorization for a product return.

In connection with generally accepted accounting principles, to qualify for the recognition of revenue at the time of sale, we note the following:

· the price to the buyer is fixed or determinable at the date of sale;

· the buyer has paid us, or the buyer is obligated to pay us within 30 days, and the obligation is not contingent on resale of the product;

· the buyer's obligation to us would not be changed in the event of theft or physical destruction or damage of the product;

· the buyer acquiring the product for resale has economic substance apart from that provided by us;

· we do not have significant obligations for future performance to directly bring about resale of the product by the buyer; and

· the amount of future returns can be reasonably estimated and they are negligible.

We have 70 types of products based on the number of individual SKUs in our inventory.  Most of these 70 SKUs are for medical diagnostic stain inventory.  For example, certain medical diagnostic stains are packaged in different sizes, and each packaged size (i.e. 16 oz., 32 oz., and 48 oz.) has a unique SKU in inventory.  Generally accepted accounting principles state that, “an enterprise shall report revenues from external customers for each product and service or each group of similar products and services unless it is impractical to do so.”  The vast majority of our sales are of medical diagnostic stains, with a minimal portion of sales being diagnostic equipment. Because diagnostic equipment sales are not material to the financial statements, we disclose sales as one line item.

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Our revenue recognition policy for sales to distributors is the same as the policy for sales to end-users. A customer qualifies as a distributor by completing a distributor application and proving its sales tax status.  Upon qualifying as a distributor, a customer receives a 35% discount from retail prices, and the distributor receives an additional 5% discount when product is purchased in case quantities.  Our distributors are not required to maintain specified amounts of product on hand, and distributors are not required to make minimum purchases to maintain distributor status.  Distributors have no stock rotation rights or additional rights of return.  Sales to distributors are recorded net of discounts.

Sales returns have been negligible, and any and all discounts are known at the time of sale.  Sales are recorded net of sales returns and sales discounts.  There are no significant judgments or estimates associated with the recording of revenues.

Going Concern

The factors described above, as well as the risk factors listed elsewhere in this report raise substantial doubt about our company’s ability to continue as a going concern. The financial statements included in this report do not include any adjustments that might result from the outcome of this uncertainty.  Our plan with respect to this uncertainty is to focus on sales of our reagent products and completing strategic acquisitions and business combinations, and to raise capital through the offer and sale of our equity securities.  There can be no assurance that revenues will increase rapidly enough to offset operating losses and repay debts.  Likewise, there can be no assurance that we will be successful in raising additional capital from the sale of equity or debt securities.  If we are unable to increase revenues or obtain additional financing, it will be unable to continue the development of its products and would likely cease operations.

Item 8.   Financial Statements and Supplementary Data

The financial statements and supplemental data required by this item are included in Part IV, Item 15.

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

None.

Item 9A(T).  Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in company reports filed or submitted under the Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our chief executive officer and treasurer, as appropriate to allow timely decisions regarding required disclosure.

As required by Rules 13a-15 and 15d-15 under the Exchange Act, our chief executive officer and chief financial officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2009. Based on their evaluation, they concluded that our disclosure controls and procedures were effective.

Management is responsible for establishing and maintaining adequate internal control over our financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). Our internal control over financial reporting is a process designed by, or under the supervision of, our chief executive officer and chief financial officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles.

Internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with the authorization of our board of directors and management; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

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Under the supervision and with the participation of our management, including our chief executive officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on this evaluation under the criteria established in Internal Control - Integrated Framework, our management concluded that our internal control over financial reporting was effective as of September 30, 2009.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management's report in this annual report.

During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.    Other Information

None.

PART III

Item 10.    Directors, Executive Officers and Corporate Governance

Set forth below are the name, age, position and a description of the business experience of each of our executive officers, directors and other key employees as of September 30, 2009.

Name	Age	Position
James J. Dalton	67	Chairman (Director) and Chief Executive Officer
James G. Carter	70	Director
William K. Martin	66	Director
Jack J. Johnson	67	Director
Robert J. Welgos	71	Director
Michael G. Acton	46	Chief Financial Officer, Secretary-Treasurer

James Dalton – Chief Executive Officer and Chairman

Mr. Dalton joined us as a director on October 1, 2004.  He has been our Chief Executive Officer and Chairman since June 16, 2008.  Mr. Dalton is also a director of RemoteMDx, where he was President from August 2003 until June 2008.  Prior to joining RemoteMDx, Mr. Dalton was the owner and President of Dalton Development, a real estate development company.  He served as the President and coordinated the development of The Pinnacle, an 86-unit condominium project located at Deer Valley Resort in Park City, Utah.  Mr. Dalton also served as the president of Club Rio Mar in Puerto Rico, a 680-acre beach front property that includes 500 condominiums, beach club, numerous restaurants, pools and a Fazio-designed golf course.  He was also a founder and owner of the Deer Valley Club, where he oversaw the development of 25 high-end condominiums with a “ski-in and ski-out” feature.

James G. Carter - Director

Mr. Carter joined our board in September 2008.  He is the founder and principal of J. Carter Wine & Spirits, Inc. (1989-2002) and is a director and former president of White Beeches Golf & Country Club since 1990.  Mr. Carter's business experience includes Vice President of Sales & Marketing (North America and Caribbean) for Suntory International Corp. (1981-1989), National Sales Director Wines for Austin Nichols & Company, Inc. (1975-1980).  He is a former Councilman and Council President for the Township of Washington (Bergen County, New Jersey).  He retired in 2000.  Mr. Carter attended Villanova University.

William K. Martin - Director

Mr. Martin joined our board in September 2008.  He is a founder/partner/broker of Commerce CRG, and has served as its managing director from 1993 through the present, as well as acting as the Associate Broker in the firm’s Park City, Utah, office since 2007.  Commerce CRG is a commercial real estate and management business, and is an independently owned and operated member of the Cushman & Wakefield Alliance, which focuses on commercial real estate and management. Mr. Martin has also been a board member of a number of national and international real estate service firms.  Mr. Martin has also been active in industry organizations and is currently a member of the Economic Development Corporation of Utah and sits on that organization's executive board.  Mr. Martin has a bachelor of science degree from Utah State University in Applied Statistical and Computer Science and has earned the rank of Captain in the United States Air Force (retired).

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Jack J. Johnson – Director

Mr. Johnson joined our board in October 2008.  In 1976, he founded the Jack Johnson Company, a land planning, civil engineering and architectural company specializing in residential and resort communities.  He has served as President of our company since its inception.  He also formed Land Equity Partners, a residential subdivision development company, and Resort Development Services, a company focusing on development of hotels and condominiums.  He received a degree in Civil Engineering from the University of Illinois in the late 1960s, and is a licensed civil engineer in several states.

Robert J. Welgos – Director

Mr. Welgos joined our board of directors in June 2009.  He has a BS in engineering from the Newark College of Engineering (1962), and worked for 38 years with Allied Signal Corp (now Honeywell International), in various technical department management positions, including being responsible for operations of Customer Technical Service Dept., Design Engineering, Testing Laboratories, and Process Laboratories. He also served as the Manager, North American Distributor Sales and Director of International Operations, where he established distribution networks throughout Pacific Rim and South America. During this period, he was instrumental in the creation of joint ventures with Lucky Goldstar in Korea and Japan Synthetic Rubber in Japan.  Mr. Welgos retired from Allied Signal Corp in 2000.  Mr. Welgos is the Chairman of our board’s Audit Committee.

Michael Acton – Secretary, Treasurer and Chief Financial Officer

Mr. Acton joined us as Secretary-Treasurer at the time of our incorporation.  He has been our Chief Financial Officer since June 2008.  From 1999 until June 2008, Mr. Acton was the Secretary-Treasurer of RemoteMDx.  He also served as that company’s Chief Financial Officer from March 2001 until June 2008.  On November 20, 2008, Mr. Acton agreed to resume the role of Chief Financial Officer of RemoteMDx when his successor left to pursue other opportunities.  Mr. Acton expects to transition out of the RemoteMDx position when a successor has been identified and appointed.  Mr. Acton is a Certified Public Accountant in the State of Utah.

Corporate Governance

Board Composition

Our business and affairs are managed under the direction of our board of directors. Our board of directors is comprised of five directors, four of whom (Mr. Carter, Mr. Martin, Mr. Johnson, and Mr. Welgos) are independent within the meaning of the Nasdaq Marketplace Rules. This means that the board of directors has determined that those directors (1) are not officers or employees of ActiveCare or its subsidiary and (2) have no direct or indirect relationship with ActiveCare that would interfere with the exercise of their independent judgment in carrying out the responsibilities of a director.  Because our stock was not trading on an exchange as of the date of this report, we are not required to have independent directors.  Nevertheless, we have determined that it is in our best interest to have directors who would meet the requirements of being “independent” under the rules of the Nasdaq Stock Market.

Board Committees

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

Audit Committee

Our audit committee is comprised of two of our independent directors: Mr. Welgos and Mr. Martin.  Mr. Welgos serves as chair of the audit committee and is considered to be the financial expert on that committee. Our audit committee has responsibility for, among other things:

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

· evaluating the qualifications, performance and independence of our independent;

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

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

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

· preparing the audit committee report required by the Securities and Exchange Commission, or SEC, to be included in our annual proxy statement.

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As indicated above, our board of directors has affirmatively determined that Mr. Welgos and Mr. Carter meet the definition of “independent directors” for purposes of serving on an audit committee under applicable SEC rules, and we intend to comply with these independence requirements within the time periods specified.  Our board of directors has adopted a written charter for our audit committee, which is available on our corporate website at www.activecaresys.com.

Compensation Committee

Our compensation committee consists of two independent directors, Mr. Johnson and Mr. Carter.  Mr. Johnson is the chairman of our compensation committee. The compensation committee is responsible for, among other things:  

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

· reviewing succession planning for our executive officers;

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

· reviewing and discussing annually with management our “Compensation Discussion and Analysis” disclosure required by SEC rules;

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

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

Our board of directors has adopted a written charter for our compensation committee, which is available on our corporate website at www.activecaresys.com.

Compensation Committee Interlocks and Insider Participation

None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or compensation committee.

Code of Business Conduct and Ethics

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

Meetings of the Board of Directors and Committees

During the year ended September 30, 2009, the board of directors met on four occasions.  All members of the board attended these four meetings. The two board committees were organized in June 2009 and did not meet thereafter prior to September 30, 2009.

Director Compensation

Our directors are paid a director’s fee of $30,000 per year.  In addition, in June 2009, each director received a common stock purchase warrant for the purchase of up to 125,000 shares of our common stock at a price of $1.25 per share, exercisable for five years from the date of grant, subject to the following vesting schedule:

· 15,000 shares when our common stock begins trading on the OTCBB or other market;

· 15,000 shares when our annual revenue reaches $5,000,000;

· 15,000 shares when our annual revenue reaches $10,000,000;

· 20,000 shares when our annual revenue reaches $15,000,000;

· 20,000 shares when our annual revenue reaches $20,000,000;

· 20,000 shares when our annual revenue reaches $25,000,000; and

· 20,000 shares when we achieve profitability.

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The table below summarizes the compensation we paid to our directors for their services as directors for the fiscal year ended September 30, 2009.

Name (a)	Fees Earned or Paid in Cash ($) (b)	Stock Awards ($) (c)	Option Awards ($) (3) (d)	Non-Equity Incentive Plan Compensation ($) (e)	Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (f)	All Other Compensation ($) (4) (g)	Total ($) (h)
James J. Dalton (1)	--	--	--	--	--	--	--
James G. Carter	$30,000	--	$23,416	--	--	--	$53,416
William K. Martin	$30,000	--	$23,416	--	--	--	$53,416
Robert J. Welgos	$12,500	--	$23,416	--	--	--	$35,916
Jack Johnson	$27,500	--	$23,416	--	--	--	$50,916

(1)   Mr. Dalton is Chairman of the board of directors.  He also serves as our Chief Executive Officer pursuant to the terms of a management agreement.  Under the management agreement, Mr. Dalton received restricted shares of our common stock in lieu of cash compensation and options to purchase 13,000,000 shares of our common stock.  He receives no compensation for his service as a director.  As of the date of this report, these warrants have not vested and they will only vest in the future upon completion of specific performance criteria.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who own more than 10% of our common stock ("Reporting Persons") to file initial reports of ownership and to report changes in ownership in reports filed with the SEC. Reporting Persons are required by regulation of the SEC to furnish us with copies of all Section 16(a) forms they file.

Based solely on review of the copies of such forms furnished to us during and with respect to the fiscal year ended September 30, 2009, we believe that during the fiscal year ended September 30, 2009 all Section 16(a) filings applicable to these Reporting Persons were timely filed.

Item 11.   Executive Compensation

Compensation Discussion and Analysis

The purpose of this compensation discussion and analysis section is to provide information about the material elements of compensation that are paid, awarded to, or earned by, our “named executive officers,” who consist of our principal executive officer and our principal financial officer. We have no other executive officers or significant employees.  For fiscal year 2009, our named executive officers, were James J. Dalton, President and Chief Executive Officer, and Michael G. Acton, Chief Financial Officer, Secretary and Treasurer.

Historical Compensation Decisions

Our compensation approach is necessarily tied to our stage of development. Until September 2008, we were a wholly owned subsidiary of RemoteMDx. We were spun off from RemoteMDx in January 2009, when our former parent divested its remaining ownership interest in ActiveCare by distributing the shares of our common stock then held by it to its stockholders.  We also registered our common stock under Section 12(g) of the Exchange Act in February 2009 and became subject to the reporting requirements of the Exchange Act.

Our stock is not listed or included in any stock market as of the date of this report.  Therefore, we are not currently subject to any exchange rules requiring a majority of our board of directors to be independent or relating to the formation and functioning of board committees, including audit, compensation and nominating committees. Most, if not all, of our prior compensation policies and determinations, including those made for fiscal year 2008, were the product of informal discussions between our President and Chief Executive Officer and our board of directors or the board of directors of our former parent corporation.

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On June 23, 2009, our board of directors established an audit committee and a compensation committee and adopted charters for each committee.  The members of the compensation and audit committees are independent directors, applying the definition of independence established by the Nasdaq Stock Market.  The audit committee chairman is a financial expert as defined by Item 407 of Regulation S-K and related rules of the SEC.

Compensation Philosophy and Objectives

Prior to June 2009, our board of directors, acting as a compensation committee, reviewed and approved the compensation of our named executive officers and oversaw and administered our executive compensation programs and initiatives. With the formation of the compensation committee, we expect that the specific direction, emphasis and components of our executive compensation program will continue to evolve under the direction of that committee. For example, over time we may reduce our reliance upon subjective determinations made by our Chief Executive Officer and/or board of directors in favor of a more empirically-based approach that involves benchmarking against peer companies. Accordingly, the compensation paid to our named executive officers for fiscal year 2009 is not necessarily indicative of how we will compensate our named executive officers in the future.

We have endeavored to create an executive compensation program that balances short-term versus long-term payments and awards, cash payments versus equity awards and fixed versus contingent payments and awards in ways that we believe are most appropriate to motivate our executive officers. Our goals in establishing compensation for our executive officers include an intent to:

· attract and retain talented and experienced executives in our industry;

· reward executives whose knowledge, skills and performance are critical to our success;

· align the interests of our executive officers and stockholders by motivating executive officers to increase  stockholder value and rewarding executive officers when stockholder value increases;

· foster a shared commitment among executives by aligning their individual goals with the goals of the executive management team and our company; and

· compensate our executives in a manner that incentivizes them to manage our business to meet our long-range objectives.

In the future, we expect that the compensation committee will meet outside the presence of all of our executive officers, including our named executive officers, to consider appropriate compensation for our Chief Executive Officer. For all other named executive officers, the compensation committee will meet outside the presence of all executive officers except our Chief Executive Officer. Going forward, our Chief Executive Officer will review annually each other named executive officer’s performance with the compensation committee and recommend appropriate base salary, cash performance awards and grants of long-term equity incentive awards for all other executive officers. Based upon the recommendations from our Chief Executive Officer and in consideration of the objectives described above and the principles described below, the compensation committee will approve the annual compensation packages of our executive officers other than our Chief Executive Officer. The compensation committee also will annually analyze our Chief Executive Officer’s performance and determine his base salary, cash performance awards and grants of long-term equity incentive awards based on its assessment of his performance with input from any consultants engaged by the compensation committee.

Compensation amounts historically have been highly individualized, resulted from arm’s length negotiations and have been based on a variety of informal factors including, in addition to the factors listed above, our financial condition and available resources, our need for that particular position to be filled and the compensation levels of our other executive officers, each as of the time of the applicable compensation decision. In addition, we informally considered the competitive market for corresponding positions within comparable geographic areas and companies of similar size and stage of development. This informal consideration was based on the general knowledge possessed by our Chief Executive Officer regarding the compensation given to some of the executive officers of other companies in our industry. As a result, our Chief Executive Officer historically has typically applied his subjective discretion to make compensation decisions and did not formally benchmark executive compensation against a particular set of comparable companies or use a formula to set the compensation for our executives in relation to survey data. Our Chief Executive Officer, in consultation with members of our board of directors made compensation decisions for our executive officers and after thorough discussion of various factors, including any informal knowledge or data he may have had, set the compensation for our Chief Financial Officer. We anticipate that our compensation committee will more formally benchmark executive compensation against a peer group of comparable companies in the future. We also anticipate that our compensation committee may make adjustments in executive compensation levels in the future as a result of this more formal benchmarking process.

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Elements of Compensation

Our Chief Executive Officer, Mr. Dalton, is not paid a cash salary for his services.  His compensation package is governed by an agreement authorized by the board of directors (with Mr. Dalton abstaining) in May 2009, more particularly described below.  Because of our early stage of development, Mr. Dalton’s compensation is closely tied to the achievement of certain milestones and is equity based. This enables us to use our cash for product development and operating expenses rather than executive compensation during the period in which we begin to implement our new business plan.

Our current executive compensation program for our Chief Financial Officer, which was set by our Chief Executive Officer in consultation with our board of directors prior to the establishment of our compensation committee, consists of the following components:

· Base salary;

· bonuses, as awarded by the Chief Executive Officer or the board of directors,

· periodic grants of long-term equity-based compensation, such as restricted stock or options; and

· other executive benefits and perquisites.

We combine these elements in order to formulate compensation packages that provide competitive pay, reward the achievement of financial, operational and strategic objectives and align the interests of our executive officers and other senior personnel with those of our stockholders. Other than the management agreement with Mr. Dalton, we do not have written employment agreements with any of our executive officers.

Base Salary

The primary component of compensation of our Chief Financial Officer is base salary. The base salary is intended to reflect the officer’s responsibilities, experience, prior performance and other discretionary factors deemed relevant by our compensation committee. Base salary is also designed to provide the officer with steady cash flow during the course of the fiscal year that is not contingent on short-term variations in our corporate performance. Our compensation committee determines market level compensation for the base salary based on the executive’s experience in the industry with reference to the base salaries of similarly situated executives in other companies of similar size and stage of development. This determination is informal and based primarily on the general knowledge of the compensation committee of the compensation practices within our industry.

With these principles in mind, base salary is reviewed during the fiscal year by the compensation committee, and may be adjusted from time to time based on the results of this review. In past years, our Chief Executive Officer and/or the board of directors of RemoteMDx reviewed the performance of all executive officers, and based on this review, set the executive compensation package for each executive officer for the coming year, including base salary and bonus, as applicable. In the future, our compensation committee will take a more significant role in this annual review and decision-making process.

Bonus

Our compensation committee has authority to award annual cash bonuses to our executive officers. The annual cash bonuses are intended to offer incentive compensation by rewarding the achievement of corporate and individual performance objectives.

Long-Term Equity-Based Compensation

Our compensation committee believes that equity-based compensation is an important component of our executive compensation program and that providing a significant portion of our Chief Executive Officers’ total compensation package in equity-based compensation aligns the incentives of our executives with the interests of our stockholders and with our long-term corporate success. Additionally, our compensation committee believes that equity-based compensation awards enable us to attract, motivate, retain and adequately compensate executive talent. To that end, we have awarded equity-based compensation in the form of options to purchase shares of our common stock to our Chief Executive Officer, providing him with a significant long-term interest in our success by rewarding the creation of stockholder value over time. No stock options had been granted during the period we were owned by RemoteMDx.  Following the separation and spin-off in 2009, our board of directors made a one-time grant of stock options to our executive officers as described below.

Stock options are granted with an exercise price equal to or greater than the fair value of our stock on the applicable date of grant. After our common stock begins trading, we expect to determine fair value for purposes of stock option pricing based on the closing price of our common stock should trading commence in the common stock.

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In general, stock option grants to our executive officers are determined at the discretion of the compensation committee. In addition, the compensation committee also considers the executive officer’s current position with our company, the size of his or her total compensation package and the amount of existing vested and unvested stock options, if any, then held by the executive officer. No formal benchmarking efforts are made with respect to the size of option grants made to executive officers and, in general, the determination process is very informal. The compensation committee will, subject to approval by our board of directors as deemed necessary by the compensation committee, determine the size and terms and conditions of option grants to our executive officers in accordance with the terms of any applicable plan and will approve them on an individual basis.

Grants of Plan-Based Awards

On May 12, 2009, as part of his management agreement authorized by the board of directors, we approved a grant of stock options to our Chief Executive Officer, as summarized in the table below.  No options or equity awards were made to our Chief Financial Officer during 2009.  In addition, no stock options were exercised and no stock options granted by us vested during the year ended September 30, 2009.

Name	Grant date	Estimated future payouts under non-equity incentive plan awards			Estimated future payouts under equity incentive plan awards			All other stock awards: Number of shares of stock or units (#)	All other option awards: Number of securities underlying options (#)	Exercise or base price of option awards ($/Sh)	Grant date fair value of stock and option awards
		Threshold ($)	Target ($)	Maximum ($)	Threshold (#)	Target (#)	Maximum (#)
(a)	(b)	(c)	(d)	(e)	(f)	(g)	(h)	(i)	(j)	(k)	(l)
James J. Dalton	5/21/09	-	-	-	-	-	$2,895,003	2,000,000	13,000,000	$0.25	$2,895,003
Michael G. Acton	-	-	-	-	-	-	-	-	-	-	-

Chief Executive’s Management Agreement

The table above summarizes the compensation package awarded to our Chief Executive Officer.  On May 12, 2009, the board of directors authorized and approved a two-year management contract with an effective date of October 1, 2008 through September 30, 2010.  Under the terms of the agreement, Mr. Dalton is not paid any cash compensation.  The basic terms of the agreement and his compensation thereunder are as follows:

· Accrued but unpaid compensation from October 1, 2008, through May 12, 2009, totaling $120,000 was converted to restricted shares of our common stock at a price of $0.25 per share, or 480,000 shares.

· The board authorized the grant of an additional 1,520,000 restricted shares of common stock to Mr. Dalton at a price of $0.25 per share, which vested immediately.  These shares are for compensation for the two year period beginning October 1, 2008.

· The board granted options to Mr. Dalton for the purchase of 13,000,000 shares of common stock at a price of $0.25 per share, vesting according to the following schedule:

o 1,000,000 shares at such time as our common stock commences trading in the public market or upon a sale of our company, whichever first occurs;

o 2,000,000 shares at the time that our revenues are equivalent to $5,000,000 per year;

o 2,000,000 shares when annual revenues are $10,000,000;

o 2,000,000 shares when revenues reach $15,000,000 per year;

o 2,000,000 shares when revenues reach $20,000,000 per year;

o 2,000,000 shares when revenues are $25,000,000 per year; and

o 2,000,000 shares at such a time as our audited annual reports show a net profit.

Other Executive Benefits and Perquisites

We provide the following benefits to our executive officers on the same basis as other eligible employees’ health insurance:

· vacation, personal holidays and sick days; and

· life insurance and supplemental life insurance.

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We believe these benefits are generally consistent with those offered by other companies and specifically with those companies with which we compete for employees. We also provide an automobile allowance to our executive officers and a housing allowance and the reimbursement of certain travel expenses of our named executive officers.

Section 162(m) Compliance

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

Our board of directors has determined that stock options granted under Mr. Dalton’s management contract, with an exercise price at least equal to the fair value of our common stock on the date of grant should be treated as “performance-based compensation.” Our board of directors believes that we should be able to continue to manage our executive compensation program for our named executive officers so as to preserve the related federal income tax deductions, although individual exceptions may occur.

Summary Compensation Table

The following table sets forth certain information with respect to compensation for the year ended September 30, 2009 earned by, awarded to or paid to our named executive officers.

Name and principal position	Year	Salary ($)	Bonus ($)	Stock awards ($)	Option awards ($)	Non-equity incentive plan compensation ($)	Change in pension value and nonqualified deferred compensation earnings ($)	All other compensation ($)(1)	Total ($)
(a)	(b)	(c)	(d)	(e)	(f)	(g)	(h)	(i)	(j)
James J. Dalton, (2)	2009	$0	$0	$190,000(3)	$571,540(3)	$0	$0	$6,717	$768,257
Principal Executive Officer	2008	$0	$0	$120,000	$0	$0	$0	$5,106	$125,106
Michael G. Acton,	2009	$72,309	$0	$0	$0	$0	$0	$4,944	$  77,253
Principal Financial Officer	2008	$25,000	0	0	0	0	0	$2,784	$  27,784

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

	Term Life	Health	Dental		Vision
Name	Insurance	Insurance	Insurance		Insurance
James J. Dalton	$      151	$5,826	$	599	$	141
Michael G. Acton	$      151	$3,573	$	968	$	253

(2) As discussed above, we do not pay a salary to our principal executive officer.  In May 2009, we entered into a two-year management agreement which runs from October 1, 2008 through September 30, 2010.  The terms of this agreement are discussed above. All amounts except those reported in column (i) are non-cash amounts and represent stock or option grants.

(3) These are non-cash compensation expense based on stock and option grants.  The calculation of the value of these grants is based on the Black-Scholes option pricing model.

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Outstanding Equity Awards at Fiscal Year-End

The following table summarizes information regarding options and other equity awards owned by the Named Executive Officers as of September 30, 2009.

	Option Awards					Stock Awards
Name (a)	Number of Securities Underlying Unexercised Options (#) Exercisable (b)	Number of Securities Underlying Unexercised Options (#) Unexercisable (c)	Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (d)	Option Exercise Price ($) (e)	Option Expiration Date (f)	Number of Shares or Units of Stock That Have Not Vested (#) (g)	Market Value of Shares or Units of Stock That Have Not Vested ($) (h)	Equity Incentive Plan Awards: Number of Unearned Shares, Units, or Other Rights That Have Not Vested (#) (i)	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units, or Other Rights That Have Not Vested ($) (j)
James J. Dalton, President and Chief Executive Officer	0	13,000,000	0	$0.25	5/11/ 2014	13,000,000	$2,895,003	0	$0
Michael G. Acton, Chief Financial Officer	0	0	0	$0	0	0	$0	0	$0

No awards were made during the year ended or outstanding as of September 30, 2008.  During fiscal year 2009 we made grants of option awards to our directors and executive officers.

Options Exercised and Stock Vested

No options were exercised or vested in fiscal year ended September 30, 2009.

Indemnification of Officers and Directors

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

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

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

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

Board of Directors

Election and Meetings

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

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

The following table sets forth information as of December 15, 2009 by:

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

· each of our named executive officers;

· each of our directors and each director nominee; and

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

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Beneficial ownership for the purposes of the following table is determined in accordance with the rules and regulations of the SEC. These rules generally provide that a person is the beneficial owner of securities if such person has or shares the power to vote or direct the voting thereof, or to dispose or direct the disposition thereof or has the right to acquire such powers within 60 days. Common stock subject to options that are currently exercisable or exercisable within 60 days of December 15, 2009, are deemed to be outstanding and beneficially owned by the person holding the options. These shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person. Percentage of beneficial ownership is based on 11,142,639 shares of common stock outstanding. Except as disclosed in the footnotes to this table and subject to applicable community property laws, we believe that each stockholder identified in the table possesses sole voting and investment power over all shares of common stock shown as beneficially owned by the stockholder. Unless otherwise indicated in the table or footnotes below, the address for each beneficial owner is c/o ActiveCare, Inc., 5095 West 2100 South, West Valley City, Utah 84120.

5% Stockholders: Title of Class	Nameandaddress of Beneficial Owner	Amount and Nature Of Shares Beneficial Ownership	Percent of Class
Common	Advance Technology Investors, LLC 154 Rock Hill Road Spring Valley, NY 10977	1,529,437	13.73%
Common	ADP Management Corporation (1) 1401 N. Hwy 89 Suite 220 Farmington, Utah   84025	2,549,162	22.88%
Common	Wilford W. Kirton 39 Hoe Street Paia, HI 96779	762,223	6.84%
Common	Schwartz Group, LLC(2) 735 Wythe Avenue Brooklyn, NY 11211	781,250	7.01%
Common	FG Elysian, LLC 2215 York Road, Suite 414 Oak Brook, IL 60523	625,000	5.61%

Executive Officers and Directors:
Title of Class	Nameof Beneficial Owner	Amount and Nature of Beneficial Ownership	Percentof Class
Common	James J. Dalton(3)	2,549,162	22.88%
Common	James G. Carter(4)	2,364	*
Common	William K. Martin(5)	595,119	5.34%
Common	Robert J. Welgos(6)	2,593	*
Common	Jack Johnson(7)	0	*
Common	Michael G. Acton(8)	227,810	2.04%
All executive officers and directors as a group (6 persons)(9)(10)		3,377,047	30.26%

*            Represents beneficial ownership of less than one percent (1%) of our outstanding common stock.

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(1) ADP Management is an entity under shared control of David Derrick, a former director of ActiveCare and Mr. Dalton, our CEO and Chairman.  Amount indicated includes 2,046,227 shares owned of record by Mr. Dalton, 473,651 shares owned of record by ADP Management, 29,025 shares owned of record by David Derrick and 259 shares owned of record by MK Financial, an entity owned and controlled by David Derrick.

(2) Includes 156,250 shares owned of record by Shaya Schwartz.

(3) Mr. Dalton is a member of our board of directors and our CEO.  Includes 473,651 shares of common stock owned of record by ADP Management, 29,025 shares owned by David Derrick and 259 shares owned by MK Financial, an entity owned by David Derrick.

(4) Mr. Carter is a director.

(5) Mr. Martin is a director. All shares indicated are held in the name of Zenith Holding, LTD, an entity controlled by Mr. Martin.

(6) Mr. Welgos is a director.

(7) Mr. Johnson is a director.

(8) Mr. Acton is our Chief Financial Officer and Secretary-Treasurer.

(9) Includes shares of our common stock issuable pursuant to the exercise of vested stock options or warrants and the shares of our common stock beneficially owned described in footnotes (3), (4), (5), (6), (7) and (8).

(10) Assumes the exercise of all warrants exercisable within 60 days of December 15, 2009.  These tables do not name the holders of our Series A Preferred stock. The rights and preferences of the Series A Preferred stock and certain of our common stock purchase warrants (the Class A and Class B warrants) provide that the number of shares of common stock to be obtained by each of the holders of Series A Preferred stock and the Class A and Class B warrants upon conversion of the Series A Preferred stock or exercise of the warrants, as the case may be, cannot exceed the number of shares that, when combined with all other shares of our common stock and securities owned by each of such holders, would result in any one of them owning more than 4.99% of our outstanding common stock at the time of conversion or exercise; provided, however that this limitation may be revoked by the stockholder upon 61 days prior notice to us. No waiver of such provisions has been received by us as of the date of this report.

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

Sale of Common Stock to Related Parties

In February 2006, while we were still a subsidiary of RemoteMDx, we sold 1,250,000 shares of common stock to ADP Management, an entity owned and controlled by James Dalton, and David Derrick.  At the time of this transaction ADP Management was an affiliate of our former parent corporation and Mr. Dalton and Mr. Derrick were directors of our former parent corporation.  The cash paid for these restricted shares of common stock was $400,000.  ADP Management subsequently pledged a portion of these securities to third parties as collateral for loans made to ADP Management.  It also subsequently sold certain of its shares of common stock to third parties in private resale transactions.

Payment of Consulting Fees to Related Party

Prior to our spin-off from RemoteMDx, during the year ended September 30, 2008, we paid consulting fees of $200,000 to ADP Management. The consulting services provided by ADP Management included high-level strategic planning, consulting on our national and international direction, identifying research and development firms, and identifying potential strategic partners or acquisition targets through the services of Mr. Derrick and Mr. Dalton.

Payments to Former Parent Corporation

In connection with our separation from our former parent corporation, RemoteMDx in February 2009, we paid $402,163 to RemoteMDx. The non-cash, one-time expenses include allocations of charges for labor and management that RemoteMDx provided to us in periods prior to the separation, including assistance with financial statement preparation, assistance with audit preparation and process, helping us prepare to become a publicly traded company, and similar services.

Sale of Shares of Common Stock to Related Party

During the year ended September 30, 2008, we sold 2,135,417 restricted shares of our common stock for proceeds of $2,098,333 to ADP Management.

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Inter-company Loan Transactions

Under the terms of an earlier arrangement, RemoteMDx made sums available to us as loans which were repayable together with interest at an annual rate of 5%.  We also made funds available on similar terms to RemoteMDx.  As of September 30, 2008, RemoteMDx owed us $598,793 under these arrangements.  As of September 30, 2009, no further amounts were owed to us by RemoteMDx.

Indemnification Agreements

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

Registration Rights Agreement

In connection with the sale of shares of our Series A preferred stock, we entered into a registration rights agreement that required us to file with the SEC no later than December 10, 2009, a registration statement covering the resale of a minimum of 2,554,286 shares of common stock (i.e. 100% of the shares of common stock issuable upon conversion of the Series A preferred stock and exercise of the related warrants, together with all of the shares issued in connection with the acquisition of HG Partners, Inc.).  Once filed, we are required to use our best efforts to have the registration statement declared effective and to keep the registration statement continuously effective under the Securities Act until the earlier of (1) such time as all of the shares covered by this report have been disposed of pursuant to and in accordance with the registration statement or (2) the date on which all conversion shares and dividend shares may be sold without the requirement to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144 as determined by our legal counsel pursuant to a written opinion letter to such effect, addressed to our transfer agent. Prior to December 10, 2009, the holders of the preferred stock agreed with us that the registration statement should not be filed until such time as we had completed and filed this report on Form 10-K and our shares have commenced trading on the over-the-counter market.  We expect to file the registration statement promptly after these conditions have been met.

Procedures for Related Party Transactions

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

Item 14.    Principal Accounting Fees and Services

Audit Fees

Audit services consist of the audit of our annual consolidated financial statements, and other services related to filings and registration statements filed by us and other pertinent matters.  Audit fees paid to Hansen Barnett & Maxwell, P.C. for fiscal years 2009 and 2008 totaled approximately $87,000 and $19,000, respectively.

Tax Fees, Audit Related Fees, and All Other Fees

Hansen Barnett & Maxwell, P.C. has not provided to us any consulting services (including tax consulting and compliance services or any financial information systems design and implementation services in fiscal years 2009 and 2008.

The Audit Committee of the board of directors considered and authorized all services provided by and fees paid to Hansen Barnett & Maxwell, P.C..

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Auditor Independence

Our Audit Committee considered that the work done for us in fiscal 2009 by Hansen Barnett & Maxwell, P.C. was compatible with maintaining Hansen Barnett & Maxwell, P.C.'s independence.

Report of the Audit Committee

The Audit Committee oversees the Company's financial reporting process on behalf of the board of directors. Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal controls. The directors who serve on the Audit Committee are all independent for purposes of applicable SEC Rules. The Audit Committee operates under a written charter that has been adopted by the board of directors.

We have reviewed and discussed with management the Company's audited financial statements as of and for the year ended September 30, 2009.

We have discussed with the independent registered public accountant of the Company, Hansen Barnett & Maxwell, P.C., the matters that are required to be discussed by Statement on Auditing Standards No. 114, The Auditors Communication with Those Charged with Governance, as amended, by the Auditing Standards Board of the American Institute of Certified Public Accountants, which includes a review of the findings of the independent registered public accountant during its examination of the Company's financial statements.

We have received and reviewed written disclosures and the letter from Hansen Barnett & Maxwell, P.C., which is required by Independence Standard No. 1, Independence Discussions with Audit Committees, as amended, by the Independence Standards Board, and we have discussed with Hansen Barnett & Maxell, P.C. their independence under such standards. We have concluded that the independent registered public accountant is independent from the Company and its management.

Based on our review and discussions referred to above, we have recommended to the board of directors that the audited financial statements of the Company be included in the Company's Annual Report on Form 10-K for the year ended September 30, 2009, for filing with the Securities and Exchange Commission.

Respectfully submitted by the members of the Audit Committee:

Robert J. Welgos, Chair

William K. Martin

PART IV

Item 15.    Exhibits, Financial Statement Schedules

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

1. Financial Statements

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Earnings

Consolidated Statements of Stockholders' Equity and Comprehensive Income

Consolidated Statements of Cash Flows

Notes to the Consolidated Financial Statements

2.  Financial Statement Schedules.    [Included in the Consolidated Financial Statements or Notes thereto.]

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

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Exhibit No.		Title of Document
	2	Agreement for the Acquisition of HG Partners, Inc. dated September 10, 2009.  (previously filed as exhibit to Current Report on Form 8-K filed September 11, 2009)
	3(i)	Designation of Rights and Preferences of the Series A Convertible Preferred Stock of ActiveCare, Inc. filed September 10, 2009 (previously filed as exhibit to Current Report on Form 8-K filed September 11, 2009)
	(3)(i)	Articles of Incorporation of Registrant (previously filed as an exhibit to the Company’s Registration Statement on Form S-1.)
	(3)(ii)	Articles of Amendment to Articles of Incorporation of Registrant (previously filed as an exhibit to the Company’s Registration Statement on Form S-1).
	(3)(iii)	Bylaws of Registrant (previously filed as an exhibit to the Company’s Registration Statement on Form S-1).
	3(iv)	Articles of Amendment to Articles of Incorporation changing name to ActiveCare, Inc.*
	(3)(v)	Certificate of Incorporation (Delaware) July 15, 2009 *
	(3)(vi)	By-Laws reflecting change of the corporate name *
	(4)	Specimen of common stock certificate (previously filed as an exhibit to the Company’s Registration Statement on Form S-1).
	4(i)	Class A Warrant to Purchase Common Stock of ActiveCare, Inc. (previously filed as exhibit to Current Report on Form 8-K filed September 11, 2009)
	4(ii)	Class B Warrant to Purchase Common Stock of ActiveCare, Inc. (previously filed as exhibit to Current Report on Form 8-K filed September 11, 2009)
	010(i)	Series A Convertible Preferred Stock Purchase Agreement dated September 10, 2009 (previously filed as exhibit to Current Report on Form 8-K filed September 11, 2009)
	(10)(i)	Lease Agreement between RJF Company Ltd., and the Company, dated as of August 1, 2005 (previously filed as an exhibit to the Company’s Registration Statement on Form S-1).
	(10)(ii)	Loan Agreement between the Company and RemoteMDx (previously filed as in exhibit to the Company’s Registration Statement on Form S-1).
	(10)(iii)	Promissory Note dated as of October 1, 2008 (previously filed as an exhibit to the Company’s Registration Statement on Form S-1).
	(10)(iv)	Professional Services Contract between the Company and VPI Engineering, dated as of September 27, 2007, together with addenda (previously filed as an exhibit to the Company’s Registration Statement on Form S-1).
	(10)(v)	Securities Purchase Agreement between the Company and ADP Management, dated as of November 15, 2007 (previously filed as an exhibit to the Company’s Registration Statement on Form S-1).
	(10)(vi)	License Agreement between the Company and RemoteMDx, Inc. (previously filed as exhibit to the Company’s Report on Form 10-Q for the period ended June 30, 2009)
	(10)(vii)	License Agreement between the Company and Futuristic Medical Devices LLC  (previously filed as exhibit to the Company’s Report on Form 10-Q for the period ended June 30, 2009)
	(10)(viii)	License Agreement between the Company and euromicron AG (previously filed as exhibit to the Company’s Report on Form 10-Q for the period ended June 30, 2009)
	(10)(ix)	Statement of Work between Company and Quectel Wireless Solutions, Ltd., dated December 1, 2009*
	(11)	Computation of Statement of Earnings (included in financial statements filed herewith)*
	(31)(i)	Certifications of Chief Executive (Principal) Executive Officer under Rule 13a-14(a)/15d-14(a)*
	(31)(ii)	Certifications of Chief Financial (Principal Financial and Accounting) Officer under Rule 13a-14(a)/15d-14(a)*
	(32)	Section 1350 Certifications*

* Filed herewith.

36

SIGNATURES

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

ActiveCare, Inc.
By:	/s/ James J. Dalton
	James J. Dalton, Chief Executive Officer
	(Principal Executive Officer)

Date: December 24, 2009

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

Signature	Title	Date
/s/ James J. Dalton	Director, Chairman, and
James J. Dalton	Chief Executive Officer	December 24, 2009
	(Principal Executive Officer)
/s/ James G. Carter
James G. Carter	Director	December 24, 2009
/s/ Robert J. Welgos
Robert J. Welgos	Director	December 24, 2009
/s/ William K. Martin
William K. Martin	Director	December 24, 2009
/s/ Jack J. Johnson
Jack J. Johnson	Director	December 24, 2009
/s/ Michael G. Acton	Chief Financial Officer	December 24, 2009
Michael G. Acton	(principal financial officer)
	(principal accounting officer)

37

ActiveCare, Inc.

(Formerly Volu-Sol Reagents Corporation)

Financial Statements

September 30, 2009 and 2008

Index to Financial Statements

	Page
Report of Independent Registered Public Accounting Firm	F - 3
Balance Sheets as of September 30, 2009 and 2008	F - 4
Statements of Operations for the Years Ended September 30, 2009 and 2008	F - 5
Statements of Stockholders’ Equity for the Years Ended September 30, 2008 and 2009	F – 6
Statements of Cash Flows for the Years Ended September 30, 2009 and 2008	F - 7
Notes to Financial Statements	F - 9

F - 2

HANSEN, BARNETT & MAXWELL, P.C.
A Professional Corporation	Registered with the Public Company
CERTIFIED PUBLIC ACCOUNTANTS	Accounting Oversight Board
5 Triad Center, Suite 750
Salt Lake City, UT 84180-1128
Phone: (801) 532-2200 Fax: (801) 532-7944
www.hbmcpas.com	A Member of the Forum of Firms

REPORT OF INDEPENDENT REGISTERD PUBLIC ACCOUNTING FIRM

To the Directors and the Stockholders

ActiveCare, Inc. (Formerly Volu-Sol Reagents Corporation)

We have audited the accompanying balance sheets as of September 30, 2009 and 2008 and the related statements of operations, stockholders' equity and cash flows of ActiveCare, Inc., (the Company), for the years ended September 30, 2009 and 2008.  These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ActiveCare, Inc. as of September 30, 2009 and 2008 and the results of their operations and cash flows for the years ended September 30, 2009 and 2008 in conformity with U.S. generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred recurring operating losses and has an accumulated deficit. These conditions raise substantial doubt about its ability to continue as a going concern.  Management's plans regarding those matters are described in Note 1.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

HANSEN, BARNETT & MAXWELL, P.C.

Salt Lake City, Utah

December 24, 2009

F - 3

ActiveCare, Inc.

(Formerly Volu-Sol Reagents Corporation)

Balance Sheets

September 30, 2009 and 2008

	2009			2008
Assets
Current assets:
Cash	$	830,931		$	474,146
Accounts receivable, net of allowance for doubtful accounts of $3,000 and $2,500, respectively		63,469			91,667
Inventories, net of reserve of $ 34,517 and $39,141, respectively		48,965			51,183
Prepaid expenses and other assets		12,431			7,250
Total current assets		955,796			624,246
Property and equipment, net of accumulated depreciation of $408,652 and $396,787, respectively (note 2)		71,967			52,375
Deposit on inventory purchases		65,000			-
Related party note receivable (note 4)		-			598,793
License agreement, net of amortization of $14,019 and $0, respectively		285,981			-
Intangible asset – access to financing, net of amortization of $40,880 and $0, respectively		694,960			-
Total assets	$	2,073,704		$	1,275,414
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	248,552		$	72,158
Accrued expenses		154,544			145,293
Accrued payable on license agreement		300,000			-
Series A convertible preferred stock, net of discount of $615,829 and $0, respectively (aggregate liquidation preference of $1,000,000)		384,171			-
Total current liabilities		1,087,267			217,451
Total liabilities		1,087,267			217,451
Stockholders’ equity:
Preferred stock; .00001 par value, 10,000,000 shares authorized; 0 and 0 shares issued and outstanding, respectively		-			-
Common stock, .00001 par value, 50,000,000 shares authorized; 11,822,639 and 8,982,639 shares issued and outstanding, respectively		118			90
Additional paid in capital		6,043,470			3,698,661
Accumulated deficit		(5,057,151	)		(2,640,788	)
Total stockholders’ equity		986,437			1,057,963
Total liabilities and stockholders’ equity	$	2,073,704		$	1,275,414

See accompanying notes to financial statements.

F - 4

ActiveCare, Inc.

(Formerly Volu-Sol Reagents Corporation)

Statements of Operations

For the Years Ended September 30, 2009 and 2008

	2009			2008
Sales, net	$	451,750		$	608,024
Cost of goods sold		396,183			466,385
Gross profit		55,567			141,639
Operating expenses:
Research and development		375,293			631,504
Selling, general and administrative		2,032,284			1,804,189
Loss from operations		(2,352,010	)		(2,294,054	)
Other income (expense):
Interest income		470			15,323
Gain on forgiveness of payable		35,607			-
Interest expense – non cash		(100,430	)		-
Net loss applicable to common shareholders	$	(2,416,363	)	$	(2,278,731	)
Net loss per common share – basic and diluted	$	(0.24	)	$	(0.27	)
Weighted average shares – basic and diluted		9,858,000			8,382,000

See accompanying notes to financial statements.

F - 5

ActiveCare, Inc.

(Formerly Volu-Sol Reagents Corporation)

Statements of Stockholders’ Equity

For the Years Ended September 30, 2008 and 2009

	Common Stock						Additional			Accumulated
	Shares			Amount			Paid-in Capital			Deficit			Total
Balance at September 30, 2007		5,854,167		$	59		$	1,150,359		$	(362,057	)	$	788,361
Issuance of common stock for:
Cash		2,690,972			27			2,198,306			-			2,198,333
Services		437,500			4			349,996			-			350,000
Net loss		-			-			-			(2,278,731	)		(2,278,731	)
Balance at September 30, 2008		8,982,639			90			3,698,661			(2,640,788	)		1,057,963
Issuance of common stock for:
Cash		160,000			2			199,998			-			200,000
Services		2,000,000			20			119,980			-			120,000
Related party note cancellation		(160,000	)		(2	)		(199,998	)		-			(200,000	)
Purchase of intangible		840,000			8			735,832			-			735,840
Amortization of warrants issued for services		-			-			855,201			-			855,201
Related party note cancellation		-			-			(79,022	)		-			(79,022	)
Record beneficial conversion feature of preferred stock		-			-			712,818			-			712,818
Net loss		-			-			-			(2,416,363	)		(2,416,363	)
Balance at September 30, 2009		11,822,639		$	118		$	6,043,470		$	(5,057,151	)	$	986,437

See accompanying notes to financial statements.

F - 6

ActiveCare, Inc.

(Formerly Volu-Sol Reagents Corporation)

Statements of Cash Flows

For the Years Ended September 30, 2009 and 2008

	2009			2008
Cash flows from operating activities:
Net loss	$	( 2,416,363	)	$	(2,278,731	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		66,765			10,053
Changes in operating assets and liabilities:
Amortization of deferred consulting and financing costs		190,000			350,000
Related party services		-			492,070
Warrants issued for services		665,201			-
Amortization of debt discount recorded as interest exp.		96,989			-
Accounts receivable		28,198			11,052
Inventories		2,218			176
Prepaid expenses and other assets		(70,181	)		20,023
Accounts payable		186,368			39,195
Accrued liabilities		129,251			109,070
Net cash used in operating activities		(1,121,554	)		(1,247,092	)
Cash flows from investing activities:
Purchase of property and equipment		(24,941	)		(11,852	)
Net cash used in investing activities		(24,941	)		(11,852	)
Cash flows from financing activities:
Proceeds from  related-party note		303,280			669,352
Payments on related-party note		-			(1,887,000	)
Proceeds from the sale of common stock		200,000			2,198,334
Issuance of Series A preferred for cash		1,000,000			-
Net cash provided by financing activities		1,503,280			980,686
Net increase (decrease) in cash		356,785			(278,258	)
Cash, beginning of year		474,146			752,404
Cash, end of year	$	830,931		$	474,146
Supplemental Cash Flow Information:
Cash paid for interest and taxes:
Cash paid for income taxes		-			-
Cash paid for interest		-			-

See accompanying notes to financial statements.

F - 7

Supplemental Disclosure of non-cash Investing and Financing Activities

	2009		2008
Non-cash Investing and Financing Activities
Acquisition of HG Partners, Inc	$	735,840		-
Accrued liability incurred for patent purchase		300,000		-
Accruals reduced by share issuance		120,000		-
Reduction in related party receivable for fixed assets and cancelation of common stock		285,538		-
Total		1,441,378		-

F - 8

ActiveCare, Inc.

(Formerly Volu-Sol Reagents Corporation)

Notes to Financial Statements

September 30, 2009 and 2008

1.             Organization and Nature of Operations

ActiveCare, Inc. (formerly Volu-Sol Reagents Corporation) (the "Company" or "ActiveCare") was formed March 5, 1998 as a wholly owned subsidiary of RemoteMDx, Inc. [OTCBB:RMDx], a Utah Corporation ("RemoteMDx").  During the twelve months ended September 30, 2008, the ownership interest of RemoteMDx in ActiveCare was reduced through (a) the sale of shares of their common stock by the Company to investors in private transactions and (b) the sale and transfer of shares of their common stock by RemoteMDx in private transactions.  RemoteMDx completed its divestiture of ActiveCare in February 2009, through the distribution of approximately 1,421,667 shares of their common stock to the shareholders of RemoteMDx.  Each shareholder of RemoteMDx received one share of ActiveCare common stock for every 117 shares of RemoteMDx common stock owned of record on January 30, 2009. The distribution date was February 27, 2009.  Following the distribution of their shares RemoteMDx retained no ownership interest in ActiveCare.  Effective July 15, 2009, the Company changed its name to ActiveCare, Inc., and its state of incorporation to Delaware.

The Company sells medical diagnostic substances and equipment to laboratories throughout the United States.  Subsequent to year end the Company began selling ActiveOne™, a mobile emergency and concierge device throughout the United States.

Going Concern

The Company incurred a net loss and has negative cash flows from operating activities for the years ended September 30, 2009 and 2008.  These factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

In order for the Company to remove substantial doubt about its ability to continue as a going concern, the Company must generate positive cash flows from operations and obtain the necessary funding to meet its projected capital investment requirements.  Management’s plans with respect to this uncertainty include raising additional capital from the sale of the Company’s common stock.  There can be no assurance that revenues will increase rapidly enough to offset operating losses and repay debts.  If the Company is unable to increase revenues or obtain additional financing, it will be unable to continue the development of its products and may have to cease operations.

2.             Summary of Significant Accounting Policies

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

F - 9

Fair Value of Financial Instruments

The carrying amounts reported in the accompanying financial statements for cash, accounts receivable, accounts payable, accrued liabilities, and other debt obligations approximate fair values because of the immediate or short-term maturities of these financial instruments.

Concentration of Credit Risk

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

In the normal course of business, the Company provides credit terms to its customers. Accordingly, the Company performs ongoing credit evaluations of its customers' financial condition and requires no collateral from its customers.  The Company maintains an allowance for uncollectable accounts receivable based upon the expected collectability of all accounts receivable.

During fiscal years ended September 30, 2009 and 2008, the Company had sales to entities which represented more than 10% of its revenues.  Thermo Fisher Scientific, Inc. accounted for approximately 17% ($76,947) and  Richard Allan Scientific 13% ($58,227) for the year ended September 30, 2009.  Thermo Fischer Scientific, Inc. 31% ($141,664) and Cardinal Health Medical 15% ($69,769) of sales for the year ended September 30, 2008.  No other customer accounted for more than 10% of the Company’s revenues for years ended September 30, 2009 and 2008.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and investments with original maturities to the Company of three months or less.

Accounts Receivable

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

Inventories

Inventories are recorded at the lower of cost or market, cost being determined on a first-in, first-out ("FIFO") method. Inventories consisted of raw materials, work-in-process, and finished goods. Inventories as of September 30, 2009 and 2008 were as follows:

	2009			2008
Raw materials	$	38,851		$	39,829
Work in process		5,422			6,604
Finished goods		39,209			43,891
Reserve for inventory obsolescence		(34,517	)		(39,141	)
Total inventory	$	48,965		$	51,183

F - 10

Provisions, when required, are made to reduce excess and obsolete inventories to their estimated net realizable values. Due to competitive pressures and technological innovation, it is possible that estimates of the net realizable value could change in the near term.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation and amortization.  Depreciation and amortization are determined using the straight-line method over the estimated useful lives of the assets, typically three to seven years.  Leasehold improvements are amortized over the shorter of the estimated useful lives of the asset or the term of the lease.  Expenditures for maintenance and repairs are expensed while renewals and improvements over $500 are capitalized.  When property and equipment are disposed, any gains or losses are included in the results of operations.

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

	2009			2008
Equipment	$	171,577		$	153,718
Software		15,498			6,580
Leasehold improvements		269,448			268,366
Furniture and fixtures		24,096			20,498
		480,619			449,162
Accumulated depreciation		(408,652	)		(396,787	)
Property and equipment, net of accumulated depreciation	$	71,967		$	52,375

Depreciation expense for the years ended September 30, 2009 and 2008 was $11,865 and $10,053, respectively.

Revenue Recognition

The Company’s revenue has historically been from two sources: (i) diagnostic equipment product sales; and (ii) sales of medical diagnostic stains.

Diagnostic Equipment Product Sales

Although not the focus of the Company’s business model, the Company sells its diagnostic equipment devices in certain situations. The Company recognizes product sales revenue when persuasive evidence of an arrangement with the customer exists, title passes to the customer and the customer cannot return the devices, prices are fixed or determinable  and collection is reasonably assured.

Medical Diagnostic Stain Sales

The Company recognizes medical diagnostic stains revenue when persuasive evidence of an arrangement with the customer exists, title passes to the customer, prices and fixed or determinable and collection is reasonably assured.

Shipping and handling fees are included as part of net sales. The related freight costs and supplies directly associated with shipping products to customers are included as a component of cost of goods sold.  Neither the sale of diagnostic equipment nor the sale of medical diagnostic stains contain multiple deliverables.

Customers order either of the Company’s product lines by purchase order.  The Company does not enter into long-term contracts.  Its diagnostic equipment sales were $5,232 and $6,000 for the years ended September 30, 2009 and 2008, respectively, and its medical diagnostic stain sales were $446,518 and $602,024 for the years ended September 30, 2009 and 2008, respectively.  All of the Company’s sales are made with net 30-day payment terms.

F - 11

In connection with Generally Accepted Accounting Principles related to the recognition of revenue at the time of sale, the Company notes the following:

· The Company’s price to the buyer is fixed or determinable at the date of sale.

· The buyer has paid the Company, or the buyer is obligated to pay the Company within 30 days, and the obligation is not contingent on resale of the product.

· The buyer's obligation to the Company would not be changed in the event of theft or physical destruction or damage of the product.

· The buyer acquiring the product for resale has economic substance apart from that provided by the Company.

· The Company does not have significant obligations for future performance to directly bring about resale of the product by the buyer.

· The amount of future returns can be reasonably estimated and they are negligible.

Customers may return diagnostic equipment within 30 days of the purchase date.  Customers may return the medical diagnostic stains within 30 days of the purchase date provided that the stain’s remaining life is at least 8 months.  Customers must obtain prior authorization for a product return.   For the year ended September 30, 2009, the Company experienced $2,985 of sales returns.

The Company’s products have not been modified significantly for several years.  There is significant history on which to base the Company’s estimates of sales returns.  These sales returns have been negligible.

The Company has 70 types of products based on the number of individual SKUs in its inventory.  Most of these 70 SKUs are for medical diagnostic stain inventory.  For example, certain medical diagnostic stains are packaged in different sizes, and each packaged size (i.e. 16 oz., 32 oz., 48 oz.) has a unique SKU in inventory.   Under Generally Accepted Accounting Principles an enterprise should report revenues from external customers for each product and service or each group of similar products and services unless it is impractical to do so.  The vast majority of the Company’s sales are of medical diagnostic stains, with a minimal portion of sales being diagnostic equipment.   Because diagnostic equipment sales are not material to the financial statements, the Company discloses sales as one line item.

The Company’s revenue recognition policy for sales to distributors is the same as the policy for sales to end-users.

A customer qualifies as a distributor by completing a distributor application and proving its sales tax status.  Upon qualifying as a distributor, a customer receives a 35% discount from retail prices, and the distributor receives an additional 5% discount when product is purchased in case quantities.  The Company’s distributors are not required to maintain specified amounts of product on hand, and distributors are not required to make minimum purchases to maintain distributor status.  Distributors have no stock rotation rights or additional rights of return.  Sales to distributors are recorded net of discounts.

Sales returns have been negligible, and any and all discounts are known at the time of sale.  Sales are recorded net of sales returns and sales discounts.  There are no significant judgments or estimates associated with the recording of revenues.

Research and Development Costs

All expenditures for research and development are charged to expense as incurred. These expenditures in both 2009 and 2008 were for the development of a medical home monitoring device and associated services. For the years ended September 30, 2009 and 2008, research and development expenses were $375,293 and $631,504, respectively.

F - 12

Advertising Costs

The Company expenses advertising costs as incurred.  Advertising expenses for the years ended September 30, 2009 and 2008 were approximately $45,286 and $881, respectively.  Virtually all of this advertising expense relates to the Company’s ActiveOne™ product.

Income Taxes

The Company recognizes deferred income tax assets or liabilities for the expected future tax consequences of events that have been recognized in the financial statements or income tax returns. Deferred income tax assets or liabilities are determined based upon the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates expected to apply when the differences are expected to be settled or realized.  Deferred income tax assets are reviewed periodically for recoverability and valuation allowances are provided as necessary.  Interest and penalties related to income tax liabilities, when incurred, are classified in interest expense and income tax provisions, respectively.

Net Loss Per Common Share

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

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

Common share equivalents consist of shares issuable upon the exercise of common stock warrants, and shares issuable upon conversion of preferred stock.  As of September 30, 2009 and 2008, there were 15,214,284 and 0 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.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued guidance which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements.  It is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.  In February 2008, the FASB extended the effective date to fiscal years beginning after November 15, 2008.  The Company does not expect the adoption of this guidance to have a material impact on our financial statements.

In February 2007, the FASB issued guidance which permits companies to choose to measure many financial instruments and certain other items at fair value.  It is effective for financial statements issued for fiscal years beginning after November 15, 2007.  The Company does not expect the adoption of this guidance to have a material impact on our financial statements.

In December 2007, the FASB issued guidance which requires an acquirer of a business to measure the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired.  It clarifies that a non-controlling interest in a subsidiary should be reported as equity in the financial statements, net income shall be adjusted to include the net income attributed to the non-controlling interest and comprehensive income shall be adjusted to include the comprehensive income attributed to the non-controlling interest.  The calculation of earnings per share will continue to be based on income amounts attributable to the parent.  This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2008.  Early adoption is prohibited.  The Company has not yet determined the effect on our financial statements, if any, that will occur upon adoption of this guidance.

In September 2008, the FASB provided guidance for measuring liabilities issued with an attached third-party credit enhancement (such as a guarantee). It clarifies that the issuer of a liability with a third-party credit enhancement (such as a guarantee) should not include the effect of the credit enhancement in the fair value measurement of the liability. This guidance is effective for the first reporting period beginning after December 15, 2008. The Company has not yet determined the effect on its financial statements, if any, that will occur upon adoption of this guidance.

F - 13

In October 2008, the FASB issued guidance which clarifies the application of fair value accounting in an inactive market. It demonstrated how the fair value of a financial asset is determined when the market for that financial asset is inactive. This guidance was effective upon issuance, including prior periods for which financial statements had not been issued. The effect of adopting this guidance did not have a material effect on the Company’s financial statements.

In November 2008, the FASB provided guidance which clarifies the accounting for certain transactions and impairment considerations involving equity method investments. This guidance is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. The Company has not yet determined the effect on its financial statements, if any, that will occur upon adoption of this guidance.

In June 2008, the FASB provided guidance which assists in determining whether an instrument (or embedded feature) is indexed to an entity’s own stock. This amendment is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early application is not permitted. A contract that would otherwise meet the definition of a derivative but is both (a) indexed to the Company’s own stock and (b) classified in stockholders’ equity in the statement of financial position would not be considered a derivative financial instrument. This amendment provides a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer’s own stock and thus able to qualify for the this exception. This standard is expected to trigger liability accounting on the Company’s Class A and B warrants, which have an exercise price that adjusts downward if the Company issues shares of common stock less than the warrant’s exercise price then in effect.  The Company is currently evaluating the impact of the adoption of this guidance on the Company’s consolidated financial statements.

3.            Patent License Agreement

During the year ended September 30, 2009, the Company licensed the use of certain patents from Futuristic Medical Devices, LLC.  This license agreement will aid the Company as it furthers its business plan.  The Company is required to pay $300,000 plus a 5% royalty on the net sales of all licensed products and it has the right to purchase the underlying patents for 4,000,000 shares of common stock. The Company has capitalized the patents and is amortizing them over the remaining estimated useful life of 9 years.  The Company has recognized $14,019 and $0 of amortization expense for the years ended September 30, 2009 and 2008, respectively.  The company has not paid the $300,000 as of September 30, 2009.

4.             Related-Party Note Receivable

In October 2004, the Company entered into a Loan Agreement with RemoteMDx.  Under the terms of the Loan Agreement, the Company made sums available to RemoteMDx under a note which was repayable, together with interest at an annual rate of 5%.  As of September 30, 2009 and 2008, RemoteMDx owed the Company $0 and $598,793, respectively. During the year ended September 30, 2009, the Company settled the debt with RemoteMDx by receiving furniture and equipment valued at $6,516, and 160,000 shares of stock in the Company that was owned by RemoteMDx valued at $279,022.  As of September 30, 2009, there are no amounts owed under this receivable.

5.             Series A Convertible Preferred Stock

Concurrent with the closing of the acquisition of HG on September 4, 2009 (see Note 12), the Company issued 571,428 shares of Series A Convertible Preferred Stock (Series A) for $1.75 per share, or a total of $1,000,000.  The purchasers received one Class A warrant and one Class B warrant for each share of Series A purchased.  The Series A par value is $.00001 per share and the stated value is $1.75 per share.

F - 14

The Series A is mandatorily redeemable at 125% of the stated value plus any accrued but unpaid dividends and liquidated damages at the earlier of September 4, 2010 or at the option of the holder upon the Company’s failure to keep certain obligations under the stock purchase agreement.

At any time, or from time to time, the Company may redeem all or a portion of the Series A outstanding upon twenty business days prior written notice at a price per share of preferred stock equal to 120% of the stated value plus any accrued but unpaid dividends and liquidated damages.

The Series A is convertible at any time at the holder’s option at $1.75 per share.  The conversion rate is adjusted for stock splits, combinations, dividends and distributions, reclassifications, exchanges, substitutions, reorganizations, mergers, consolidations or sales of assets. The conversion rate is also adjusted when the Company issues or sells any additional shares of common stock or equivalents, at a price per share less than the conversion rate then in effect.

Cumulative dividends of 8% of the stated value per share per annum accrue daily and are payable quarterly commencing on December 31, 2009.  Dividends are payable at the Company’s option in cash or, in certain circumstances, in registered shares of the Company’s common stock.

If the Company elects to pay any dividend in shares of common stock, the number of shares of common stock to be issued shall be an amount equal to the greater of (x) the quotient of (i) the dividend payment divided by (ii) $1.00 (as adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction) or (y) the quotient of (i) the dividend payment divided by (ii) ninety percent (90%) of the average of the Volume Weighted Average Price (VWAP, and as further defined in the certificate of designation) for the five trading days immediately preceding the date the dividend payment is due; provided, however, in the event that ninety percent (90%) of the average of the VWAP for the five trading days immediately preceding the date the dividend payment is due shall be less than $1.00 (as adjusted for appropriate adjustments for any stock dividend, stock split, stock combination, reclassification or similar transaction), at the option of at least 75% of the holders of the preferred stock, the dividend payment shall be payable only in cash.

Series A shareholders are entitled to the number of votes equal to the number of shares of common stock into which the Series A could be converted.

In the event of the liquidation, dissolution or winding up of the affairs of the Company, the Series A shareholders shall be entitled to receive a liquidation preference amount equal to the stated value per share plus any accrued and unpaid dividends.

6.            Preferred Stock

The Company is authorized to issue 10,000,000 shares of undesignated preferred stock, with a par value of $0.00001per share.  Pursuant to the Company's Articles of Incorporation, the Company's board of directors has the authority to amend the Company's Articles of Incorporation, without further shareholder approval, to designate and determine, in whole or in part, 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 and 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.   On September 10, 2009 the Company designated a Series A Convertible Preferred Stock.  See Note 5 for details.

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7.            Common Stock

Authorized Shares

The Company is authorized to issue up to 50,000,000 shares of common stock.

Effective June 30, 2009 the Company established a par value for its common stock of $0.00001 per share.  These financial statements have been retro actively adjusted for the effects of the par value.

As of September 30, 2007, the Company had 5,854,167 shares of common stock outstanding.  During the year ended September 30, 2008, the Company issued 2,690,972 shares for $2,198,333 in cash. Of these amounts, 2,135,417 shares (and $2,098,333) were issued to a director of RemoteMDx, the Company’s former parent company, and to ADP Management.  The remaining 555,555 shares were sold to unrelated third parties.  The company also issued 437,500 shares for services rendered for a value of $350,000, or $0.80 per share.    The shares issued for services were valued at $0.80 per share based on stock purchases between the Company and third parties.  As of September 30, 2008, the Company had 8,982,639 shares of common stock outstanding.

During the year ended September 30, 2009, in a transaction related to the sale of the Series A preferred stock, the Company issued 840,000 shares valued at $735,840 for all of the issued and outstanding shares of a Nevada corporation, HG Partners, Inc., formerly Solutions Mechanical, Inc.

During the year ended September 30, 2009, the Company issued 2,000,000 shares of common stock valued at $500,000 to its Chief Executive Officer and Chairman of the Board of Directors for past and future services.

During the year ended September 30, 2009, the Company sold 160,000 shares of its common stock to its former parent company, RemoteMDx.  Subsequently, as part of a settlement of the related-party receivable with RemoteMDx, the Company received back the 160,000 shares of previously issued common stock. These shares were retired. This settlement reduced the number of shares outstanding at year’s end. As of September 30, 2009, the Company has 11,822,639 shares of common stock outstanding.

8.             Warrants

During the year ended September 30, 2009, the Company issued warrants to the board of directors of the Company for the purchase of an aggregate of 13,500,000 shares of common stock at prices ranging from $0.25 to $1.25 per share.  All of these warrants are subject to the following vesting schedule.

Number of Warrants	Vesting Criteria
1,060,000	When the Company’s stock is trading or sold
2,060,000	$5,000,000 in annualized revenue
2,060,000	$10,000,000 in annualized revenue
2,080,000	$15,000,000 in annualized revenue
2,080,000	$20,000,000 in annualized revenue
2,080,000	$25,000,000 in annualized revenue
2,080,000	When the Company achieves profitability

The fair value of each warrant granted was estimated on the date of grant using the Black-Scholes valuation model and assumes that the performance goals will be achieved using the following inputs: Exercise price ranging from $0.25 to $1.25; Risk free interest rate of between 2.02% - 2.71%; Expected life of 5 years; Expected dividend of 0%; and a volatility factor of 141%.  If such performance goals are not met, no compensation cost is recognized and any recognized compensation cost is reversed.  Expected volatilities are based on historical volatility of a peer company’s common stock among other factors. The Company uses historical data to estimate option exercise and employee termination within the valuation model.  The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

F - 16

On September 4, 2009, the Company issued 571,428 shares of Series A Convertible Preferred Stock (Series A) for $1.75 per share, or a total of $1,000,000.  The purchasers received one Class A warrant and one Class B warrant for each share of Series A purchased.  The Class A and B warrants have identical terms, other than the exercise price.  The exercise price of the Class A warrants is $1.75, and the exercise price of the Class B warrants is $2.25.  The warrants are immediately exercisable into shares of the Company’s common stock through September 4, 2014.

The warrants have a cashless exercise feature commencing upon the earlier of 6 months following September 4, 2009 and the date the shares of common stock subject to the warrants become eligible for resale pursuant to Rule 144 under the Securities Act, if (i) the per share market value of one share of common stock is greater than the warrants’ exercise price and (ii) a registration statement under the Securities Act providing for the resale of the shares of common stock subject to the warrants is not then in effect or not effective at any time.

The warrants’ exercise price will be adjusted downward if the Company issues any additional shares of common stock (excluding certain issuances), at a price per share less than the warrants’ exercise price then in effect or without consideration (in which case such additional shares of common stock shall be deemed to have been issued at a price per share of $.00001).  If this occurs, then the warrants’ exercise price upon each such issuance shall be adjusted to the price equal to the consideration per share paid for such additional shares of common stock, and the number of shares of common stock for which the warrants are exercisable shall be increased such that the aggregate warrant exercise price payable hereunder, after taking into account the decrease in the exercise price, shall be equal to the aggregate exercise price prior to such adjustment.

A summary of the activity of the warrants as of September 30, 2009 is presented below:

Performance                  Options	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at October 1, 2008		-		-
Granted		14,642,856		$0.42
Exercised		-		-
Forfeited		-		-
Outstanding at September 30, 2009		14,642,856		$0.42	4.64 years	-
Exercisable at September 30, 2009		-		-		-

The total expense associated with these warrants is $3,452,921, of which $665,201 is being recognized as non-cash consulting expense during the year ended September 30, 2009.  The balance of $2,787,720 will be expensed in future periods.

9.            Income Taxes

The Company recognizes deferred income tax assets or liabilities for the expected future tax consequences of events that have been recognized in the financial statements or income tax returns. Deferred income tax assets or liabilities are determined based upon the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates expected to apply when the differences are expected to be settled or realized.  Deferred income tax assets are reviewed periodically for recoverability and valuation allowances are provided as necessary.  Interest and penalties related to income tax liabilities, when incurred, are classified in interest expense and income tax provision, respectively.

F - 17

For the years ended September 30, 2009 and 2008, the Company incurred net losses of approximately $2,294,000 and $2,280,000, respectively, for income tax purposes.  The amount and ultimate realization of the benefits from the net operating losses is dependent, in part, upon the tax laws in effect, the Company's future earnings, and other future events, the effects of which cannot be determined.  The Company has established a valuation allowance for all deferred income tax assets not offset by deferred income tax liabilities due to the uncertainty of their realization.  Accordingly, there is no benefit for income taxes in the accompanying statements of operations.

At September 30, 2009, the Company had net carryforwards available to offset future taxable income of approximately $4,574,000 which will begin to expire in 2018.  The utilization of the net loss carryforwards is dependent upon the tax laws in effect at the time the net operating loss carryforwards can be utilized.  The Internal Revenue Code contains provisions that likely could reduce or limit the availability and utilization of these net operating loss carryforwards.  For example, limitations are imposed on the utilization of net operating loss carryforwards if certain ownership changes have taken place or will take place.  The Company will perform an analysis to determine whether any such limitations have occurred as the net operating losses are utilized.

Deferred income taxes are determined based on the estimated future effects of differences between the financial statement and income tax reporting bases of assets and liabilities given the provisions of currently enacted tax laws and the tax rates expected to be in place.

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

	2009			2008
Net operating loss carryforwards	$	775,000		$	432,000
Depreciation and reserves		4,000			2,000
Valuation allowance		(779,000	)		(434,000	)
Total	$	-		$	-

Reconciliations between the benefit for income taxes at the federal statutory income tax rate and the Company’s benefit for income taxes for the years ended September 30, 2009 and 2008 are as follows:

	2009			2008
Federal income tax benefit at statutory rate	$	308,000		$	292,000
State income tax benefit, net of federal income tax effect		46,000			75,000
Non-deductible expenses		(9,000	)		(24,000	)
Change in valuation allowance		(345,000	)		(343,000	)
Benefit for income taxes	$	-		$	-

During the years ended September 30, 2009 and 2008, the Company recognized no interest and penalties, and there were no changes in unrecognized tax benefits from tax positions taken or from lapsed statutes of limitations.  There were no settlements with taxing authorities.  At September 30, 2009, the Company had no unrecognized tax benefits that, if recognized, would affect the effective tax rate, and there are no positions that are anticipated to significantly increase or decrease by September 30, 2010.  The Company had no tax examinations begin, end, or remain in process as of and for the years ended September 30, 2009 and 2008.  Tax years subsequent to September 30, 2005 remain subject to examination.

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10.         Commitments and Contingencies

The Company leases a facility under a non-cancelable operating lease that expires in November 2010.  Future minimum rental payments under the non-cancelable operating lease as of September 30, 2009 are approximately as follows:

Lease Obligations
Year Ending September 30:
2010	$	87,006
2011		32,146
2012		20,633
2013		17,600
Total	$	157,385

Rent expense related to this non-cancelable operating lease was approximately $74,000 and $73,000 for the years ended September 30, 2009 and 2008, respectively.

11.          Acquisition

On September 4, 2009, the Company completed the acquisition of HG Partners, Inc. (HG) by acquiring 100% of HG’s common stock.  Consideration consisted of 840,000 shares of the Company’s common stock valued at $735,840.  The Company acquired HG to gain access to future financing sources, including HG’s shareholders.

No assets and liabilities were acquired from HG, and no operations were acquired.  The purchase price of $735,840 was allocated to an intangible asset (access to financing sources).  Management estimates another financing to occur in approximately 18 months.  The Company has capitalized the intangible asset and is amortizing it on a straight-line basis over the remaining useful life of 18 months.  The Company has recognized $40,880 and $0 of amortization expense for the years ended September 30, 2009 and 2008, respectively.

12.           Subsequent Events

The Company has evaluated for subsequent events through December 24, 2009, the date of the audit report. There are no material events that warrant further disclosure.

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EX-3.4

Exhibit 3.4

ARTICLES OF AMENDMENT

TO THE

 ARTICLES OF INCORPORATION

OF

VOLU-SOL REAGENTS CORPORATION

(Hereafter ActiveCare, Inc.)

Pursuant to and in accordance with the provisions of Section 16-10a-1006 of the Utah Revised Business Corporation Act, as amended, (the “Act”), the undersigned, Volu-Sol Reagents Corporation (the “Corporation”) hereby declares and certifies as follows:

1. The name of the Corporation is Volu-Sol Reagents Corporation.

2. The text of the amendment to the Articles of Incorporation of the Corporation adopted by Unanimous Written Consent of the Directors of the Corporation is as follows:

“ARTICLE I

(Name)

The name of the corporation is:  ActiveCare, Inc..”

3. The amendment specified above does not provide for an exchange, reclassification, or cancellation of issued shares of the Corporation.

4. The amendment specified above was adopted as of May 19th, 2009 by Unanimous Written Consent of the Board of Directors of the Corporation, and in accordance with the requirements of the Act and the Bylaws of the Corporation.  In addition, as of July 15th, 2009, such amendment specified above was approved by the majority of the shareholders of the Corporation entitled to vote on such matters as follows:

DESIGNATION OF STOCK	NO. OF OUTSTANDING SHARES	NO. OF VOTES CAST	VOTES CAST FOR AMENDMENT	VOTES CAST AGAINST AMENDMENT OR ABSTAINING
Common	10,928,196	7,636,427	7,635,882	545

Such votes cast were sufficient for approval of the Amendment.

IN WITNESS WHEREOF, this Amendment to the Articles of Incorporation of the Corporation is executed as of the 15th day of July, 2009.

Volu-Sol Reagents Corporation,

a Utah corporation

By ____________________________

Name:

Title:

EX-3.5

Exhibit 3.5

CERTIFICATE OF INCORPORATION

OF

ACTIVECARE, INC.

ARTICLE I

The name of this Corporation is “ActiveCare, Inc.”

ARTICLE II

The address of the registered office of the Corporation in the State of Delaware is 1209 Orange Street, in the City of Wilmington, 19801, County of New Castle.  The name of its registered agent at such address is The Corporation Trust Company.

ARTICLE III

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.

ARTICLE IV

The name of the Corporation’s incorporator is Michael G. Acton and the incorporator’s mailing address is 5095 West 2100 South, Salt Lake City, Utah 84120.

ARTICLE V

A.            Authorized Stock. The Corporation is authorized to issue two classes of stock to be designated respectively Preferred Stock (“Preferred Stock”) and Common Stock (“Common Stock”). The total number of all shares of all classes of capital stock the Corporation shall have authority to issue is sixty million (60,000,000). The total number of shares of Preferred Stock the Corporation shall have authority to issue is ten million (10,000,000). The total number of shares of Common Stock the Corporation shall have authority to issue is fifty million (50,000,000). The Preferred Stock and the Common Stock each shall have $.00001 par value per share. The number of authorized shares of Common Stock or Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the then outstanding shares of Common Stock, without a vote of the holders of Preferred Stock, or of any series thereof, unless a vote of any such holders of Preferred Stock is required pursuant to the provisions established by the Board of Directors of the Corporation (the “Board of Directors”) in the resolution or resolutions providing for the issue of such Preferred Stock, and if such holders of such Preferred Stock are so entitled to vote thereon, then, except as may otherwise be set forth in this Certificate of Incorporation, the only stockholder approval required shall be the affirmative vote of a majority of the combined voting power of the Common Stock and the Preferred Stock so entitled to vote.

B.            Preferred Stock. The Preferred Stock may be issued from time to time in one or more series, as determined by the Board of Directors. The Board of Directors is expressly authorized to provide for the issue, in one or more series, of all or any of the remaining shares of Preferred Stock and, in the resolution or resolutions providing for such issue, to establish for each such series the number of its shares, the voting powers, full or limited, of the shares of such series, or that such shares shall have no voting powers, and the designations, preferences, and relative participating, optional, or other special rights of the shares of such series and the qualifications, limitations, or restrictions thereof. The Board of Directors is also expressly authorized (unless forbidden in the resolution or resolutions providing for such issue) to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series subsequent to the issuance of shares of that series. In case the number of shares of any such series shall be so decreased, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series.

C.            Common Stock.

1.           Relative Rights of Preferred Stock and Common Stock. All preferences, voting powers, relative, participating, optional or other special rights and privileges, and qualifications, limitations, or restrictions, of the Common Stock are expressly made subject and subordinate to those that may be fixed with respect to any shares of the Preferred Stock.

2.           Voting Rights. Except as otherwise required by law or this Certificate of Incorporation, each holder of Common Stock shall have one vote in respect of each share of stock held by such holder of record on the books of the Corporation for the election of directors and on all matters submitted to a vote of stockholders of the Corporation.

3.           Dividends. Subject to the preferential rights of the Preferred Stock, the holders of shares of Common Stock shall be entitled to receive, when and if declared by the Board of Directors, out of the assets of the Corporation which are by law available therefor, dividends payable either in cash, in property or in shares of capital stock.

4.           Dissolution, Liquidation or Winding Up. In the event of any dissolution, liquidation or winding up of the affairs of the Corporation, after distribution in full of the preferential amounts, if any, to be distributed to the holders of shares of the Preferred Stock, holders of Common Stock shall be entitled, unless otherwise provided by law or this Certificate of Incorporation, to receive all of the remaining assets of the Corporation of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively.

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ARTICLE VI

A.            Limitation on Liability.  A director of the Corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived any improper personal benefit.  If the General Corporation Law of the State of Delaware is amended after approval by the stockholders of this Article to authorize corporate action further eliminating or limiting the personal liability of directors then the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of the State of Delaware as so amended.

B.            Indemnification. Each person who is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, employee benefit plan or other enterprise (including the heirs, executors, administrators or estate of such person), shall be indemnified and advanced expenses by the Corporation, in accordance with the bylaws of the Corporation, to the fullest extent authorized by the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment) or any other applicable laws as presently or hereinafter in effect. The right to indemnification and advancement of expenses hereunder shall not be exclusive of any other right that any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, bylaws, agreement, vote of stockholders or disinterested directors or otherwise.

C.            Insurance. The Corporation may, to the fullest extent permitted by law, purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any expense, liability or loss incurred by such person in any such capacity or arising out of such person’s status as such, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware.

D.            Repeal and Modification. Any repeal or modification of the foregoing provisions of this Article VI by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.

ARTICLE VII

The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred on stockholders herein are granted subject to this reservation.

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ARTICLE VIII

Election of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.

ARTICLE IX

A.            Number of Directors.  The number of directors which shall constitute the whole Board of Directors of the Corporation shall be fixed from time to time by, or in the manner provided in, the Bylaws of the Corporation or in an amendment thereof duly adopted by the Board of Directors of the Corporation or by the stockholders of the Corporation.

B.            Vacancies. Except as otherwise provided for or fixed pursuant to the provisions of Article V of this Certificate of Incorporation relating to the rights of the holders of any series of Preferred Stock to elect directors, and subject to the provisions hereof, newly created directorships resulting from any increase in the authorized number of directors or any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or another cause may be filled by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or in which the vacancy occurred, and until such director’s successor shall have been duly elected and qualified or until his or her earlier resignation, removal from office, death or incapacity. Subject to the provisions of this Certificate of Incorporation, no decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

ARTICLE X

Meetings of stockholders of the Corporation may be held within or without the State of Delaware, as the Bylaws of the Corporation may provide.  The books of the corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors of the Corporation or in the Bylaws of the Corporation.

ARTICLE XI

Except as otherwise provided in this Certificate of Incorporation, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors of the Corporation is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of the Corporation.

4

IN WITNESS WHEREOF, the undersigned has signed this Certificate of Incorporation this _____ day of July, 2009.

Michael G. Acton, Incorporator

5

EX-3.6

Exhibit 3.6

ACTIVECARE, INC.

 (FORMERLY VOLU-SOL REAGENTS CORPORATION)

a Delaware corporation

BYLAWS

(VOLU-SOL REAGENTS CORPORATION WAS FORMERLY A UTAH CORPORATION INCORPORATED ON MARCH 5, 1998 BUT WAS CONVERTED TO A DELAWARE CORPORATION ON JULY 15, 2009)

BYLAWS

OF

VOLU-SOL REAGENTS CORPORATION

ARTICLE I

OFFICES

The principal office of the corporation in the State of Utah shall be located in Salt Lake County, State of Utah.  The Board of Directors may change the location of the principal office of the corporation and may, from time to time, designate other offices within or without the State of Utah as the business of the corporation may require.  The registered office of the corporation shall be the office of the registered agent of the corporation as required by the Utah Revised Business Corporation Act (the "Act").  The registered office of the corporation shall be maintained in the State of Utah and may be, but need not be, identical with the principal office of the corporation in the State of Utah, and the address of such registered office of the corporation, the agent's office, may be changed from time to time by the Board of Directors.

ARTICLE II

SHAREHOLDERS

1.           Place of Shareholder Meetings.  Shareholder meetings of the corporation shall be held at the principal office of the corporation in Salt Lake County, Utah, or at such other suitable place convenient to the shareholders, either within or without the State of Utah, whether for any annual meeting or special meeting of the shareholders called by the Board of Directors.

2.           Annual Meeting.  The annual meeting of the shareholders for the election of directors and the transaction of such other business as may properly come before it shall be held at the principal office of the corporation in Salt Lake County, State of Utah, or at such place within or without the State of Utah as shall be set forth in the notice of the meeting.  The meeting shall be held on the last Tuesday of July of each and every year at 10:00 a.m.  If the election of directors shall not be held on the day designated herein for any annual meeting of the shareholders, or at any adjournment thereof, the Board of Directors shall cause the election to be held at a special meeting of the shareholders as soon as is convenient thereafter.

3.           Special Meetings.  Special meetings of the shareholders, other than those regulated by statute, for any purpose or purposes, may be called at any time by a majority of the directors or the president, and must be called by the president upon written request of the holders of ten percent (10%) of the outstanding shares entitled to vote at such special meeting.  Special meetings of the shareholders shall be held at the principal office of the corporation unless another place within or without the State of Utah is designated by the Board of Directors in the notice for the meeting.

4.           Notice of Shareholders' Meetings.  The secretary of the corporation shall give personally or by mail, not less than ten (10) nor more than sixty (60) days before the date of the meeting to each shareholder entitled to vote at such meeting, written notice of the annual or special shareholders' meetings stating the place, date and hour of the meeting.  In the case of a special shareholders' meeting, the notice shall also state the purposes for which it is called and the name of the person by whom or at whose direction the meeting is called.  If mailed, the notice shall be addressed to the shareholder at his or her address as it appears on the record of the shareholders of the corporation unless he or she shall have filed with the secretary of the corporation a written request that notices intended for him or her be mailed to a different address, in which case it shall be mailed to the address designated in the request.  In the case of a special shareholders' meeting no business other than that specified in the notice of the meeting shall be transacted at any such special meeting.

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5.           Waiver of Notice.  Whenever under the provisions of these Bylaws or of any statute any shareholder or director is entitled to notice of any regular or special meeting or of any action to be taken by the corporation, such meeting shall be held or such action may be taken without the giving of such notice, provided every shareholder or director entitled to such notice in writing waives the requirements of these Bylaws in respect thereto.  Any notice of the annual or any special shareholders' meeting may be waived by a shareholder by submitting a signed waiver either before or after the meeting, or by the shareholder's attendance at such meeting.

6.           Record Date.  For the purpose of determining the shareholders entitled to notice of or to vote at any meeting of the shareholders or any adjournment thereof, or shareholders entitled to receive payment of any dividend, and in order to make a determination of shareholders for any other proper purpose, the Board of Directors of the corporation may provide that the stock transfer books shall be closed for an extended period but not to exceed in any case seventy (70) days.  If the stock transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least ten (10) days immediately preceding such meeting.  In lieu of closing the stock transfer books the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than seventy (70) days and in the case of a meeting of the shareholders, not less than ten (10) days prior to the date on which the particular action requiring action such determination of shareholders is to be taken.  If the stock transfer books are not closed and no record date is fixed for the determination of shareholders entitled to notice of or to vote at any meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which the notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders.  When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof except where the determination has been made through the closing of the stock transfer books and the stated period of closing has expired.

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7.           Proxies.  At all meetings of shareholders, a shareholder may vote either in person or by proxy executed in writing by the shareholder or by his duly authorized attorney in fact.  Such proxy shall be filed with the secretary of the corporation before or at the time of the meeting.  Every proxy must be dated and signed by the shareholder or his attorney in fact.  No proxy shall be valid after the expiration of eleven (11) months from the date of its execution, unless otherwise provided in such proxy.  Every proxy shall be revocable at the pleasure of the shareholder executing it, except where an irrevocable proxy is permitted by statute.

8.           Quorum.  The presence in person or by proxy of the holders of a majority of the outstanding shares entitled to vote thereat shall be necessary to constitute a quorum for the transaction of business at all meetings of the shareholders.  If, however, such quorum shall not be present or represented at any meeting of the shareholders, the shareholders entitled to vote thereat, present and personally represented by proxy, shall have the power to adjourn the meeting to a future date at which a quorum shall be present or represented without further notice.  At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified.  A meeting at which a quorum is initially present may continue to transact business, not withstanding the withdrawal of certain shareholders representing enough shares to leave less than a quorum remaining.  Such transacted business shall become the act of the corporation if it is approved by at least a majority of the required quorum for that meeting.

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9.           Voting of Shares.  A shareholder entitled to vote at a meeting may vote at such meeting in person or by proxy except as otherwise provided by law or the Certificate of Incorporation.  Every shareholder shall be entitled to one (1) vote for each share standing in his or her name on the record of shareholders as of the record date.  Except as herein or in the Certificate of Incorporation or by statute otherwise provided, all corporate action shall be determined by vote of a majority of the votes cast at a meeting of the shareholders at which a quorum is present by the holders of shares entitled to vote thereon.

10.         Voting of Shares by Certain Holders.  Shares standing in the name of another corporation may be voted by such officer, agent or proxy of such other corporation as the bylaws of such corporation may prescribe or, in the absence of such provision, as the Board of Directors of such other corporation may determine.  Shares held by an administrator, executor, guardian or conservator may be voted by him or her, either in person or by proxy, without a transfer of such shares into his or her name.  Shares standing in the name of a trustee may be voted by him or her, either in person or by proxy, but no trustee shall be entitled to vote shares held by him or her without a transfer of such shares into his or her name as trustee.  Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of the receiver may be voted by such receiver without the transfer thereof into his or her name if authority so to do be contained in an appropriate order of the court by which such receiver was appointed.  The shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred.  Shares of its own stock belonging to the corporation, treasury shares, or shares of its own stock held by the corporation in a fiduciary capacity shall not be voted, directly or indirectly, at any meeting and shall not be counted in determining the total number of outstanding shares at any given time.

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11.         Action Without Meeting by Consent of Required Majority.  Pursuant to all of the provisions of Section 704 of the Act, whenever a provision of statute or of the Certificate of Incorporation, or whenever by these Bylaws the vote of shareholders is required or permitted to be taken at a meeting thereof in connection with any corporate action, the meeting and the vote of shareholders may be dispensed with if one or more consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take the action at a meeting at which all shares entitled to vote thereon were present and voted.

ARTICLE III

BOARD OF DIRECTORS

1.           Number and Qualifications.  Except during such times as the corporation has fewer than three shareholders entitled to vote for election of directors, the number of directors of the corporation shall be not less than two (2) nor more than thirteen (13), all of whom shall be of age eighteen (18) years or older.  During such times when there are fewer than three such shareholders, the number of directors may consist of a number which is equal to or greater than the number of such shareholders, as determined by the Board of Directors.  Directors need not be shareholders of the corporation nor residents of the State of Utah.  The shareholders may change the number of directors by amending the Bylaws.

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2.           Manner of Election.  The directors shall be elected at the annual meeting of the shareholders by a majority of the votes in favor of each director to be elected except as otherwise prescribed by statute.  There shall be no cumulative voting for directors.  Each shareholder entitled to vote at the election of directors has the right to cast all of the votes to which the shareholder's shares are entitled for as many persons as there are directors to be elected and for whose election the shareholder has the right to vote.

3.           Term of Office.  The term of the office of each director shall be until the next annual meeting of the shareholders and until his or her successor has been duly elected and has qualified.

4.           Duties and Powers.  The Board of Directors shall have under their direction the control and management of the affairs and business of the corporation.  The directors shall in all cases act as a board, regularly convened, and in the transaction of business the act of a majority present at a meeting, except as otherwise provided by law or by the Certificate of Incorporation, shall be the act of the board, provided a quorum is present.  Notwithstanding the foregoing, the directors may take action without a meeting if all members of the board consent to the action in writing pursuant to Section 821 of the Act.  The directors may adopt such rules and regulations for the conduct of their meetings and the management of the corporation as they may deem proper, not inconsistent with law or the Certification of Incorporation or these Bylaws.

5.           Regular Meetings.  A regular meeting of the Board of Directors shall be held without other notice than this Bylaw immediately after, and at the same place as the annual meeting of shareholders.  The Board of Directors may provide by resolution the time and place, either within or without the State of Utah, for the holding of additional regular meetings without other notice than such resolution.

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6.           Special Meetings.  Special meetings of the Board of Directors may be called by or at the request of the president or any two (2) directors.  The  person or  persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of Utah, as the place for holding any such special meeting of the Board of Directors.

7.           Notice of Meetings.  No notice need be given of any regular meeting of the board.  Notice of special meetings shall be served upon each director in person or by mail addressed to him or her at his or her last known post office address, at least five (5) days prior to the date of such special meeting, specifying the time and place of the meeting and the business to be transacted thereat.  If mailed, such notice shall be deemed to be delivered when deposited in the United States Mail so addressed with the postage prepaid thereon.  Any director may waive notice of any meeting by a signed writing.  The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened, provided such objection is made by such director at the beginning of the special directors' meeting.

8.           Quorum.  At any meeting of the Board of Directors, the presence of a majority of the board shall be necessary to constitute a quorum for the transaction of business.  However, should a quorum not be present a lesser number may adjourn the meeting to some further time, not more than seven (7) days later, without further notice.

9.           Voting.  At all meetings of the Board of Directors, each director shall have one (1) vote irrespective of the number of shares that any director may hold.

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10.         Compensation.  By resolution of the Board of Directors, the directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors, may be paid a fixed sum for attendance at such meeting of the Board of Directors, or may be paid a stated salary as director.  No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor.

11.         Vacancies.  Any vacancy occurring in the Board of Directors by death, resignation or otherwise shall be filled promptly by majority vote of the remaining directors at a special meeting which shall be called for that purpose within thirty (30) days after the occurrence of the vacancy.  The director thus chosen shall hold office for the unexpired term of his predecessor and the election and qualification of his successor.  Where a vacancy is required to be filled by reason of an increase in the number of directors by shareholder action, then the vacant directorship(s) shall be filled by majority vote of the shareholders at the meeting at which the increased number of directorships is approved.

12.         Removal of Directors.  Any director may be removed either with or without cause, at any time, by a vote of a majority of the shareholders who are entitled to vote for the election of the directors sought to be removed, at any special meeting called for that purpose, or at the annual meeting.  Where a director is removed by the shareholders, then the vacant directorship shall be filled by the shareholders at the meeting at which the director or directors are so removed.  Except as otherwise prescribed by statute, a director may be removed for cause by vote of a majority of the entire board.  In such event the Board of Directors shall choose a new director to fill such vacancy.

13.         Resignation.  Any director may resign his office at any time.  Such resignation shall be made in writing and shall take effect immediately without acceptance.

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ARTICLE IV

OFFICERS

1.           Officers and Qualifications.  The officers of the corporation shall be at a minimum a president and a secretary.  There may also be such other officers as the Board of Directors may determine including, but not limited to, one (1) or more vice presidents and a treasurer.  Any two (2) or more offices, except the offices of president and secretary, may be held by the same person.

2.           Election.  All officers of the corporation shall be elected annually by the Board of Directors at its meeting held immediately after the annual meeting of shareholders.

3.           Term of Office.  Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his or her death, or until he or she shall resign or shall have been removed in the manner as hereinafter provided.  An officer or agent elected or appointed by the Board of Directors may be removed either with or without cause by the vote of a majority of the Board of Directors whenever, in the board's judgment, the best interests of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the persons so removed.

4.           Vacancies.  A vacancy in any office because of death, resignation, removal, disqualification or otherwise may be filled by the Board of Directors for the unexpired portion of the term of such office.

5.           Duties of Officers.  The duties and powers of the officers of the corporation shall be as follows and as shall hereafter be set by resolution of the Board of Directors:

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PRESIDENT

A.          The president shall be the principal executive officer of the corporation, shall be subject to the control of the Board of Directors, and shall in general supervise and control all of the business affairs of the corporation.  He or she shall, when present, preside at all meetings of the shareholders and of the Board of Directors.

B.           He or she shall present at each annual meeting of the shareholders and directors a report of the condition of the business of the corporation.

C.           He or she shall cause to be called regular and special meetings of the shareholders and directors in accordance with the requirements of the statute and of these Bylaws.

D.           He or she shall appoint, discharge and fix the compensation of all employees and agents of the corporation other than the duly elected officers, subject to the approval of the Board of Directors.  He or she shall sign and execute, with the secretary or any other proper officer of the corporation thereunto authorized by the Board of Directors, all contracts in the name of the corporation, and all notes, drafts or other orders for payment of money, any deed, mortgages, bonds or other instruments which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed.

E.           He or she shall sign and execute, with the secretary or any other proper officer of the corporation thereunto authorized by the Board of Directors, certificates representing shares of the corporation.

F.           He or she shall cause all books, reports, statements and certificates to be properly kept and filed as required by law.

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G.           He or she shall enforce these Bylaws and perform all the duties incident to his or her office and which are required by law, and, generally, he or she shall supervise and control the business and affairs of the corporation and perform such other duties as may be prescribed by the Board of Directors from time to time.

SECRETARY

A.          The secretary shall keep the minutes of the meetings of the Board of Directors and of the shareholders in appropriate books.

B.           He or she shall attend to the giving of notice of special meetings of the Board of Directors and of all the meetings of the shareholders of the corporation.

C.           He or she shall be custodian of the records and seal of the corporation and shall affix the seal to the certificates representing shares and other corporate papers when required.

D.           He or she shall keep in the principal office of the corporation a book or record containing the names, alphabetically arranged, of all persons who are shareholders of the corporation, showing their places of residence, the number and class of shares held by them respectively, and the dates when they respectively became owners of record thereof.  He shall keep such book or record and the minutes of the proceedings of its shareholders open daily during the usual business hours, for inspection, within the limits prescribed by law, by any person duly authorized to inspect such records.  At the request of the person entitled to an inspection thereof, he shall prepare and make available a current list of the officers and directors of the corporation and their resident addresses.

E.           He or she shall sign all certificates representing shares and affix the corporate seal thereto.

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F.           He or she shall attend to all correspondence and present to the Board of Directors at its meetings all official communications received by him or her.

G.           He or she shall perform all the duties incident to the office of secretary of the corporation and such other duties as from time to time may be assigned to him or her by the president or by the Board of Directors.

OTHER OFFICERS

Other officers shall perform such duties and have such powers as may be assigned to them by the Board of Directors.

6.           Vacancies.  All vacancies in any office shall be filled promptly by the Board of Directors, either at regular meetings or at a meeting specially called for that purpose.

7.           Compensation of Officers.  The officers shall receive their salary or compensation as may be fixed from time to time by the Board of Directors, and no officer shall be prevented from receiving such salary by reason of the fact that he or she is also a director of the corporation.

ARTICLE V

OFFICERS’ AND DIRECTORS’ CONTRACTS

No contract or other transaction between this corporation and any other corporation, limited liability company, association, partnership or business shall be affected by the fact that a director, officer, member, manager or partner of such other corporation, limited liability company, association, partnership or business, and any director or officer, individually or jointly, may be a party to, or may be interested in, any business, partnership, association, limited liability company, corporation or transaction of this corporation or in which this corporation is interested; and no contract or other transaction of this corporation with any person, firm, partnership, limited liability company, or corporation shall be affected by the fact that any director or officer of this corporation is a party to, or is interested in, such contract, act, or transaction or in any way connected with such person, firm, partnership, association, limited liability company, or corporation, and every person, who may become a director or officer of this corporation, is hereby relieved from liability that might otherwise exist from contracting with the corporation for the benefit of himself or any person, firm, association, partnership, limited liability company or corporation in which he may be in any way interested, provided said director or officer acts in good faith.

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ARTICLE VI

CONTRACTS, NOTES, CHECKS AND DEPOSITS

1.           General.  The execution of all bills payable, notes, checks, drafts, warrants or other negotiable instruments of the corporation shall be made in the name of the corporation and shall be signed by such officer or officers as the Board of Directors shall from time to time by resolution direct.  No officer or agent of the corporation, either singly or jointly with others, shall have the power to make any bill payable, note, check, draft or warrant or other negotiable instrument, or endorse the same in the name of the corporation, or contract or cause to be contracted any debt or liability in the name and on behalf of the corporation, except as herein expressly prescribed and provided.

2.           Contracts.  The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or to execute and to deliver any instrument in the name and on behalf of the corporation, and such authority may be general or confined to specific instances.

3.           Loans.  No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by resolution of the Board of Directors.  Such authority may be general or confined to specific instances.

4.           Checks, Drafts, etc.  All checks, drafts, or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors.

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5.           Deposits.  All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositories as the Board of Directors may select.

ARTICLE VII

CERTIFICATES FOR SHARES AND THEIR TRANSFER

1.           Certificates.  The shares of the corporation shall be represented by certificates prepared by the Board of Directors and signed by the president or the vice president, and by the secretary or an assistant secretary, and sealed with the seal of the corporation or a facsimile.  The certificates shall be numbered consecutively and in the order in which they are issued; they shall be bound in a book and shall be issued in consecutive order therefrom, and in the margin thereof shall be entered the name and address of the person to whom the shares represented by such certificate are issued, the number and class or series of such shares, and the date of issue.  Each certificate shall state the registered holder's name, the number and class of shares represented thereby, the date of issue, the par value of such shares, or that they are without par value.  Certificates of shares of the corporation may also be in such other form as shall be determined by the Board of Directors hereafter.  All certificates of shares of the corporation surrendered to the corporation for transfer shall be canceled and no new certificates shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except in the case of a lost, destroyed or mutilated certificate, a new one may be issued therefor upon such terms and indemnity to the corporation as the Board of Directors may prescribe.

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2.           Subscriptions.  Subscriptions to the shares shall be paid at such times and in such installments as the Board of Directors may determine.  If default shall be made in the payment of any installment as required by such resolution, the board may declare the shares and all previous payments thereon forfeited for the use of the corporation, in the manner prescribed by statute.

3.           Transfer of Shares.  Transfer or assignment of shares of the corporation shall be made only on the stock transfer books of the corporation by the holder of record thereof or by his or her legal representative, who shall furnish proper evidence of authority to transfer, or by his or her attorney thereunto authorized by power of attorney duly executed and filed with the secretary of the corporation, and only upon surrender for cancellation of the certificate for such shares duly and properly endorsed.  The corporation shall issue a new certificate for the shares surrendered to the person or persons entitled thereto.  The person in whose name the shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes.

4.           Returned Certificates.  All certificates for shares changed or returned to the corporation for transfer shall be marked by the secretary "Canceled", with the date of cancellation, and the transaction shall be immediately recorded in the certificate book opposite the memorandum of their issue.  The returned certificate may be inserted in the certificate book.

ARTICLE VIII

DIVIDENDS

The Board of Directors at any regular or special meeting may declare dividends payable out of the surplus of the corporation, whenever in the exercise of its discretion it may deem such declaration advisable.  Such dividends may be paid in cash, property, or shares of the corporation.

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ARTICLE IX

SEAL

The Board of Directors may provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the corporation and the state of incorporation and the words "Corporate Seal".  It may be affixed in such manner and on such occasion as deemed advisable by the Board of Directors.

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ARTICLE X

WAIVER OF NOTICE

Whenever any notice is required to be given to any shareholder or director of the corporation under the provisions of these Bylaws or under the provisions of the Articles of Incorporation or under the provisions of the Act pursuant to Sections 706, 823, and other Sections of the Act, then a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice.

ARTICLE XI

RESTRICTIONS ON TRANSFERS OF SHARES

No Shareholder shall have the right or power to pledge, sell or otherwise dispose of or encumber any shares of stock in this corporation without prior approval of the Board of Directors or without first offering such shares for sale to the corporation.  Such offer shall be made in writing, signed by the shareholder, and mailed or delivered to the corporation at its principal place of business, and may be accepted by the corporation at any time within thirty (30) days from the date of mailing or delivery.

In the event the corporation fails to purchase said stock within the thirty-day period, then the other stockholders of record, at the time thereof, shall have the right to purchase said stock on the same terms and conditions as those available to the corporation, and may elect to so purchase within thirty (30) days after the expiration of the first thirty-day period.  Should less than all of the remaining shareholders desire to exercise their right of purchase, those so desiring shall be allowed to purchase all of the selling shareholder's stock so offered for sale in the proportion that the total shares then owned by each respective buyer bears to the total number of shares of all such buyers.  On expiration of the second thirty-day period, any such stock not so disposed of may be sold or disposed of by the selling shareholder upon such terms and conditions as he or she shall select, except that said shareholder may not sell or dispose of his stock to third parties upon terms and conditions more favorable than first offered to the corporation and other shareholders under this Article.

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This provision shall also be binding upon any executor, administrator, or other personal representative of any shareholder in case of the sale or pledge of any share or shares of such stock by such executor, administrator, or other legal representative, and reference to this provision shall be embodied in writing, printed or stamped upon each certificate of stock and this provision shall be part thereof, whether such stock was acquired by will or otherwise.

The shareholders may, by agreement, establish other conditions, limitations, or requirements relating to the sale and/or transfer of shares.

ARTICLE XII

AMENDMENTS

The corporation's Articles of Incorporation may be amended, altered, repealed, or added to according to the provisions of Part 10 of the Act.  These Bylaws may be amended, altered, repealed or added to by the affirmative vote of the holders of a majority of the shares entitled to vote in the election of any director at an annual meeting or at a special meeting called for that purpose, provided that a written notice of such meeting shall have been sent to each shareholder as required by these Bylaws, which notice shall state the amendments, alterations, additions or other changes which are proposed to be made in such Bylaws.  Only such changes shall be made as have been specified in the notice.  The Bylaws may also be altered, amended, repealed or new Bylaws adopted by majority of the entire Board of Directors at a regular or special meeting of the board.  However, any Bylaws adopted by the board may be altered, amended or repealed by the shareholders.

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DATED this ____ day of March, 1998.

BOARD OF DIRECTORS:

W.W. Kirton, III

D. Lynn Bigelow

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EX-10.9

Exhibit 10.9

Statement of Work

for

“ActiveCare Inc.

Senior Care  Device”

Revision 1

December 1, 2009

Quectel Wireless Solutions Ltd.

Suite 801. Building E, 1618 Yishan Road, Shanghai PRC

Tel: 86 21 51082965 Fax 86 21 64058005 Zip: 201103

TABLE OF CONTENTS

Executive Summary		5
ActviceCare Inc - Internal Customer Review		6
Reviewer		6
Title		6
Signature		6
Date		6
SOW Signoff - FINAL		7
SOW Signoff - FINAL		7
1	Reference Documents	8
2	Glossary	8
3	Overview	9
4	Roles and Responsibilities	11
4.1	QUECTEL RESPONSIBILITIES	11
4.2	ACTIVECARE, INC. RESPONSIBILITIES	11
4.3	UNASSIGNED RESPONSIBILITIES	11
5	Objective	13
5.1	DESIGN GUIDANCE	13
5.1.1	DESIGN TARGETS	13
5.1.2	SYSTEM ACCESSIBILITY	13
5.1.3	SYSTEM RELIABILITY	13
6	Development Strategy	14
ASSUMPTIONS		15
6.1	COMMUNICATIONS MODEL	15
6.2	REMOTE CONTROL AND MANAGEMENT	15
6.3	GPS	16
6.4	WATERPROOF DESIGN	16
6.5	SOFTWARE MODEL	16
6.6	SERVICABILITY	16
6.7	FORWARD ACCOMODATION	16
7	Functional Milestones	17

 

Quectel Wireless Solutions Ltd. Suite 801, Building E, 1618 Yishan Road, Shanghai PRC 201103

Tel: 86 21 51082965 Fax 86 21 64058005 Web www.quectel.com

Page  of 2 of 45

Quectel Wireless Solutions Ltd.

Suite 801. Building E, 1618 Yishan Road, Shanghai PRC

Tel: 86 21 51082965 Fax 86 21 64058005 Zip: 201103

7.1	SOW AND MOBILIZATION PAYMENT	17
7.2	CONCEPT SIGNOFF MILESTONE	17
7.3	LAB PROTOTYPE MILESTONE ?HAND-BUILT CNC SAMPLES?	18
7.3.1	COMPANION DEVICE	18
7.3.2	WRIST DEVICE	18
7.3.3	DOCKING STATION	19
7.3.4	DELIVERIES	19
7.4	Alpha MILESTONE (Working Samples)	19
7.4.1	COMPANION DEVICE	19
7.4.2	WRIST DEVICE	20
7.4.3	DOCKING STATION	20
7.4.4	DELIVERIES	20
7.5	BETA MILESTONE (TEST SAMPLES)	21
7.5.1	COMPANION DEVICE	21
7.5.2	WRIST DEVICE	21
7.5.3	DOCKING STATION	21
7.5.4	DELIVERIES	21
7.6	PRE-PRODUCTION MILESTONE (GOLDEN SAMPLES)	22
7.6.1	COMPANION DEVICE	22
7.6.2	WRIST DEVICE	22
7.6.3	DOCKING STATION	22
7.6.4	DELIVERIES	23
7.7	MASS PRODUCTION MILESTONE	23
7.7.1	COMPANION DEVICE, WRIST DEVICE, DOCKING STATION	23
7.7.2	DELIVERIES	23
7.8	DOCUMENTATION DELIVERABLES	23
7.9	PC SOFTWARE DELIVERABLES	23
8	Development Cost Breakdown	25
8.1	DEVELOPMENT COSTS OVERVIEW	25
TRAVEL EXPENDITURES		26
8.2	CERTIFICATION AND APPROVAL FEES	27
8.3	DISBURSEMENT SCHEDULE	28
9	Risk Assessment	29
9.1	COMPONENT LEAD TIME	29
9.2	BLUETOOTH FUNCTION RANGE	29
10	Options	29
10.1	SCHEDULE ACCELERATION	29
11	Unit Price for Devices and Production Delivery Payment	30

Quectel Wireless Solutions Ltd. Suite 801, Building E, 1618 Yishan Road, Shanghai PRC 201103

Tel: 86 21 51082965 Fax 86 21 64058005 Web www.quectel.com

Page 3 of 45

Quectel Wireless Solutions Ltd.

Suite 801. Building E, 1618 Yishan Road, Shanghai PRC

Tel: 86 21 51082965 Fax 86 21 64058005 Zip: 201103

12	MOQ and Lead-time	30
13	Warranties By QUECTEL	30
Appendix A - Product Definition for ActiveOne+		32
APPENDIX B - GPS PRIMER		42

Quectel Wireless Solutions Ltd. Suite 801, Building E, 1618 Yishan Road, Shanghai PRC 201103

Tel: 86 21 51082965 Fax 86 21 64058005 Web www.quectel.com

Page 4 of 45

Quectel Wireless Solutions Ltd.

Suite 801. Building E, 1618 Yishan Road, Shanghai PRC

Tel: 86 21 51082965 Fax 86 21 64058005 Zip: 201103

Executive Summary

The Statement of Work for the ActiveCare, Inc. Senior Care Device System presents the body of work that is required to take this product from conception to manufacturing. The development centers on the creation of the wrist/ pendant device, its companion device and a docking device work as charger station for the companion device. The associated server software application(s) and API are not included in this SOW; The specifications and functionality of these components are described in the Appendix A ‘Product Definition for ActiveOne+’. This specification evolved from the initial concept proposed by Activecare, Inc., after being refined and enhanced by Quectel Wireless Solutions, to the current version used for this SOW.

The costs for Engineering R&D Services represent a fixed price based on the listed assumptions and detailed functions listed in the Senior Care System specification document. The specification document is subject to collaborative review and modification prior to contract signing. The fixed price total will be adjusted to reflect any changes made as a result of the review process.

The cost of development includes

·   The Quectel Wireless Solutions engineering R&D services charges of $200,000 for the wrist/ pendant device, its companion device and a docking device hardware/software.

·   The costs fortooling for the wrist/ pendant device, its companion device and a docking device are estimated at $ 160,000.00.

·   The total cost for the entire development is $360,000

The development schedule spans 30-32 weeks from receipt of initial mobilization payment to mass production release. The schedule summaries identify milestone payments and material resource procurement requirements.

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ActviceCare Inc - Internal Customer Review

Reviewer Title Signature Date

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SOW Signoff – FINAL

This page is used to signoff receipt of the SOW and acknowledges that both parties are aware of the contents of the document. Items within the SOW may be subject to change as the development proceeds. It is agreed that the detailed requirements in this SOW are being bid at a fixed price. Changes made to the requirements and SOW may impact the total price of the development but will not affect the price of the already quoted items that are not altered.

Edwin Peng

Technical Manager

Quectel Wireless Solution Ltd.

Suite 801. Building E,

1618 Yishan Road,

Shanghai PRC 201103

Adam Liao

Manager Director

Quectel Wireless Solution Ltd.

Suite 801. Building E,

1618 Yishan Road,

Shanghai PRC 201103

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1   Reference Documents

GW100 Technical Specification

GA100 Technical Specification

Appendix A - Product Definition for ActiveOne+

Appendix   B – GPS Primer

2   Glossary

There are a number of acronyms and abbreviations used throughout this proposal.

ASC	ActiveCare Service Center
CNC	Computerized Numerical Control
RF	Radio Frequency
MOU	Memorandum Of Understanding
NRE	Non Recurring Engineering
GPS	Global Positioning Satellite system
SLA	Stereo Lithographic Assembly, a means of creating a 3D physical part
LED	Light Emitting Diode
SPL	Sound Pressure Level
SCD	Senior Care Companion Device.
SWD	Senior Care Wrist Device
DS	Docking Station
FCC	Federal Communications Commission
PTCRB	PCS Type Certification Review Board
SAR	Specific Absorption Rating
MPE	Maximum Permissible Exposure
UL	Underwriters Laboratory
IC	Industry Canada (equivalent to FCC)
CSA	Canadian Standards Association (equivalent to UL)
AGPS	Assisted GPS, via remote computational facility
EOTD	Estimated Observed Time Difference
TDOA	Time Difference Of Arrival
IMSI	International Mobile Subscriber Identity
AC	Alternating Current
DC	Direct Current
Li-ion	Lithium Ion
MS	Mobile Station
PPS	Product Prototype Samples
SMS	Short Message Service
GPRS	General Packet Radio Service
TCP/UDP	Transmission Control Protocol / User Datagram Protocol
IP	Internet Protocol
IR	Infrared
ASCII	American Standard Code for Information Interchange
RSSI	Received Signal Strength Indicator

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3   Overview

The Senior Care Device System envisioned by Activecare, Inc. requires the design and development of three entities:

Senior Care Wrist Device (SWD): a wrist device with voice communication function through the Senior Companion Device (SCD) by Bluetooth connection, fall detection is supported in this wrist device, an internal battery is built in SWD. SWD needs to be waterproof to meet the IP67 standard.

Senior Companion Device (SCD): a companion device with the SWD providing the voice communication and GPS location data, all other over-the-air configuration and data transmission functions through the GSM/GPRS network, fall detection is supported in this companion device, an internal battery is built in SCD.

Docking Station (DS), a Docking charger station to provide charging for the SCD.

The Senior Companion Device allows the Active Service Center to detect the location of a senior person  during an emergency case such as a “fall down” condition or the press of  the “help” button of the device. It makes use of a GPS receiver to determine the  user’s position and a cellular wireless link to communicate these coordinates to the center. If  no GPS signal is available, it will try to report the Cell ID of the GSM/GPRS network back to the Active Service Center. The Active Service Center shall contact the user and enable two way communication whenever the cellular signal of the device is adequate. Automatic alerts can be sent to the Active Service Center when the user travels outside a specified area (Geo-Fence) or a fall is detected. The SWD will not be waterproof.

The Senior Care Wrist Device (SWD) is to be worn on user’s wrist to provide a voice communication function through the Senior Companion Device through a  Bluetooth connection, working as the Bluetooth speaker. An accelerometer sensor is built into the Senior Care Wrist Device (SWD) to provide a fall detection function. Once a fall is detected and the Bluetooth connection with the Senior Companion Device is available, automatic alerts can be sent to the Active Service Center. There is a limitation of connection range between Senior Care Wrist Device (SWD) and Senior Companion Device, it is designed to be 100 meters to maintain a voice connection and 100 meters for command transmission in open area, to meet the Bluetooth Class 1 standard. Once there is Senior Care Wrist Device (SWD) out range of the connection limitation, an alert voice will be generated. SWD needs to be waterproof to meet the IP67standard.

The Docking Station (DS) is used to recharge both the Wrist Device and the Companion Device. If it is determined that it is more advantageous to incorporate a third party charger, then the mechanical and electronic development will be reduced. The Docking Station (DS) is powered by an off-the-shelf AC adapter to exploit the cost advantage and avoid the associated UL certification costs. This also permits the easy replacement of the power source in case the Docking Station (DS) suffers a lightning strike. AC adapters commonly include ample surge protection to guard against most power surges commonly experienced on urban power grids.

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The rechargeable batteries that power the Senior Care Wrist Device (SWD) and the Senior Companion Device are recommended to be Lithium-Poly type to leverage high capacity and environmentally friendly characteristics. Temperature and current protection devices will eliminate the potential for injury to the user.

All detail specification of Senior Wrist Device and Senior Companion Device and Docking Station are defined in reference documents: GW100 Technical Specification and GA100 Technical Specification and Appendix A Product Definition for ActiveOne+.

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4   Roles and Responsibilities

During the development of the Senior Care Devices, Quectel Wirelesss solutions and ActiveCare, Inc. will take responsibility for specific activities.  Collaboration and coordination are used to ensure that development objectives can be satisfied within the established timeline.

4.1   QUECTEL RESPONSIBILITIES

Quectel assumes the lead on development roles, and will be responsible for:

·   System Architecture

·   Design and development of Devices and Docking Station hardware and embedded firmware

·   Testing of the over-the-air interface of the device;

·   Lab testing and fault resolution of devices;

·   Industrial design (Working together with ActiveCare);

·   Mechanical Design for devices;

·   Mechanical Tooling;

·   Creating an optimized manufacturing fabrication and test process;

·   Support certification of devices and Docking Station;

·   User Documentation;

·   Materials Procurement;

·   Manufacturing (Contract manufacturer) & Logistics (FOB Shanghai);

·   Device and Charger servicing and repair (handled under quality warranty agreement).

4.2   ACTIVECARE, INC. RESPONSIBILITIES

ActiveCare, Inc. assumes the lead on commercial / operational roles, and will be responsible for:

·   Industrial design (Working together with Quectel);

·   Timely review and feedback of deliverables and acceptance of revisions;

·   Field Trials and evaluations.

·   Procuring samples of competitor devices and equipment

·   Analysis of Competitors and Associated Technologies

·   Marketing and Sales (Promotion of ActiveCare, Inc. to market)

·   Operations

·   Fulfillment (Either ActiveCare or domestic distributor will perform this function)

·   Customer Service (call center, help desk, assistance, RMA, etc.)

·   Maintenance of equipment and services, (operating expenses)

4.3   UNASSIGNED RESPONSIBILITIES

Other activities fall outside the scope of this SOW.  They will be addressed under separate agreements at the discretion of ActiveCare, Inc.

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·   Follow-on features and enhancements (future contract(s) addressed as needed)

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5   Objective

Quectel will try its best to complete the design and integration of Senior Care Wrist Device, Senior Care Companion Device and charging Docking Station within the time and financial constraints as specified within this document.

5.1   DESIGN GUIDANCE

5.1.1   DESIGN TARGETS

Expected battery life for device	The expected battery life for the wrist device is targeted at up to 48 hours of nominal operating time or up to 4 hours of continuous talk time for wrist device; The expected battery life for the companion device is targeted at up to 96 hours of nominal operating time with GPS fix and report every 10 minutes or up to 4 hours of continuous talk time for companion device
Expected GPS accuracy	The cold start under open sky is expected to be less than 50 seconds. The GPS autonomous operation expected accuracy is up to 100 feet under open sky after stable operating of GPS chipset.
Design volume for the devices	The hardware being created is targeted for a volume production of 100,000 pieces.
Cost of Goods Device & Charger	The target hardware cost of goods for each device “system” (consisting of one each of a SWD, SCD,  DS) is expected to be no more than $160 US for a quantity of 100,000

5.1.2   SYSTEM ACCESSIBILITY

This statement of work includes a reasonable number of fallback scenarios in an effort to minimize the likelihood of a device not connecting to a server. Devices making use of the cellular network and associated internet infrastructure are subject to those systems’ quality of service and availability. The device will make every attempt to engage these systems however their availability is not under its control.

5.1.3   SYSTEM RELIABILITY

This statement of work and associated specifications do not include specific requirements for the ActiveCare Service Center or its database(s).  Quectel recommends the use of redundant or back-up equipment to ensure service. Dual servers, gateways and geographic separation can greatly improve server availability, reliability and fault tolerance (equipment failure) at the expense of additional equipment and operating expenses. The ActiveCare Service Center is the responsibility of ActiveCare Inc..

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6   Development Strategy

Normally, it will take about 8 months to develop devices described of this scope, however Quectel has done everything within its power to accelerate the development to complete it substantially sooner. The following figure outlines the estimated development timeline. Please note that this estimated development timeline requires both sides to work closely on product definition, prototype confirmation, working sample testing and  confirmation, field testing, golden sample confirmation, etc. Any delay schedule extended in these actions may lead to the delay of whole schedule.

Refer to the disbursement schedule for the milestone payments.  This schedule is subject to change as engineering changes are evaluated and/or implemented.

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ASSUMPTIONS

The following assumptions have been made concerning the development effort scope.

·   No AMPS operation.  Analog cellular will not be supported.

·   The server application may be developed under a separate contract.

·   The performance of the cellular network and GPS receiver is subject to location and is beyond the control of Quectel, the device, and ActiveCare, Inc.

·   Quectel will perform lab tests on all devices.

·   ActiveCare, Inc. will perform field trials and evaluations

·   ActiveCare Inc. will be responsible for certification testing and submission fees.  Submission to the FCC is expected to occur at the pre-production milestone coincident with the beginning of the manufacturing phase.  This makes the assumption that no additional changes would be required pending FCC approval.  If changes are required, the manufacturing completion milestone may be affected.

·   Quectel will be responsible for the costs associated with assemblies, prototype chargers and engineering samples.  These have been included in the NRE charger.

6.1   COMMUNICATIONS MODEL

The communications model used to exchange data between the device and the server is a combination of encrypted packet data and SMS messages. In most cases, the device will communicate with the server through the GPRS connect to save communication cost, only in some specified cases such as an emergency alert, device is in a call, or GPRS connection is not available shall the device exchange data with the server by SMS messages. Details of the  communication model for each case are defined in the description as appendix A. It has been Quectel’s experience that the communications model may change as development proceeds and priorities shift from one item to another. For this reason, the communications model is designed to be flexible and can accommodate moderate changes very easily.

6.2   REMOTE CONTROL AND MANAGEMENT

The remote control and operational management of the device is accomplished through the use of the wireless communications modem.  Command messages may arrive via SMS or IP data packets but will be treated in the same fashion. Responses and acknowledgements are handled according to the delivery mechanism. Messages sent from any originating source on the internet will arrive at the device via the modem, after which they are decoded and processed. The communication model will be defined in an API Description, which will include

·   theory of operation

·   a definition of the protocols involved (such as UDP, TCP, IP, SMS or other messaging protocols as needed)

·   device function definitions (including status, request, response and acknowledgement message descriptions)

·   For both SMS and GPRS packets, provide standardized definition of packet construct including standardized packet headers and defined fields.

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·   transmission and exception handling rules implemented in the Senior Care Devices.  Including rules and methods implemented for retransmission, error detection, packet handshaking (including ack/nack protocols);

·   some example messages.

6.3   GPS

The GPS receiver used in the Senior Care Companion Device will make use of the US government’s system of global positioning satellites to derive the location of the device as represented by a latitude and longitude coordinate pair. Since selective availability (SA) has been turned off, all GPS receivers have the same access to the GPS signal. As well a data channel contained in the GPS signal provides the ephemeris data (almanac) used by the receiver to correct for atmospheric effects and satellite orbit.

Quectel will design the Senior Care locationing services based solely on autonomous GPS operation using a high accuracy SirRF Star III or MTK MT3329 receiver.

6.4   WATERPROOF DESIGN

The design of the Senior Care Wrist Device  shall be waterproof the meet the standard of IP67.  The Senior Care Companion Device does not need to be waterproof.

6.5   SOFTWARE MODEL

The software will be created using a modular approach to ease porting portions of the embedded application to future devices. Software is fully version controlled and version numbers can be determined by the system or locally through the Senior Care Wrist Device or Senior Care Companion Device data cables.  Version number is also reported in response to remote command requests.  The software design will contain state diagrams or charts for ease of maintenance and modification. Built in test will be utilized wherever appropriate.

- Configuration Parameters (operating values) will be retained in non-volatile memory; these parameters will assume a default factory configuration and will be configurable from the diagnostic interface or via the over-the-air interface.

- It is expected that all timestamps will be in UTC time to eliminate time zone and daylight savings ambiguity,

6.6   SERVICABILITY

Since the device electronics may be buried in the case it may not be possible to service all components. The design of the Senior Care Devices will focus on creating a core engine that could be replaced without de-soldering components to ease the serviceability of the device. The SIM card will be readily serviceable by the ActiceCare Service Center.  The battery can be serviceable.

6.7   FORWARD ACCOMODATION

Service protocols and formats are to allow for future projects.   For example, future products may require enhanced feature based on current protocols to report more information or parameters to server, then a new command in protocol will be created instead of changing the original command, in this way, the updated protocol can keep the forward accommodation with previous protocol.

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7   Functional Milestones

7.1   SOW AND MOBILIZATION PAYMENT

This portion of the development is initiated by the signing of the SOW and the disbursement of the mobilization payment. These funds are used to initiate the engineering effort (50%).

Prior to concept signoff, GA100 (Companion Device) Technical Specification and GW100 (Wrist Device) Technical Specification and Product Definition for ActiveOne+ be completed and submitted for review as part of this statement of work.

On each milestone, Activecare should give feedback or confirmation to Quectel within two weeks or time to be agreed by both parties, otherwise the schedule as proposed may be delayed.

7.2   CONCEPT SIGNOFF MILESTONE

Acceptance of the specifications and statement of work is integral to this milestone.

At this stage, the statement of work is set.  Changes or revisions to the project scope, deliverables, specifications, product design, or other relevant sections in the statement of work are still possible or may even be required after concept signoff.  Since changes or revisions may impact the schedule and/or cost, they must be discussed between Quectel and ActiveCare and will be subject to an Engineering Change process.  To facilitate this, an Engineering Change Request (ECR) is generated by either ActiveCare or Quectel.  Upon acceptance of the ECR, an Engineering Change Order (ECO) will be generated by QUECTEL to document changes.  This document will supplement and/or supercede relevant sections in the Statement of Work or other ECOs.

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7.3   LAB PROTOTYPE MILESTONE（HAND-BUILT CNC SAMPLES）

The laboratory prototypes constitute the earliest deliverable hardware. ID/MD work shall be finished in this stage, the hand built casing samples and the first version of electronics boards shall be ready. Two (2) sets of product prototype samples (PPS) for the companion and wrist devices will be provided to demonstrate the proof-of-concept and feasibility and operation. Additional sets may be available at a cost of $ 500 (USD) each.

The devices support the functions as listed below. Due to the time constraints, the product prototype samples (PPS) will only support some basic functions.

PPS samples will be used by QUECTEL engineers to aid in development of the firmware and electronics.  As development proceeds, firmware and hardware modifications may be made to these devices to enhance their performance. It is important to note that since these devices will be superceded by the working samples, their usefulness may be short lived and may not be maintained for the life of the development project. This platform will be delivered to ActiveCare to permit preliminary demonstrations and marketing activities.

A payment, associated with this milestone, is used to make 100% of hard casing tool charge.

Quectel will authorize their vendor to start fabrication of  the casing tools after ActiveCare confirms the mechanical design of the two devices (WD, CD) based on the PPS samples and final payment for this stage.

7.3.1   COMPANION DEVICE

The first version of electronics board shall be ready in this stage .The ID/MD design is finished and several hand built casings will be made to prove the design. There are still some possible changes to the MD design before making the formal casing tools.

Some basic functions such as obtaining a GPS fix or making a phone call may be supported if the antenna is ready. But please note the main purpose of PPS samples is to prove the MD design. The adjusting of antenna will need about 1 week. If Active Care wants to get the PPS for confirmation and move to next stage soon, Quectel will send out the PPS samples without antenna. Otherwise Quectel will wait for the antennas to build final PPS samples which can support GPS fixing and phone call.

Please note at this stage the Bluetooth function is still in developing and debugging. It is possible that the Bluetooth function still can’t demo.

7.3.2   WRIST DEVICE

The first version of electronics board shall be ready in this stage. The ID/MD design is finished and several hand built casings will be made to prove the design. There are still some changes to the MD design before making the formal casing tools.

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Please note at this stage the Bluetooth function is still in developing and debugging. It is possible that the Bluetooth function still can’t demo.

7.3.3   DOCKING STATION

The docking station will not be ready at this stage. The MD design of docking station will be started after  the hand built PPS samples of the companion device have been provided to ActiveCare.

As a part of docking station, two (2) final wall chargers will be delivered at this stage.

7.3.4   DELIVERIES

(On or before Milestone Date):

Companion Device	●  2 PPS samples ●  Unit may be able to get GPS location. (Not mandatory ) ●  Unit may be able to make phone call. (Not mandatory )
Wrist Device	2 PPS samples
Docking Station	2 final Wall chargers
Milestone

7.4   Alpha MILESTONE (Working Samples)

The Alpha unit is the first iteration of the device that uses the casings which ware made by hard casing tools. We call the samples in this stage “Working samples”. The working samples support the functions as listed below. Due to the time constraints the working samples will support a limited feature set. The working samples should be able to be modified as development proceeds, to support new features as they become available.  The working samples will not be recommended for resale.

7.4.1   COMPANION DEVICE

The hard casing tools of companion device will be made. The first 50 formal casings will be made. Five (5) sets of empty casings shall be provided to ActiveCare as early as possible as part of the tool acceptance procedure.  ActiveCare must approve the casings prior to assembly and shipment of Alpha units by Quectel.  Five (5) alpha units will be delivered to Active Care as free samples for testing and development. The other casing samples will be used by Quectel for software development, hardware debugging, hardware testing and reliability testing.

The first version of firmware will be released. The draft communication protocol will be finished at this stage. User can configure the device with PC software and data cable. Most of the functions will be implemented based on the specification. There are still some potential bugs in software need to be fixed.

The hardware of companion device will be submitted for full testing at this stage. Based on the testing result Quectel will modify the hardware to improve the performance if it is needed.

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A payment, associated with this milestone, is used to cover the 25% of engineering effort.

7.4.2   WRIST DEVICE

The hard casing tools of wrist device will be made. The first 50 formal casings will be made. Five (5) sets of empty casings shall be provided to ActiveCare as early as possible as part of the tool acceptance procedure.  ActiveCare must approve the casings prior to assembly and shipment of Alpha units by Quectel.  Five (5) working samples will be delivered as samples for testing and development. The other samples will be used by Quectel for software development, hardware debugging, hardware testing and reliability testing.

The first version of firmware will be released. The wrist device can be used to demo the voice call function. But the data report function is still in developing.

7.4.3   DOCKING STATION

Two (2) hand-built casings of docking station will be made at this stage. One of them will be kept by Quectel for developing and testing. The other will be delivered to Active Care for confirmation. Quectel will authorize their vendor to fabricate the formal casing tool after confirmation from Active Care.

7.4.4   DELIVERIES

(On or before Milestone Date):

Companion Device	●Five (5) empty casing sets shall be delivered for tool acceptance by ActiveCare ●Five (5) alpha units will be delivered for testing. ●Air interface protocol has been implemented ●2 USB data cable will be delivered.
Wrist Device	●Five (5) empty casing sets shall be delivered for tool acceptance by ActiveCare ●Five (5) alpha units will be delivered for testing. ●Hands Free function can be used for demo
Docking Station	● One hand-built docking station will be delivered for approval  by ActiveCare
Milestone	●The protocol document will be released for review ●The PC software will be released for testing.

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7.5   BETA MILESTONE (TEST SAMPLES)

The Beta Milestone devices are refinements of the Alpha devices in both physical and functional performance. The circuit boards and firmware will be revised to optimize the manufacturability, functionality. The Beta deliveries will not generally be recommended for resale.

We call the samples in this stage “test samples”. The test samples will implement almost all of the functions in specification and the casing of it ware built by the optimized casing tool. But the firmware still needs to be tested and fix the potential bugs.

The test samples can be used to support certification like FCC.

A possible payment, associated with this milestone, is used to cover the third-party certification and approval in test lab in China if be required by Activecare

7.5.1   COMPANION DEVICE

10 test samples will be delivered to Active Care for testing. The communication protocol between companion device and backend server is finished. Active can implement the way to control the companion device by backend server. Quectel will provide the protocol document and PC software to help the development of backend server.

The communication between companion device and wrist device will be implemented at this stage. The functions related to it can be tested.

10 of the units produced in the Pre-production phase may be used to support certification testing and approvals.

7.5.2   WRIST DEVICE

10 test samples will be delivered to Active Care for testing, and the data report function of it can be tested.

The PC software which is used to match the wrist device to companion device will be released.

7.5.3   DOCKING STATION

Five (5) sets of empty casings shall be provided to ActiveCare as early as possible as part of the tool acceptance procedure.  ActiveCare must approve the casings prior to assembly and shipment of functional units by Quectel. Ten (10) docking station samples which were built by hard casing tool will be delivered to Active Care for testing and confirmation.

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7.5.4   DELIVERIES

Companion Device	●  Ten (10) test samples will be delivered for testing. ●  Air interface protocol has been implemented
Wrist Device	●  Ten (10) test samples will be delivered for testing. ●  Data report by Bluetooth can be supported.
Docking Station	●  Five (5) empty casing sets shall be delivered for tool acceptance by ActiveCare ●  10 formal samples will be delivered.
Milestone	●   The protocol between companion device and backend server is finalized. ●   Most of the functions in specification are finalized. ●   The PC software which is used to match the wrist device to companion device will be released.

7.6 PRE-PRODUCTION MILESTONE (GOLDEN SAMPLES)

The pre-production milestone means the hardware and software have been proved. All the requirements have been implemented and tested. The hardware testing and reliability testing is finished and all issues are fixed. The manufacturing process has been optimized and ready for mass production. The casing tools have also been optimized and ready for mass production

We call the samples in this stage “Golden Samples”. They can be used for resale if Active Care confirms the firmware and tolerance of appearance and texture.

A payment, associated with this milestone, is used to cover the 25% of engineering effort.

7.6.1   COMPANION DEVICE

100 PCS units will be ready for sale and 10 of them will be delivered to Active care for free.

7.6.2   WRIST DEVICE

100 PCS units will be ready for sale and 10 of them will be delivered to Active care for free.

7.6.3   DOCKING STATION

100 PCS units will be ready for sale and 10 of them will be delivered to Active care for free.

 

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DELIVERIES

Companion Device	●  Ten (10) golden samples will be delivered for confirmation
Wrist Device	●  Ten (10) test samples will be delivered for confirmation.
Docking Station	●  10 formal samples will be delivered.
Milestone	●  All functions in specification are finalized.

7.7   MASS PRODUCTION MILESTONE

7.7.1   COMPANION DEVICE, WRIST DEVICE, DOCKING STATION

The mass production phase targets the production of devices for resale to end customers. The devices will be fully functional.   All manufacturing, installation and user documentation will be provided. The companion device, wrist device and docking station mass production milestone will be considered complete when QUECTEL demonstrates the readiness of them for mass production. The tooling will be property of Activecare.

7.7.2   DELIVERIES

Companion Device	Final casing tools Final released firmware Final hardware
Wrist Device	Final casing tools Final released firmware Final hardware
Docking Station	Final casing tools Final hardware
Milestone	User Documentation will be provided in electronic format

7.8   DOCUMENTATION DELIVERABLES

User Manual	Documentation for the field Supervision Officer showing how to attach and detach the device. How to change SIMs, external battery etc.
Communication Protocol Guide	Describe the air interface protocol between companion device and backend server.

7.9   PC SOFTWARE DELIVERABLES

Bluetooth match tool The PC software which is used to match companion device and wrist device

 

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Manager tool The PC software which is used to configure the companion device by data cable

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8   Development Cost Breakdown

8.1   DEVELOPMENT COSTS OVERVIEW

Senior Care System Devices	Wrist Device	Engineering Cost (labor and material)	$  150,000
		Case Tooling	$    70,000
	Companion Device	Engineering Cost (labor and material)	$    30,000
		Case Tooling	$    50,000
	Docking Station	Engineering Cost (labor and material)	$    20,000
		Case Tooling	$    40,000
Total Fees (USD)			$360,000

Quectel Labor & Materials	$ 200,000
Case tooling Costs	$ 160,000

Note Travel inside China will be done at Quectel’s discretion and cost.

Travel outside China will be done at ActiveCare, Inc. s’ discretion and cost.

Certification testing fees are the responsibility of ActiveCare, Inc.

Cost to build additional samples beyond those included in Charpter 7 will need to be discussed with ActiveCare, Inc.

Server application and API are not included as part of this SOW.

Travel charger for the wrist device are not included

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TRAVEL EXPENDITURES

Travel inside China will be done at Quectel’s discretion and cost. Travel outside China will be done at ActiveCare, Inc. s’ discretion and cost. Travel outside China must be pre-approved by ActiveCare, Inc. before any commitment to reimburse is in place.

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8.2   CERTIFICATION AND APPROVAL FEES

The certification fees detailed below are the responsibility of ActiveCare, Inc. and are estimates only, prices may vary depending upon the test facility used. FCC testing includes parts 15B, 22 and 24 and part15C (Bluetooth) and SAR for the Senior Care Companion Device, FCC testing includes, parts 15B, 22 and 24 and part15C (Bluetooth)  for the Senior Care Wrist Device , UL certification for Docking station. The battery does not require certification however battery manufacturers of Lithium-polymer batteries require their own conformance testing for liability purposes. Quectel will compile the documents required to submit for FCC and to assist the test facility (with phone support) in their testing.

SAR certification is required for the Senior Care Companion Device and Senior Care Wrist Device since it operates within 20 cm of the human body. Quectel will compile the documents required to submit for SAR and to assist the test facility (phone support) in their testing.

IC testing is required only if the device is intended to be sold into Canada.

The device must be submitted to PTCRB testing at an approved facility in order to be operated on a carriers network. This testing is for the Senior Care Companion device only. Quectel will compile the documents required to submit for PTCRB and to assist the test facility (phone support) in their testing.

Carrier approval, which has no associated cost, is still required and could incur incidental costs to assist the carrier in their testing such as travel to overseeing the tests or answer questions on operation of the device. Documentation for Carrier certification is limited to operator’s manual and proof of FCC, SAR and PTCRB certification.

CSA approvals are not required.

All certification and approvals testing is the direct cost responsibility of ActiveCare, Inc. Quectel can also help to suggest a test lab local in China and support devices and Docking Station certification.

The estimated certification costs need more discussion with test labs to get more accurate reference.

APPROVAL TYPE	FEES (EST)
FCC Approval (Wrist Device)	$    8,000
FCC Approval (Companion Device)	$  10,000
IC Approval (Canada Wrist Device)	$    4,000
IC Approval (Canada Companion Device)	$    4,000
Carrier Approval	$     TBD
PTCRB Approval (USA, Companion Device)	$  20,000
UL Approval (Docking Station)	$     TBD
Hearing Aid Compatibility testing (Companion device)	$     TBD
Hearing Aid Compatibility testing (Wrist device)	$     TBD
Estimated Approval Fees Total	$

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8.3   DISBURSEMENT SCHEDULE

DATE	MILESTONE	DISBURSEMENTS1		TOTAL
		Quectel Labor & Materials	Case Tooling Charge
Dec 04 2009	Contract Signoff	$100,000		$100,000
Mar 12 2010	Lab Prototype Delivery		$160,000	$160,000
May 07 2010	Working Sample Delivery	$50,000		$50,000
Aug 06 2010	Golden Sample Delivery	$50,000		$50,000
TOTALS		$200,000	$160,000	$360,000

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9   Risk Assessment

9.1   COMPONENT LEAD TIME

The normal component lead time Quectel can achieve is 8 weeks, but Quectel can not assure the component lead time to be as short as 8 weeks. Quectel will try its best during the design to shorten the component lead time to 8 weeks, but the component lead time in market is out of the control of Quectel.

It is Quectel’s responsibility to purchase adequate stock of components and material to ensure engineering devices can be fabricated, but it is ActiveCare’s responsibility to place orders for more devices for field trial, marketing promotion and volume sale, etc.

9.2   BLUETOOTH FUNCTION RANGE

The Class 1 Bluetooth communication range needs to be 100 meters in open area. For the real Bluetooth communication range will highly depend on the communication environment, the communication range could be less than 100 meters in some special environment such as a building made of reinforced concrete.

10   Options

10.1   SCHEDULE ACCELERATION

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11   Unit Price for Devices and Production Delivery Payment

Normally the Senior Care Wrist Device, Senior Care Companion Device, Docking Station and related accessory are provide as a set at price of US $160.00 FOB SHANGHAI. The packaging list is as following table:

Item	Note
Senior Care Wrist Device with battery built in
Senior Care Companion Device
Docking Station
Battery for Senior Care Companion Device
Charger for Senior Care Companion Device (for both docking station and travel)

Note: The travel charger for Wrist device are not included

For production delivery, ActiveCare need to put purchase order in advance and pay some percentage of total delivery value as deposit, then Quectel will arrange to purchase component and material. Detail payment arrangement for production delivery payment will defined in another agreement between ActivcCare and Quectel.

12   MOQ and Lead-time

MOQ (Minimum Order Quantity) for the Senior Care Devices is 2,000 pieces per order. The normally lead-time for material purchasing is 8 weeks, there is also extra 1-2 weeks for manufacturing and export. So the lead-time for purchase order to delivery will be about 9-10 weeks. Quectel will try his best to meet or even shorten this delivery lead-time, but Quectel can not warranty this lead-time for the lead-time of material purchasing in market will change at different time point and is not under control of Quectel.

Strategic procurement may be necessary due to long lead-time components or materials, or EOL of any critical components after years of runing.  In such an event, Quectel will inform Active, Inc. as early as possible to the lead-times for these items so that Activecare can purchase them in a timely manner.  This will minimize any potential impact on the production delivery schedule.

13   Warranties By QUECTEL

ActiveCare has all responsibilities for after sales services. And Quectel shall provide 2% CBU (Complete build units) free of charge of total product revenues purchased by Buyer for his after

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sales services. Spare parts for after sales services other than 2% of warranty service revenues are purchased by ActiveCare’s own cost regarding spare parts price offered from Quectel. The spare parts price should be reasonable, meaning at factory cost +2%, as ActiveCare well as any such other repair and/or software flashing equipment provided by Quectel to and actual cost +5%. Quectel will provide ActiveCare with a full documentation set per device to enable ActiveCare to repair devices at the Active’s repair center. If ActiveCare want return default devices to Quectel to be repaired, Quectel will charge for the manual labor and all delivery cost is direct responsibility of ActiveCare.

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Appendix A - Product Definition for ActiveOne+

Issue Date: 2009-10-20

Status: Rev. 8

1.0 Overview

The purpose of this document is to provide a vision for the function of the product and its use by the elder client, post operative patient, or those requiring home-based assistance.  This document will be used to develop the product and functional specifications.  It will also drive the industrial design effort to create a product design that is nicely styled, functional, and accommodating to the user.  The goal is to develop a product platform that will be well-received in the marketplace and can go head-to-head with the competition’s current or next generation offerings.

2.0 Definition of User

2.1. The end user may be an elderly customer who is experiencing some symptoms of aging that result in a decrease in certain abilities These impairments may be in the following categories:

2.1.1. Vision – A decrease in the ability to see objects close by both with or without glasses making it a challenge to read the text on an LCD screen.  A reduction in melanin accompanies age progression resulting in the need for increased illumination or contrast to see details such as product graphics (labels) for buttons.

2.1.2. Hearing – A decrease in hearing ability in one or both ears would require an increase in volume for spoken messages from the device.  Some older adults also experience hearing distortion or have difficulty with auditory discrimination (the ability to separate conversation from background noise).  Some clients may use hearing devices to correct their auditory deficiencies but may not always be wearing the device(s) or have the volume set for a normal level of conversation.  Compatibility of the ActiveCare+ device with hearing aids will be important.

2.1.3. Hand strength and dexterity – There are many causes of loss of dexterity in the fingers and hands.  Arthritis, stroke, muscle atrophy, disease, the effects of medication, and others all impede dexterity and limit the ability of the user to find and press a button, for example.  The ability of a finger to exert an acceptable force level may be restricted or to maintain the force consistently.  A fluttering of the finger could induce multiple depressions of the actuator button when a single actuation was intended.

2.1.4. Mobility – Clients may typically experience a reduction in mobility due to disease and the aging function.  Therefore, if the companion device is left in the docking station, the client will be unable to access it in an emergency due to limited mobility, and the wrist device will be the sole means of communication to the Call Center or 911.  As part of the mobility issue, balance will also be affected.  Even a simple task such as reaching with one hand across the body to the wrist device on the opposite hand could cause an imbalance and risk of falling if the client is standing and supported by a cane or by holding onto a wall for stability.

2.1.5. Skin sensitivity – As we age, our skin gets thinner and we are more easily bruised even performing normal activities.  A wrist device could cause bruising even when worn normally so the shape of the back surface of the device, the device weight, and the wrist band design, tightness and accommodation are important considerations.  If the wrist device is worn in the shower or bath, soap and moisture could accumulate between the device and the skin and later cause a rash or irritation.  Material selection and surface texture are other considerations for skin sensitivity.

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2.1.6. Cognitive processing – Clients are likely to experience some mental processing issues from time-to-time which may appear as delayed reactions or confusion.  Especially after a fall or when “under pressure” to respond to a voice prompt, confusion could delay the wearer from taking the appropriate action.  Sometimes the wrong button could be pressed, the message misunderstood, or no action taken at all.  If the client considers the system difficult to use during everyday activities or confusing in its operation, this feeling may translate into one of annoyance for the device.  As a result, the client may stop wearing the device and utilizing the service.

2.2. Keeping all of the above considerations in mind throughout the development process, we will seek to make the device as easy to use and understand as possible for the elder adult, post operative patient, or those requiring home-based assistance.

3.0 Definition of Wrist Device

3.1. Physical Characteristics

3.1.1. The wrist device will be of a size, shape and weight suitable for an adult to wear on their wrist both day and night, 24 hours per day.

3.1.1.1. Dimensions shall not exceed:  TBD (dependent on size of operating components)

3.1.1.2. The shape of the device will enable a comfortable wearing experience

3.1.1.3. Weight shall not exceed:  TBD (partially dependent on weight of operating components)

3.1.2. The wrist device will be secured by a strap which is adjustable by the user or by a care provider for fine adjustments.  Coarse adjustments (the initial fitting) may be performed by a technician or other qualified individual.

3.1.2.1. In use, the wrist device may be secured on either the right or left wrist allowing the user to see the time display and graphics next to the LEDs.

3.1.2.2. The strap shall be adjustable to accommodate a range of wrist diameters from TBD to TBD

3.1.3. Material selection for the device case and band

3.1.3.1. The case and strap shall be made of materials that are comfortable for extended wear, resistant to perspiration,  and do not encourage the growth of bacteria

3.1.3.2. The case, strap, and decoration or graphics shall be made of materials that are cleanable and waterproof

3.1.3.3. The case, strap, and decoration or graphics shall be made of materials that are resistant to scratches and abrasion

3.1.3.4. The case, strap, and decoration or graphics shall be made of materials that are colorfast and resistant to the aging effects from exposure to UV or IR radiation

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3.1.3.5. The case, strap, and any decoration or fittings shall be made of materials that do not oxidize

3.1.4. Industrial design of the wrist device

3.1.4.1. The design effort is underway and will involve several iterations and opportunities for review and comment.  One or more formal or informal focus groups with elder adults may be held to solicit feedback on the design and user interface

3.1.4.2. Graphics, decoration, and labeling will be identified as the industrial design for the wrist device is developed (3.1.4.1)

3.1.5. Battery module

3.1.5.1. A build in battery module will be supplied;

3.1.5.2. The battery will be capable of being removed and replaced by the service technician

3.1.5.3. The battery module will be recharged through a two point contact connector on the case of wrist device

3.1.6. Ingress Protection Standard

3.1.6.1. The wrist device will be built and tested to meet the IP67 standard (commonly referred to as “waterproof”)

3.1.7. Firmware updates

3.1.7.1. Firmware updates will be provided through connection with a special fixture to be used by technicians

3.1.7.2. Five contact points (with three (3) contact points for firmware upgrade and two (2) for recharging) will be provided for technician use

3.1.8. Time display

3.1.8.1. The current, local time shall be displayed on an LCD screen on the wrist device

3.1.8.2. The display shall be digital with numerals of at least TBD mm in height

3.1.8.3. The LCD screen shall provide a minimal brightness of TBD

3.1.8.4. The correct time will be set automatically by the companion device

3.2. User interface (functions and alarms) for the wrist device

3.2.1. Buttons and switches

3.2.1.1. Power button:  A single actuation of one (1) second minimum shall activate power “on.”  A single actuation of three (3) seconds minimum shall deactivate the device (power “off”)

3.2.1.1.1. The minimum force required to actuate the Power button shall be TBD when measured at the center of the button.

3.2.1.1.2. The color of the Power button shall be TBD (color molded in, not painted)

3.2.1.1.3. The size of the Power button shall be a minimum of TBD sq. cm

3.2.1.2. Care button:  A single actuation will initiate a call sequence to the Care Center.  A minimum actuation of two (2) seconds shall initiate the call.  There is no maximum duration, however the call will be initiated after two (2) seconds of actuation, and continued actuation of the button will not delay the processing or connection of the call

3.2.1.2.1. The minimum force required to actuate the Care button shall be TBD when measured at the center of the button.

3.2.1.2.2. The color of the Care button shall be TBD (color molded in, not painted)

3.2.1.2.3. The size of the Care button shall be a minimum of TBD sq. cm

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3.2.1.2.4. The Care button shall have two raised dots molded onto its face to simulate the letter “C” in Braille

3.2.1.3. Cancel button:  A single actuation of a minimum of one (1) second shall cancel a call or terminate the Fall Detection notification

3.2.1.3.1. The Cancel button shall be smaller in size than the Care button and a minimum of TBD sq. cm

3.2.1.3.2. The color of the Cancel button shall be TBD (color molded in, not painted)

3.2.1.3.3. The Cancel button will require a minimum force of TBD for actuation, to be measured at the center of the button

3.2.1.4. 911 emergency dialing

3.2.1.4.1. Actuation of the Cancel button for five (5) seconds shall initiate a call to 911 emergency services but only after the Care button has been actuated in sequence

3.2.1.5. A tactile feedback from all buttons shall be provided

3.2.2. Audible verbal messages

3.2.2.1. All messages to be recorded in American English with a female voice

3.2.2.2. The wrist device shall be capable of presenting an audible verbal message at a minimum of 80dBa as measured at a distance of one (1) meter

3.2.2.3. The volume shall be fixed at this level (not adjustable through the wrist or companion devices)

3.2.2.4. Initial actuation of the Power button (3.2.1.1) initiates a verbal message indicating the device is powered “on”:  “Welcome to ActiveOne Plus”

3.2.2.5. Secondary actuation of the Power button (3.2.1.1) initiates a verbal message indicating the device is powering “off” and shutting down:  “ActiveOne Plus is shutting down.  Goodbye”

3.2.2.6. When a Fall Detection condition is identified, a verbal message of “fall detected”” will be repeated during the ten (10) second delay before a call is placed to the Care Center

3.2.2.7. Upon actuation of the Care button, a verbal message of “calling Care Center” will repeat until the call is connected to the Care Center

3.2.2.8. Upon actuation of the Cancel button, a verbal message of “call cancelled” shall be spoken two (2) times to acknowledge the command

3.2.2.9. When an “Out of Range” condition is identified, a verbal message of “Out of Range” shall be stated one (1) time and shall be repeated once every 60 seconds until the condition ceases.

3.2.2.10. When the Cancel button is actuated for five (5) seconds to initiate a 911 call, a verbal message of “Press Care button to call 911 emergency services” shall be repeated two (2) times or the message shall stop when the Cancel button is actuated

3.2.3. Vibration mode messages

3.2.3.1. A vibration “message” shall be initiated upon the following conditions:  Fall Detection, an incoming call, low battery power, a message is waiting on the companion device, and the wrist device is out of range of the companion device

3.2.3.2. The level of vibration will be a minimum magnitude of TBD and a frequency of TBD to be measured on the rear surface of the wrist device

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3.2.3.3. The vibration “message” shall consist of a one (1) second duration activation followed by a one (1) second deactivation of the vibration generator.  The “message” cycle will repeat on/off in this fashion per the following requirements

3.2.3.3.1. The vibration “message” for Fall Detection shall cease when the Care Center call is connected or the “Cancel” button actuated

3.2.3.3.2. The vibration “message” for “incoming call” shall cease when the Care Center call is connected

3.2.3.3.3. The vibration “message” for “low battery power” shall cycle three (3) times then rest for 60 seconds and shall continue to cycle in this manner until the battery module is removed (for recharging) or the wrist device is placed into the base station for recharging

3.2.3.3.4. The vibration “message” to indicate that a message is waiting on the companion device shall cycle two (2) times then rest for three (3) minutes and shall continue to cycle in this manner until the message is acknowledged on the companion device

3.2.3.3.5. The vibration “message” to indicate that the wrist device is out of range shall cycle three (3) times then rest for 60 seconds and shall continue to cycle in this manner until the condition ceases

3.2.4. Three (3) light emitting diodes (LEDs) will be provided to indicate device status

3.2.4.1. Green blinking will indicate that the wrist device is powered “on.” The LED will cycle with a frequency of one (1) second “on”, five (5) seconds “off”

3.2.4.2. Green blinking will indicate that the device is properly positioned in the base station and is charging.  The LED will cycle with a frequency of one (1) second “on,” one (1) second “off”

3.2.4.3. Green continuous will indicate that the device is fully charged

3.2.4.4. Red blinking will indicate that the device has “no signal” and is not communicating with the companion device.  The LED will cycle with a frequency of one (1) second “on”, two (2) seconds “off” and will cycle in this mode until a connection is restored

3.2.4.5. Red continuous will indicate a “low battery condition” and signal an imminent need for charging or battery replacement

3.2.4.6. Red and yellow blinking together will indicate that a fall has been detected.  The red and yellow LEDs shall oscillate opposite each other with a frequency of one (1) second “on”, one (1) second “off” until the Care Center call has been received or the “Cancel” button actuated

3.2.4.7. Yellow blinking will indicate that a message has been sent by the Care Center and received by the companion device.  The LED will cycle with a frequency of one (1) second “on”, five (5) seconds “off” until the message has been acknowledged on the companion device

3.2.5. Upon insertion of the wrist device into the docking station or travel charger and proper connection with the charging system, a ”beep” will be issued by the wrist device

4.0 Companion Device

4.1. Physical Characteristics

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Suite 801. Building E, 1618 Yishan Road, Shanghai PRC

Tel: 86 21 51082965 Fax 86 21 64058005 Zip: 201103

4.1.1. The companion device will be of a size, shape and weight suitable for an adult to wear in a holster and to place into the “cradle” of a base station

4.1.1.1. Dimensions shall be approximately the same as the GT300 device

4.1.1.2. The shape of the device will be similar to the GT300 device

4.1.1.3. Weight shall not exceed:  TBD

4.1.2. The companion device will be supplied with a holster

4.1.2.1. The holster will have a clip for attaching to a belt or purse strap

4.1.3. Material selection for the device case and holster

4.1.3.1. The case and holster shall be made of materials that are resistant to perspiration  and do not encourage the growth of bacteria

4.1.3.2. The case and decoration or graphics shall be made of materials that are cleanable and water resistant

4.1.3.3. The case and decoration or graphics shall be made of materials that are resistant to scratches and abrasion

4.1.3.4. The case  and decoration or graphics shall be made of materials that are colorfast and resistant to the aging effects from exposure to UV or IR radiation

4.1.3.5. The case, holster, and any decoration or fittings shall be made of materials that do not oxidize

4.1.4. Industrial design of the companion device

4.1.4.1. The design effort is underway and will involve several iterations and opportunities for review and comment.  One or more formal or informal focus groups with elder adults may be held to solicit feedback on the design and user interface

4.1.4.2. Since the companion device will be built upon the GT300 layout, button location and other components for the companion device will be located in the same approximate locations as on the GT300

4.1.4.3. Graphics, decoration, and labeling will be identified as the industrial design for the companion device is developed

4.1.5. Firmware updates

4.1.5.1. The companion device will include a mini-USB connector to allow factory programming and firmware updates in the field

4.1.5.2. An attached  cover over the mini-USB connector port on the companion device is suggested to prevent accumulation of debris

4.1.5.3. The mini-USB connector will not be used in the base station  (docking station) to recharge the device battery

4.1.6. Location signal to Care Center

4.1.6.1. When placed into the base station (docking station), the companion device will sense that recharging has been initiated and will send a signal to the Care Center.  (The signal will indicate that the companion device is in a known location at the user’s address which will be on file in the Care Center)

4.1.7. Ingress Protection Standard

4.1.7.1. The companion device will not be built to an IPXX standard

4.2. User interface (functions and alarms) for the companion device

4.2.1. Buttons and switches

 
 

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Quectel Wireless Solutions Ltd.

Suite 801. Building E, 1618 Yishan Road, Shanghai PRC

Tel: 86 21 51082965 Fax 86 21 64058005 Zip: 201103

4.2.1.1. Power button:  A single actuation of one (1) second minimum shall activate power “on.”  A single actuation of three (3) seconds minimum shall deactivate the device (power “off”)

4.2.1.2. Volume buttons:  Each actuation of the Volume “up” or Volume “down” buttons will increase or decrease the volume level of the speaker by 4dBa (TBD)

4.2.1.3. The Volume buttons will provide a progression of increasing or decreasing the volume level with a minimum of 5 steps (actuations)

4.2.1.4. Care button:  A single actuation will initiate a call sequence to the Care Center after a minimum actuation of two (2) seconds

4.2.1.4.1. The minimum force required to actuate the Care button shall be TBD when measured at the center of the button.

4.2.1.4.2. The color of the Care button shall be TBD (color molded in, not painted)

4.2.1.4.3. The size of the Care button shall be a minimum of TBD sq. cm

4.2.1.4.4. The Care button shall have two raised dots molded onto its face to simulate the letter “C” in Braille

4.2.1.5. Cancel button:  A single actuation of a minimum of one (1) second shall cancel a call, terminate the Fall Detection notification, or acknowledge and delete a message sent by the Care Center

4.2.1.5.1. The Cancel button shall be smaller in size than the Care button and a minimum of TBD sq. cm

4.2.1.5.2. The color of the Cancel button shall be TBD (color molded in, not painted)

4.2.1.5.3. The Cancel button will require a minimum force of TBD for actuation, to be measured at the center of the button

4.2.1.6. 911 emergency dialing

4.2.1.6.1. Actuation of the Cancel button for five (5) seconds shall initiate a call to 911 emergency services but only after the Care button has been actuated in sequence

4.2.1.7. A tactile feedback from all buttons shall be provided

4.2.2. Audible verbal messages

4.2.2.1. All messages to be recorded in American English with a female voice

4.2.2.2. The companion device shall be capable of presenting an audible verbal message at a minimum of 80dBa as measured at a distance of 1 meter.

4.2.2.3. Initial actuation of the Power button (4.2.1.1) initiates a spoken message indicating the device is powered “on”:  “Welcome to ActiveOne Plus”

4.2.2.4. Secondary actuation of the Power button (4.2.1.1) initiates a spoken message indicating the device is powering “off” and shutting down:  “ActiveOne Plus is shutting down.  Goodbye”

4.2.2.5. Each actuation of the Volume “up” button will initiate a verbal message of “louder” spoken at the volume corresponding to the new level selected

4.2.2.6. Each actuation of the Volume “down” button will initiate a verbal message of “softer” spoken at the volume corresponding to the new level selected

4.2.2.7. When a Fall Detection condition is identified, a verbal message of “fall detected” will be repeated during the ten (10) second delay before a call is placed to the Care Center

4.2.2.8. Upon actuation of the Care button, a verbal message of “Calling Care Center” will repeat until the call is connected to the Care Center

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Quectel Wireless Solutions Ltd.

Suite 801. Building E, 1618 Yishan Road, Shanghai PRC

Tel: 86 21 51082965 Fax 86 21 64058005 Zip: 201103

4.2.2.9. Upon actuation of the Cancel button, a verbal message of “call cancelled” shall be spoken two (2) times to acknowledge the command

4.2.2.10. When the Cancel button is actuated for five (5) seconds to initiate a 911 call, a verbal message of “Press Care button to call 911 emergency services” shall be repeated two (2) times or the message shall stop when the Cancel button is actuated

4.2.3. Upon insertion of the companion device into the docking station or travel charger and proper connection with the charging system, a ”beep” will be issued by the companion device

4.2.4. Vibration mode messages

4.2.4.1. A vibration “message” shall be initiated in the companion device upon the following conditions if the companion device has been removed from the base station:  Fall Detection, an incoming call, low battery power, “power down,” and the wrist device is out of range of the companion device

4.2.4.2. The level of vibration will be a minimum magnitude of TBD and a frequency of TBD to be measured on the rear surface of the companion device

4.2.4.3. The vibration “message” frequency and logic shall match the cycles defined in Section 3.2.3.3 for the wrist device

4.2.5. Three (3) light emitting diodes (LEDs) will be provided to indicate device status

4.2.5.1. Green blinking will indicate that the companion device is powered “on.”  The LED will cycle with a frequency of one (1) second “on”, five (5) seconds “off”

4.2.5.2. Green blinking  will indicate that the companion device is charging and is properly positioned in the base station.  The LED will cycle with a frequency of one (1) second “on,” one (1) second “off.”

4.2.5.3. Green continuous will indicate that the companion device is fully charged

4.2.5.4. Red blinking will indicate that the device has “no signal” and is not communicating with the wrist device.  The LED will cycle with a frequency of one (1) second “on”, two (2) seconds “off” and will cycle in this mode until a connection is restored

4.2.5.5. Red continuous will indicate a “low battery condition” and signal an imminent need for charging

4.2.5.6. Red and yellow blinking together will indicate that a fall has been detected.  The red and yellow LEDs shall oscillate opposite each other with a frequency of one (1) second “on”, one (1) second “off” until the Care Center call has been received or the “Cancel” button actuated

4.2.5.7. Yellow blinking will indicate the presence of an incoming call.  The LED will cycle with a frequency of one (1) second “on”, one (1) second “off” until the call is received

4.2.5.8. Yellow blinking will indicate that a message has been sent by the Care Center and received by the companion device (message waiting).  The LED will cycle with a frequency of one (1) second “on”, five (5) seconds “off” until the message has been acknowledged on the companion device

4.2.6. Organic LED (OLED) display screen

4.2.6.1. The OLED screen will be capable of providing a brightness level of TBD

4.2.6.2. The OLED screen shall provide a view of a minimum of TBD characters at a font size of TBD mm

4.2.6.3. The resolution (dot matrix) of the OLED screen shall be TBD

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Quectel Wireless Solutions Ltd.

Suite 801. Building E, 1618 Yishan Road, Shanghai PRC

Tel: 86 21 51082965 Fax 86 21 64058005 Zip: 201103

4.2.6.4. Screen indicators (icons) will display the status of the following features on the “idle” portion of the OLED screen:  (these to be discussed and confirmed with team)

4.2.6.4.1. GSM signal strength

4.2.6.4.2. GPS signal strength

4.2.6.4.3. Battery status

4.2.6.4.4. Bluetooth connection status

4.2.6.4.5. Date/time

4.2.6.4.6. Network operator name

4.2.6.5. The following screen messages will be displayed on the “active” portion of the LCD screen:

4.2.6.5.1. If a fall is detected, the display shall indicate “FALL DETECTED” until the Care Center is connected or the call is cancelled

4.2.6.5.2. When dialing the Care Center, the display shall indicate “CALLING CARE CENTER”

4.2.6.5.3. Upon connecting with the Care Center, the display shall indicate “CARE CENTER”

4.2.6.5.4. Upon actuation of the “cancel” button, the display will indicate “CALL CANCELLED”

4.2.6.5.5. When dialing 911, the display shall indicate “CALLING 911”

4.2.6.5.6. Upon connecting with 911 emergency services, the display shall indicate “911 EMERGENCY”

4.2.6.5.7. Upon actuating the Power “on” button to commence start-up, the display shall indicate “POWER ON”  for two (2) seconds followed by the Active Care logo until the standard operating mode is achieved (approximately five (5) seconds)

4.2.6.5.8. Upon actuating the Power “off” button to shut down the device, the display shall indicate “GOODBYE” for approximately five (5) seconds

4.2.6.5.9. Upon actuating the volume “up” or “down” buttons, the display shall show the graph figure currently used in the GT 300 device to indicate the volume setting

4.2.6.5.10. The text of a message sent by the Care Center will be shown on the display

4.3. Docking station or base station

4.3.1. Physical characteristics

4.3.2. Design of the base station

4.3.2.1. The base station shall hold both the wrist device and the companion device securely during charging

4.3.2.2. The base station shall charge one, or both devices simultaneously and automatically once the device(s) are placed into the station

4.3.2.3. The two (2) charging positions on the base station shall be differentiated in design to accept placement of each device only in its appropriate charging location

4.3.2.4. The two (2) charging positions shall each provide at least a  two (2) point contact recharging arrangement (similar to a cordless phone)

4.3.2.5. The base station shall require a single cord for connection to a wall outlet (type used in US and Canada)

4.3.3. Material selection for base station

 
 

Quectel Wireless Solutions Ltd. Suite 801, Building E, 1618 Yishan Road, Shanghai PRC 201103

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Quectel Wireless Solutions Ltd.

Suite 801. Building E, 1618 Yishan Road, Shanghai PRC

Tel: 86 21 51082965 Fax 86 21 64058005 Zip: 201103

4.3.3.1. The case and decoration or graphics shall be made of materials that are cleanable and water resistant

4.3.3.2. The case and decoration or graphics shall be made of materials that are resistant to scratches and abrasion

4.3.3.3. The case  and decoration or graphics shall be made of materials that are colorfast and resistant to the aging effects from exposure to UV or IR radiation

4.3.3.4. The base station and any decoration or fittings shall be made of materials that do not oxidize

4.3.3.5. The bottom of the base shall have pads to resist slipping and prevent scratching of furniture

4.3.4. Industrial design of the base station

4.3.4.1. The design effort is underway and will involve several iterations and opportunities for review and comment.  One or more formal or informal focus groups with elder adults may be held to solicit feedback on the design and user interface

4.3.4.2. Graphics, decoration, and labeling will be identified as the industrial design for the companion device is developed

5.0 Travel charger for wrist device (TBD)

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Quectel Wireless Solutions Ltd.

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Tel: 86 21 51082965 Fax 86 21 64058005 Zip: 201103

APPENDIX B - GPS PRIMER

The Global Positioning System (GPS) is a satellite-based navigation system made up of a network of 24 satellites placed into orbit by the U.S. Department of Defense. GPS was originally intended for military applications, but in the 1980s, the government made the system available for civilian use. GPS works in any weather conditions, anywhere in the world, 24 hours a day. There are no subscription fees or setup charges to use GPS.

How it works…

GPS satellites circle the earth twice a day in a very precise orbit and transmit signal information to earth. GPS receivers take this information and use triangulation to calculate the user's exact location. Essentially, the GPS receiver compares the time a signal was transmitted by a satellite with the time it was received. The time difference tells the GPS receiver how far away the satellite is. Now, with distance measurements from a few more satellites, the receiver can determine the user's position and display it on the unit's electronic map.

A GPS receiver must be locked on to the signal of at least three satellites to calculate a 2D position (latitude and longitude) and track movement. With four or more satellites in view, the receiver can determine the user's 3D position (latitude, longitude and altitude). Once the user's position has been determined, the GPS unit can calculate other information, such as speed, bearing, track, trip distance, distance to destination, sunrise and sunset time and more.

How accurate is GPS?

Today's GPS receivers are extremely accurate, thanks to their parallel multi-channel design. Twelve parallel channel receivers are quick to lock onto satellites when first turned on and they maintain strong locks, even in dense foliage or urban settings with tall buildings. Certain atmospheric factors and other sources of error can affect the accuracy of GPS receivers. GPS receivers are accurate to within 15 meters (50 feet) on average.

Newer GPS receivers with WAAS (Wide Area Augmentation System) capability can improve accuracy to less than three meters on average. No additional equipment or fees are required to take advantage of WAAS.

Users can also get better accuracy with Differential GPS (DGPS), which corrects GPS signals to within an average of three to five meters. The U.S. Coast Guard operates the most common DGPS correction service. This system consists of a network of towers that receive GPS signals and transmit a corrected signal by beacon transmitters. In order to get the corrected signal, users must have a differential beacon receiver and beacon antenna in addition to their GPS.

 

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The GPS satellite system   The 24 satellites that make up the GPS space segment are orbiting the earth about 12,000 miles above us. They are constantly moving, making two complete orbits in less than 24 hours. These satellites are traveling at speeds of roughly 7,000 miles an hour.   GPS satellites are powered by solar energy. They have backup batteries onboard to keep them running in the event of a solar eclipse, when there's no solar power. Small rocket boosters on each satellite keep them flying in the correct path.   Here are some other interesting facts about the GPS satellites (also called NAVSTAR, the official U.S. Department of Defense name for GPS):    

·   The first GPS satellite was launched in 1978.

·   A full constellation of 24 satellites was achieved in 1994.

·   Each satellite is built to last about 10 years. Replacements are constantly being built and launched into orbit.

·   A GPS satellite weighs approximately 2,000 pounds and is about 17 feet across with the solar panels extended.

·   Transmitter power is only 50 watts or less.

What's the signal?

GPS satellites transmit two low power radio signals, designated L1 and L2. Civilian GPS uses the L1 frequency of 1575.42 MHz in the UHF band. The signals travel by line of sight, meaning they will pass through clouds, glass and plastic but will not go through most solid objects such as buildings and mountains.

A GPS signal contains three different bits of information — a pseudorandom code, ephemeris data and almanac data. The pseudorandom code is simply an I.D. code that identifies which satellite is transmitting information.

Ephemeris data, which is constantly transmitted by each satellite, contains important information about the status of the satellite (healthy or unhealthy), current date and time. This part of the signal is essential for determining a position.

The almanac data tells the GPS receiver where each GPS satellite should be at any time throughout the day. Each satellite transmits almanac data showing the orbital information for that satellite and for every other satellite in the system.

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Enhanced GPS

The term “enhanced GPS” is used loosely throughout the location services industry. There are several competing technologies on the market which are provided to enhance the performance of a GPS receiver.  Some examples include Oncore, SnapTrak, NEC, U-Locate, TrimTrac, etc.  Most of these GPS-enhancing technologies are network-assisted or network-based using GSM, CDMA, or other terrestrial networks.

Overview Of Assisted GPS

Assisted-GPS is a method of improving GPS performance. Two main benefits are seen:

Faster Time to First Fix (TTFF)

Acquisition in weak signal environments

These improvements in performance come with one penalty – the requirement for some type of cellular network to transmit the assistance data, and backend server technology to generate assistance data. To gain an understanding of the difference in performance between Assisted and Autonomous GPS, please view the performance numbers in the next section.

Overview of MS-Based Assisted GPS

MS (Mobile Station) Based Assisted GPS is a standard mode of GPS operation, tailored for fast acquisition and operation in weak signal environments. Position calculation occurs in the mobile unit, and does not require assistance beyond the initial Assistance packet, which is valid for up to two hours. This makes it ideal for application that need to generate a position regularly such as mapping LBS (Location Based Services) without loading the cellular network.

Overview of MS-Assisted Assisted GPS

MS (Mobile Station) Assisted A-GPS is a standard mode of GPS operation, suited to infrequent position fixes in weak signal environments. Position calculation occurs in the Cellular Network, completed in the PDE (Position Determining Entity). This type of A-GPS is suited to E911 applications where only the network side needs to know the position, rather than the mobile being ‘position aware’.

Overview of Autonomous GPS

Autonomous GPS, as the name suggests, requires no assistance data and is capable of outputting Position, Velocity and Time (PVT) autonomously. The limitation of this type of GPS is its inability to calculate initial position in weak signal environments. In order for the GPS to calculate its position, Ephemeris data is required locally to calculate precise satellite positions. The Ephemeris, and other satellite parameter data, is transmitted as a background serial stream as 50 bits per second. This data cannot be decoded initially at signal levels under –142dBm, and hence the limitation of the first autonomous fix to –142dBm. Once a position has been calculated, implying Ephemeris data is available locally, autonomous operation can continue in weal signal environments until the background decoded data has timed out, typically 2 hours max.

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Network Based Location Service

There is also a terrestrial based set of technologies that determine a cellular users position using cell data and time of arrival measurements.  These services are mainly restricted to urban areas where the cell tower density is at its greatest and will only be available if the carrier supports it.

Sources of GPS signal errors

Factors that can degrade the GPS signal and thus affect accuracy include the following:

·   Ionosphere and troposphere delays — The satellite signal slows as it passes through the atmosphere. The GPS system uses a built-in model that calculates an average amount of delay to partially correct for this type of error.

·   Signal multipath — This occurs when the GPS signal is reflected off objects such as tall buildings or large rock surfaces before it reaches the receiver. This increases the travel time of the signal, thereby causing errors.

·   Receiver clock errors — A receiver's built-in clock is not as accurate as the atomic clocks onboard the GPS satellites. Therefore, it may have very slight timing errors.

·   Orbital errors — Also known as ephemeris errors, these are inaccuracies of the satellite's reported location.

·   Number of satellites visible — The more satellites a GPS receiver can "see," the better the accuracy. Buildings, terrain, electronic interference, or sometimes even dense foliage can block signal reception, causing position errors or possibly no position reading at all. GPS units typically will not work indoors, underwater or underground.

·   Satellite geometry/shading — This refers to the relative position of the satellites at any given time. Ideal satellite geometry exists when the satellites are located at wide angles relative to each other. Poor geometry results when the satellites are located in a line or in a tight grouping.

·   Intentional degradation of the satellite signal — Selective Availability (SA) is an intentional degradation of the signal once imposed by the U.S. Department of Defense. SA was intended to prevent military adversaries from using the highly accurate GPS signals. The government turned off SA in May 2000, which significantly improved the accuracy of civilian GPS receivers.

 

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EX-31.1

EXHIBIT 31 (i)

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, James Dalton, certify that:

1. I have reviewed this Annual Report on Form 10-K of ActiveCare, Inc.;

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

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

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

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

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

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

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

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

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

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

Date: December 24, 2009	/s/ James Dalton
	James Dalton
	Chairman of the Board and Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

EXHIBIT 31 (ii)

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Michael G. Acton, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: December 24, 2009	/s/ Michael G. Acton
	Michael G. Acton
	Chief Financial Officer
	(Principal Financial Officer)

EX-32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of ActiveCare, Inc., on Form 10-K for the fiscal year ended September 30, 2009, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), James Dalton, Chairman of the Board and Chief Executive Officer, and Michael G. Acton, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

/s/ James Dalton

James Dalton

Chairman of the Board and Chief Executive Officer

/s/ Michael G. Acton

Michael G. Acton

Chief Financial Officer

Dated: December 24, 2009

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

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