UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





(Mark
One)


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





For the
quarterly period ended: December 31, 2009





or





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





For the
transition period from ____________ to _____________





Commission
File Number:0-53570





ActiveCare,
Inc.




(Exact
name of registrant as specified in its charter)





Delaware
            
            87-0578125(State
      or other jurisdiction of incorporation
              or
      organization)
            
            (I.R.S.
      Employer Identification No.)5095
      West 2100 South
              West Valley City,
      Utah
            
            84120(Address
      of principal executive offices)
            
            (Zip
      Code)





(801)
974-9474


(Registrant's
telephone number, including area code)





Volu-Sol Reagents
Corporation


(Former
name, former address and former fiscal year if changed since last
report)





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





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).


Yes  ̈  No  ̈





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





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





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.)


Yes   ̈   No  x





As of
February 10, 2010, the registrant had 11,822,639 shares of common stock
outstanding.


1


ActiveCare,
Inc.


(Formerly
Volu-Sol Reagents Corporation)





Table
of Contents





PagePART
      I – FINANCIAL INFORMATION
            3Item
      1. Financial Statements
            3Condensed
      Consolidated Balance Sheets (unaudited)
            3Condensed
      Consolidated Statements of Operations (unaudited)
            4Condensed
      Consolidated Statements of Cash Flows (unaudited)
            5Notes
      to Condensed Consolidated Financial Statements (unaudited)
            6Item
      2. Management's Discussion and Analysis of Financial Condition and Results
      of  Operations
            15Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk
            22Item
      4.  Controls and Procedures
            22PART
      II – OTHER INFORMATION
            23Item
      1. Legal Proceedings.
            23Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
            23Item
      3. Defaults Upon Senior Securities
            23Item
      4. Submission of Matters to a Vote of Security Holders
            23Item
      5. Other Information.
            23Item
      6. Exhibits
            23SIGNATURES
            25





2


PART I – FINANCIAL
INFORMATION





Item
1.  Financial Statements.


ActiveCare,
Inc


(Formerly
Volu-Sol Reagents Corporation)


Condensed
Consolidated Balance Sheets


(unaudited)










December
      31, 2009
            
            
            September
      30, 2009AssetsCurrent
      assets:Cash
            
            $
            243,828
            
            
            $
            830,931Accounts
      receivable, net of allowance fordoubtful
      accounts of $2,500 and $3,000, respectively
            
            
            82,254
            
            
            
            63,469Inventories,
      net of reserve of $42,320  and $34,517,
    respectively
            
            
            39,712
            
            
            
            48,965Prepaid
      expenses and other assets
            
            
            8,431
            
            
            
            12,431Total
      current assets
            
            
            374,225
            
            
            
            955,796Property
      and equipment, net of accumulateddepreciation
      of $413,579 and $408,652, respectively
            
            
            85,062
            
            
            
            71,967Deposit
      on inventory purchases
            
            
            20,000
            
            
            
            65,000Domain
      Name, net of amortization of $179 and $0
              Respectively
            
            
            14,121
            
            
            
            -Leased
      Equipment, net of amortization of $5,937 and $0,
              respectively
            
            
            65,303
            
            
            
            -License
      agreement, net of amortization of $22,431 and
      $14,019,  respectively
            
            
            277,569
            
            
            
            285,981Intangible
      asset – access to financing, net of amortization
              of
      $163,520 and $40,880, respectively
            
            
            572,320
            
            
            
            694,960Total
      assets
            
            $
            1,408,600
            
            
            $
            2,073,704Liabilities and
      Stockholders’ EquityCurrent
      liabilities:Accounts
      payable
            
            $
            253,871
            
            
            $
            248,552Derivative
      liability
            
            
            949,529
            
            
            
            -Accrued
      expenses
            
            
            217,075
            
            
            
            154,544Related
      party note payable
            
            
            75,000
            
            
            
            -Accrued
      payable on license agreement
            
            
            300,000
            
            
            
            300,000Series
      A convertible preferred stock, net of discount of
              $517,471and
      $615,829, respectively (aggregate
              liquidation
      preference of $1,000,000)
            
            
            482,529
            
            
            
            384,171Total
      current liabilities
            
            
            2,278,004
            
            
            
            1,087,267Total
      liabilities
            
            
            2,278,004
            
            
            
            1,087,267Stockholders’
      equity (deficit):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 11,822,639 shares issued
              and outstanding, respectively
            
            
            118
            
            
            
            118Additional
      paid in capital
            
            
            5,791,321
            
            
            
            6,043,470Accumulated
      deficit
            
            
            (6,660,843
            )
            
            
            (5,057,151
            )Total
      stockholders’ equity (deficit)
            
            
            (869,404
            )
            
            
            986,437Total
      liabilities and stockholders’ equity (deficit)
            
            $
            1,408,600
            
            
            $
            2,073,704





See
accompanying notes to condensed consolidated financial
statements


3


ActiveCare,
Inc.


(Formerly
Volu-Sol Reagents Corporation)


Condensed
Consolidated Statements of Operations


(unaudited)


Three
      Months Ended
              December
      31,2009
            
            
            2008Revenues:Care
      services
            
            $
            4,434
            
            
            $
            -Reagents
            
            
            108,421
            
            
            
            104,307Total
      revenues
            
            
            112,855
            
            
            
            104,307Cost
      of revenue:Care
      services
            
            
            60,621
            
            
            
            -Reagents
            
            
            97,038
            
            
            
            103,071Total
      cost of revenues
            
            
            157,659
            
            
            
            103,071Gross
      margin
            
            
            (44,804
            )
            
            
            1,236Operating
      expenses:Research
      and development
            
            
            164,330
            
            
            
            105,938Selling,
      general and administrative
            
            
            1,030,332
            
            
            
            249,005Loss
      from operations
            
            
            (1,239,466
            )
            
            
            (353,707
            )Other
      income (expense):Gain
      on derivative liability
            
            
            360,064
            
            
            
            -Interest
      income
            
            
            -
            
            
            
            7,623Interest
      expense
            
            
            (382,731
            )
            
            
            -Other
      income (expenses)
            
            
            57
            
            
            
            (825
            )Net
      loss
            
            $
            (1,262,076
            )
            
            $
            (346,909
            )Net
      loss per common share – basic and diluted
            
            $
            (0.11
            )
            
            $
            (0.04
            )Weighted
      average shares – basic and diluted
            
            
            11,822,639
            
            
            
            8,983,000











See
accompanying notes to condensed consolidated financial
statements


4




ActiveCare,
Inc.


(Formerly
Volu-Sol Reagents Corporation)


Condensed
Consolidated Statements of Cash Flows


(unaudited)







Three
      Months Ended
              December
      31,2009
            
            
            2008Cash
      flows from operating activities:Net
      loss
            
            $
            (1,262,076
            )
            
            $
            (346,909
            )Adjustments
      to reconcile net loss to net cash usedIn
      operating activities:Depreciation
      and amortization
            
            
            142,115
            
            
            
            2,835Amortization
      of deferred consulting
            
            
            47,500
            
            
            
            -Warrants
      issued for services
            
            
            413,170
            
            
            
            -Amortization
      of debt discount recorded as interest expense
            
            
            353,517Gain
      on derivative liability
            
            
            (360,064
            )
            
            
            -Changes
      in operating assets and liabilities:Accounts
      receivable
            
            
            (18,785
            )
            
            
            6,971Interest
      receivable
            
            
            -
            
            
            
            (7,152
            )Inventories
            
            
            9,253
            
            
            
            (4,714
            )Prepaid
      expenses and other assets
            
            
            49,000
            
            
            
            (39
            )Accounts
      payable
            
            
            5,317
            
            
            
            88,620Accrued
      liabilities
            
            
            62,532
            
            
            
            42,236Net
      cash used in operating activities
            
            
            (558,521
            )
            
            
            (218,152
            )Cash
      flows from investing activities:Payments
      for property and equipment
            
            
            (18,021
            )
            
            
            (4,436
            )Disposal
      of leased equipment
            
            
            239
            
            
            
            -Purchase
      of intangibles
            
            
            (14,300
            )
            
            
            -Purchase
      of leased equipment
            
            
            (71,500
            )
            
            
            -Net
      cash used in investing activities
            
            
            (103,582
            )
            
            
            (4,436
            )Cash
      flows from financing activities:Proceeds
      from  related-party note
            
            
            75,000
            
            
            
            79,001Net
      cash provided by financing activities
            
            
            75,000
            
            
            
            79,001Net
      decrease in cash
            
            
            (587,103
            )
            
            
            (143,587
            )Cash,
      beginning of period
            
            
            830,931
            
            
            
            474,146Cash,
      end of period
            
            $
            243,828
            
            
            $
            330,559Supplemental
      Cash Flow Information:Cash
      paid for income taxes
            
            
            -
            
            
            
            -Cash
      paid for interest
            
            
            -
            
            
            
            -











See
accompanying notes to condensed consolidated financial
statements


5





ActiveCare,
Inc.


Notes to
Condensed Consolidated Financial Statements


(unaudited)





1.
            Basis
      of Presentation





The
      unaudited interim consolidated financial information of ActiveCare, Inc.
      (the “Company” or “ActiveCare”) has been prepared in accordance with
      Article 10 of Regulation S-X promulgated by the Securities and Exchange
      Commission.  Certain information and disclosures normally
      included in financial statements prepared in accordance with accounting
      principles generally accepted in the United States of America have been
      condensed or omitted pursuant to such rules and regulations.  In
      the opinion of management, the accompanying interim consolidated financial
      information contains all adjustments, consisting only of normal recurring
      adjustments necessary to present fairly the Company’s financial position
      as of December 31, 2009, and results of its operations for the three
      months ended December 31, 2009 and 2008.  These financial
      statements should be read in conjunction with the annual consolidated
      financial statements and notes thereto that are included in the Company’s
      Annual Report on Form 10-K for the year ended September 30,
      2009.  The results of operations for the three months ended
      December 31, 2009 may not be indicative of the results for the fiscal year
      ending September 30, 2010.





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 and for the
      period ended December 31, 2009.  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 or attempting to secure additional
      financing through traditional bank financing or a debt
      offering.  There can be no assurance that revenues will increase
      rapidly enough to offset operating losses and repay debts.  If
      the Company is unable to increase revenues or obtain additional financing,
      it will be unable to continue the development of its products and may have
      to cease operations.





Use
of Estimates in the Preparation of Financial Statements


The
preparation of financial statements in conformity with 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.





2.
            Revenue
      Recognition





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





Care
Services





Care
services include lease contracts in which the Company provides care services and
leases devices to distributors or end users and the Company retains ownership of
the leased device.





The
Company typically leases its devices on a month-to-month contract with customers
(members) that use the Company’s care services.  However, these contracts
may be cancelled by either party at anytime with 30 days notice.  Under the
Company’s standard contract, the leased device becomes billable on the date the
customer (member) orders the product, and remains billable until the device is
returned to the Company.  The Company recognizes revenue on leased devices
at the end of each month that care services have been provided.  In those
circumstances in which the Company receives payment in advance, the Company
records these payments as deferred revenue.


6





Diagnostic Equipment Product
Sales





Although
not the focus of the Company’s new business model, the Company also sells
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 contains 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 $2,525 for the three months ended December 31, 2009 and its
medical diagnostic stain sales were $105,896 for the three months ended December
31, 2009.  All of the Company’s sales are made with net 30-day payment
terms.





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





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


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


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


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


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


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


·
            Customers
      may return diagnostic equipment within 30 days of the purchase date.
      Customers may return the medical diagnostic stains within 30 days of the
      purchase date provided that the stain’s remaining life is at least 8
      months. Customers must obtain prior authorization for a product
      return.








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 stock-keeping
units (“SKUs”) in its inventory.  Most of these 70 SKUs are for
medical diagnostic stain inventory.  For example, certain medical
diagnostic stains are packaged in different sizes, and each packaged size (i.e.
16 oz., 32 oz., 48 oz.) has a unique SKU in inventory.  Paragraph 37
of SFAS No. 131 states that, “an enterprise shall report revenues from external
customers for each product and service or each group of similar products and
services unless it is impractical to do so.”  The vast majority of the
Company’s 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.


7





3.     
       Net Loss per Common Share





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





Common
share equivalents consist of shares issuable upon the exercise of common stock
warrants, and shares issuable upon conversion of preferred stock.  As
of December 31, 2009 and 2008, there were 15,214,287 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.





4.
            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 adopted this
guidance on October 1, 2009.  This guidance did not have a material
impact on the 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 adopted this guidance on October
1, 2009.  This guidance did not have a material impact on the
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
adopted this guidance on October 1, 2009.  This guidance did not have
a material impact on the financial statements.





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. The Company adopted this
guidance on October 1, 2009 see Note 5 for the accounting impact.





In June
2009, the FASB issued accounting guidance on the consolidation of variable
interest entities (VIEs). This new guidance revises previous guidance by
eliminating the exemption for qualifying special purpose entities, by
establishing a new approach for determining who should consolidate a
variable-interest entity and by changing when it is necessary to reassess who
should consolidate a variable-interest entity.  This guidance will be
effective at the beginning of the first fiscal year beginning after November 15,
2009. Early application is not permitted.  The Company adopted this
guidance during the quarter ended December 31, 2009.  This guidance
did not have a material impact on the financial statements.


8





In
September 2009, the FASB issued guidance that changes the existing
multiple-element revenue arrangements guidance currently included under its
Revenue Arrangements with Multiple Deliverables codification. The revised
guidance primarily provides two significant changes: 1) eliminates the need for
objective and reliable evidence of the fair value for the undelivered element in
order for a delivered item to be treated as a separate unit of accounting, and
2) eliminates the residual method to allocate the arrangement consideration. In
addition, the guidance also expands the disclosure requirements for revenue
recognition. This will be effective for the first annual reporting period
beginning on or after June 15, 2010, with early adoption permitted provided that
the revised guidance is retroactively applied to the beginning of the year of
adoption. The Company is currently assessing the future impact of this new
accounting update to its financial statements.





In
October 2009, the FASB issued guidance on share-lending arrangements entered
into on an entity's own shares in contemplation of a convertible debt offering
or other financing.  This new guidance is effective for fiscal years
beginning on or after December 15, 2009, and fiscal years within those fiscal
years for arrangements outstanding as of the beginning of those years.
Retrospective application is required for such arrangements and early
application is not permitted.  The adoption of this guidance is not
expected to significantly impact the Company’s results of operations and
financial position.





In
January 2010, the FASB issued guidance which requires an entity to disclose the
following:





·
            Separately
      disclose the amounts of significant transfers in and out of Level 1 and
      Level 2 fair value measurements and describe reasons for the
      transfers.





·
            Present
      separately information about purchases, sales, issuances and settlements,
      on a gross basis, rather than on one net number, in the reconciliation for
      fair value measurements using significant unobservable inputs (Level
      3).





·
            Provide
      fair value measurement disclosures for each class of assets and
      liabilities.





·
            Provide
      disclosures about the valuation techniques and inputs used to measure fair
      value for both recurring and nonrecurring fair value measurements for fair
      value measurements that fall in either Level 2 or level
  3.





This
guidance is effective for interim and annual reporting periods beginning after
December 15, 2009, except for the disclosures about purchases, sales, issuances,
and settlements in the roll forward of activity in Level 3 fair value
measurements.  Those disclosures are effective for fiscal years
beginning after December 15, 2010.  The Company adopted this guidance
during the quarter ended December 31, 2009.  This guidance did not
have a material impact on the financial statements.





5.
            Change
      in Accounting Principle





Beginning
October 1, 2009, the Company recognized the fair value of the Class A and Class
B warrants along with the embedded conversion features of the Series A Preferred
Stock as derivative liabilities on its consolidated balance sheet. This was as a
result of the adoption of new guidance as found in ASC Topic 815-10, effective
for the Company at the beginning of this fiscal year.  Accordingly,
changes in the fair value of these liabilities at each reporting period are
required to be recognized as non-cash expense or income in the consolidated
statement of operations.  Future movements in the Company’s stock
price alone can materially affect both its results of operations and financial
position in the future.  Substantial movements in the Company’s stock
price could result in material volatility in the Company's results of
operations and financial position.





Upon
adoption, a cumulative effect adjustment was recorded, based on amounts that
would have been recognized if this guidance had been applied from the issuance
date of the affected instruments.  The following table illustrates the
changes to the Company’s consolidated balance sheet resulting from the
implementation of this guidance:


9




Balance
      at
              eptember
      30,
              2009
            
            
            Cumulative
              Effect
              Adjustment
            
            
            Balance
      at
              October
      1,
              2009Series
      A convertible preferred stock, net
              (liability)
            
            $
            (384,171
            )
            
            $
            255,159
            
            
            $
            (129,012
            )Derivative
      liability
            
            $
            -
            
            
            $
            (1,309,593
            )
            
            $
            (1,309,593
            )Additional
      paid in capital
            
            $
            (6,043,470
            )
            
            $
            712,818
            
            
            $
            (5,330,652
            )Accumulated
      deficit
            
            $
            5,057,151
            
            
            $
            341,616
            
            
            $
            5,398,767





The fair
value of the warrants and beneficial conversion feature on the Preferred stock
of $712,818 was included in additional paid-in capital on the issuance date of
the Preferred stock and warrants (September 10, 2009).  As a result of
the reclassification to derivative liabilities, the cumulative effect of these
adjustments on October 1, 2009 was an increase in the discount on the Preferred
stock of $255,159, an increase in derivative liability of $1,309,593, a
reduction of additional paid-in capital of $712,818 and a corresponding increase
in the Company’s accumulated deficit of $341,616.





As of
December 31, 2009, the Company determined that, using the Black Scholes model,
the fair value of the warrant obligations had decreased by
$360,064.  Accordingly, for the three months ended December 31, 2009,
the Company recorded a “Gain on derivative liability” to its statement of
operations.





6.
            Inventory





Inventories
are recorded at the lower of cost or market, cost being determined on a
first-in, first-out ("FIFO") method. Inventories consisted of raw materials,
work-in-process, and finished goods.  Inventories as of December 31,
2009 and September 30, 2009 were as follows:





December
      31,
            
            
            September
      30,2009
            
            
            2009Raw
      materials
            
            $
            32,058
            
            
            $
            38,851Work
      in process
            
            
            4,044
            
            
            
            5,422Finished
      goods
            
            
            45,930
            
            
            
            39,209Reserve
      for inventory obsolescence
            
            
            (42,320
            )
            
            
            (34,517
            )Total
      inventory
            
            $
            39,712
            
            
            $
            48,965





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.





7.
            Property
      and Equipment





Property
      and equipment consisted of the following as of December 31, 2009 and
      September 30, 2009:





Dec. 31
            
            
            Sept. 30Equipment
            
            $
            182,770
            
            
            $
            171,577Software
            
            
            19,259
            
            
            
            15,498Leasehold
      improvements
            
            
            269,448
            
            
            
            269,448Furniture
      and fixtures
            
            
            27,164
            
            
            
            24,096498,641
            
            
            
            480,619Accumulated
      depreciation
            
            
            (413,579
            )
            
            
            (408,652
            )Property
      and equipment, net of accumulated depreciation
            
            $
            85,062
            
            
            $
            71,967





Depreciation
      expense for the three months ended December 31, 2009 the year ended
      September 30, 2009 was $4,926, and $2,835,
  respectively.


10





8.
            
            Leased
      Equipment





Leased equipment consisted of the
following as of December 31, 2009 and September 30, 2009:





Dec. 31
            
            
            Sept. 30Leased
      equipment
            
            $
            71,240
            
            
            $
            -Accumulated
      depreciation
            
            
            (5,937
            )
            
            
            -Leased
      equipment, net of accumulated depreciation
            
            $
            65,303
            
            
            $
            -





Depreciation
expense for the three months ended December 31, 2009 the year ended September
30, 2009 was $5,958, and $0, respectively.





9.      
     Patent License Agreement





During
the year ended September 30, 2009, the Company licensed the use of certain
patents from a third party.  This license agreement will aid the
Company as it furthers its business plan.  The Company is required to
pay $300,000 plus a 5% royalty on the net sales of all licensed products and 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 $8,591 and $14,019 of amortization expense for the three months ended
December 31, 2009 and the year ended September 30, 2009,
respectively.  The Company has not paid the $300,000 as of December
31, 2009.





10.
            Related-Party
      Note Receivable





During
the quarter ended December 31, 2009, the Company borrowed $75,000 from an
officer of the Company.  This note has an annual interest rate of 12%
and is due on demand.  Accrued interest on this note totaled $395 for
the quarter ended December 31, 2009.





11.
            Series A Convertible Preferred
      Stock





Concurrent
with the closing of the acquisition of HG on September 10, 2009 (see Note 17),
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.





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.  As of December 31,
2009, the Company had recorded approximately $24,500 of accrued dividends
recorded as part of accrued expenses in the financial
statements.


11




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.





Effective
October 1, 2009, certain conversion features on the Series A Preferred Stock,
along with the warrants were required to be classified as derivatives. See Notes
5 and 12 for further discussion.





12.
            Derivative
      Liability





The
Company does not hold or issue derivative instruments for trading
purposes.  However, the Company has warrants and Series A convertible
preferred stocks that contain embedded derivative features that require separate
valuation from the convertible preferred stock.  The Company recognizes
these derivatives as liabilities in its balance sheet, measures them at their
estimated fair value, and recognizes changes in their estimated fair value in
earnings (losses) in the period of change.  As of December 31, 2009, the
derivative instruments had a fair value of $949,529 resulting in a derivative
valuation gain of $360,064 for the period.





13.
            Preferred
      Stock





The
Company is authorized to issue 10,000,000 shares of undesignated preferred
stock, with a par value of $0.00001 per share.  Pursuant to the
Company's Certificate of Incorporation, the Company's board of directors has the
authority to amend the Company's Certificate 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 11 for
details.





14.
            Warrants





During
the year ended September 30, 2009, the Company issued warrants to members of 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
      Criteria1,060,000
            When
      the Company’s stock is trading or sold2,060,000
            $5,000,000
      in annualized revenue2,060,000
            $10,000,000
      in annualized revenue2,080,000
            $15,000,000
      in annualized revenue2,080,000
            $20,000,000
      in annualized revenue2,080,000
            $25,000,000
      in annualized revenue2,080,000
            When
      the Company achieves profitability





As of
December 31, 2009, these warrants have not vested and they will only vest in
future periods upon completion of specific performance
criteria.


12





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.




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.





The total
expense associated with these warrants is $3,452,921, of which $665,201 was
recognized in prior periods and $413,170 is being recognized as non-cash
consulting expense during the quarter ended December 31, 2009.  The
balance of $2,374,550 will be expensed in future periods.





15.
            Segment
      Information





The
Company is organized into two business segments based primarily on the nature of
the Company's products. The Stains and Reagents segment is engaged in the
business of manufacturing and marketing medical diagnostic stains, solutions and
related equipment to hospitals and medical testing labs. The ActiveCare segment
is engaged in the business of developing, distributing and marketing mobile
emergency and concierge services to distributors and consumers.  The
care services part of the Company’s business started during quarter ended
December 31, 2009.   Prior to that time the company did not
allocate any expenses or assets between the segments.





The
following table reflects certain financial information relating to each
reportable segment for the three-month periods ended December 31, 2009 and
2008:




ActiveCare
            
            
            Stains
      and
              Reagents
            
            
            TotalThree
      Months Ending December 31, 2009Sales
      to external customers
            
            $
            4,434
            
            
            $
            108,421
            
            
            $
            112,855Segment
      income (loss)
            
            $
            (812,550
            )
            
            $
            (449,526
            )
            
            $
            (1,262,076
            )Segment
      assets
            
            $
            1,207,071
            
            
            $
            201,529
            
            
            $
            1,408,600Depreciation
      and amortization
            
            $
            138,568
            
            
            $
            3,547
            
            
            $
            142,115




Three
      Months Ending December 31, 2008Sales
      to external customers
            
            $
            -
            
            
            $
            104,307
            
            
            $
            104,307Segment
      income (loss)
            
            $
            -
            
            
            $
            (346,909
            )
            
            $
            (346,909
            )Segment
      assets
            
            $
            -
            
            
            $
            1,059,361
            
            
            $
            1,059,361Depreciation
      and amortization
            
            $
            -
            
            
            $
            2,835
            
            
            $
            2,835




13





16.
            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
      ObligationsYear
      Ending September 30:2010
            
            $
            87,0062011
            
            
            32,1462012
            
            
            20,6332013
            
            
            17,600Total
            
            $
            157,385





Rent
expense related to this non-cancelable operating lease was approximately $22,500
for the quarters ending December 31, 2008 and December 31, 2009.





17.
            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).  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 of amortization expense for the year ended September 30, 2009
and $122,640 for the quarter ended December 31, 2009.





18.           Subsequent
Events





The
Company has evaluated for subsequent events through February 16, 2010, the date
these financial statements were issued. There are no material events that
warrant further disclosure.




14


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







The following Management’s Discussion and
Analysis of Financial Condition and Results of Operations (“MD&A”) is
intended to help the reader better understand 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 those reports. Unless otherwise
indicated, the terms “AcitveCare,” the “Company,” “we,” our” refer to
ActiveCare, Inc., a Delaware corporation, formerly Volu-Sol Reagents
Corporation, a Utah corporation.




Overview




Historically,
our core business has been the manufacture, distribution and sale of medical
diagnostic stains and solutions.  In February 2009, we were spun off
from our former parent, SecureAlert, Inc., formerly known as RemoteMDx, Inc.
(“SecureAlert”).  In connection with the spin-off, we acquired from
SecureAlert the exclusive license rights to certain technology, including patent
rights utilizing GPS and cellular communication and monitoring technologies for
use in the healthcare and personal security markets.  We subsequently
acquired by license the exclusive rights to certain patents owned by a
third-party for technologies that are complementary to the patented technology
we acquired from SecureAlert.  We are currently in default under our
agreement and we are currently negotiating 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.




Recent
Developments




We have
financed operations exclusively through the sale of equity securities 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
our results of operations and 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, SecureAlert. 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 May
2009, we entered into the patent agreement with a third-party (the “Patent
Agreement”).  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 to cure this
default.





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.


15





ActiveOneTM




Under the
trademark ActiveOneTM 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.




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.




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”).  In December 2009, we entered into
an agreement with Quectel Wireless Solutions, Ltd. (“Quectel”), a subsidiary of
SIM Technology, to assist us in development of the ActiveOneTM and its companion
device, the ActiveOne+TM.  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.  SIM Technology 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.




16




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.




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.





With
respect to concentration of credit risk, allowances for doubtful accounts
receivable, inventories, impairment of assets, revenue recognition, and research
and development, those material accounting policies that we believe are critical
to an understanding of our financial results and condition are as
follows:





Concentration
of Credit Risk





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





In the
normal course of business, we provide credit terms to our customers.
Accordingly, we perform ongoing credit evaluations of  customers'
financial condition and require no collateral from customers.  We
maintain an allowance for uncollectable accounts receivable based upon the
expected collectability of all accounts receivable.





Accounts
Receivable





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





Inventories





Inventories
are recorded at the lower of cost or market, cost being determined on a
first-in, first-out ("FIFO") method. 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.


17





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





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





Care
Services





Care
services include lease contracts in which the Company provides care services and
leases devices to distributors or end users and the Company retains ownership of
the leased device.





The
Company typically leases its devices on a month-to-month contract with customers
(members) that use the Company’s care services.  However, these contracts
may be cancelled by either party at anytime with 30 days notice.  Under the
Company’s standard contract, the leased device becomes billable on the date the
customer (member) orders the product, and remains billable until the device is
returned to the Company.  The Company recognizes revenue on leased devices
at the end of each month that care services have been provided.  In those
circumstances in which the Company receives payment in advance, the Company
records these payments as deferred revenue.





Diagnostic Equipment Product
Sales





Although
not the focus of our new 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 medical diagnostic stains revenue when persuasive evidence of an
arrangement with the customer exists, title passes to the customer, prices are
fixed or determinable, and collection is reasonably assured.





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





We have
no sales that contain multiple deliverables.  All of our revenues
consist of sales of products, either (1) diagnostic equipment or (2) medical
diagnostic stains.  The diagnostic equipment does not require
installation or customization.





Historically
and consistently all of our sales are made with net 30-day payment
terms.  We have not changed our payment terms in the recent past (at
least for five years).  We have no plans to change our payment terms
in the future.





Our
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 SFAS No. 48 criteria 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.·
            The
      amount of future returns can be reasonably estimated and they are
      negligible.




18





We have
70 types of products based on the number of individual stock-keeping unit
(“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., 48 oz.) has a unique SKU in inventory.  Paragraph 37 of SFAS No.
131 states 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.





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.





Results
of Operations





Three
Months Ended December 31, 2009 and 2008





Net
Sales





Our
fiscal year ends on September 30.  During the first fiscal quarter
ended December 31, 2009, we had net sales of $112,855 compared to $104,307 in
the fiscal quarter ended December 31, 2008.  Stains and reagent
revenue accounted for $108,421 and our Care Services, including revenue for the
ActiveOneTM Service accounted for $4,434 of the total revenue.





Cost
of Revenue





Cost of
revenue totaled $157,659 in the first fiscal quarter ended December 31, 2009,
compared to $103,071 for the quarter ended December 31, 2008.  Of the
total cost of revenues, stains and reagents accounted for $97,038 and Care
Services accounted for $60,621.  The increase between the comparable
quarters is due to the operation of our 24 hour a day, 7 days a week and 52
weeks a year CareCenter.





Research
and Development Expenses





During
the quarter ended December 31, 2009, we incurred research and development
expenses of $164,330 compared to $105,938 in research and development expense
incurred during the fiscal quarter ended December 31, 2008. The research and
development expenses in the quarter ended December 31, 2009 has increased due to
expenses related to the development of the ActiveOne+TM product.





Selling,
General and Administrative Expenses





During
the three months ended December 31, 2009, selling, general and administrative
expenses totaled $1,030,332, compared to the same period one year ago, which
totaled $249,005.  The increase in 2009 is the result of the
following:





·
            Other
      general and administration expenses including salaries of
      $112,800.


·
            Advertising
      expense associated with the ActiveONE product of
  $76,575


·
            Non
      cash expense associated with the issuance of stock and warrants of
      $460,670


·
            Non
      cash amortization of patents and other intangible assets of
      $131,230


19





Other
Income and Expense





During
the quarter ended December 31, 2009, interest income was $0, compared to $7,623
in the quarter ended December 31, 2008.  The decrease in interest
income was due to the repayment of the related-party note with
SecureAlert.





Net
Loss





We had a
net loss for the three months ended December 31, 2009 totaling $1,262,076,
compared to a net loss of $346,909 for the same period one year
ago.  This increase in net loss is due to the items described
above.





Liquidity
and Capital Resources





Three
Months ended December 31, 2009





We have
not historically financed operations entirely from cash flows from operating
activities.  During the year ended September 30, 2009, we supplemented
cash flows with funding from the sale of equity securities.





At
December 31, 2009, we had unrestricted cash of $243,828, compared to cash of
$830,931 at September 30, 2009. At September 30, 2009, we had a working capital
deficit of $131,471, compared to a working capital deficit of $2,421,251 at
December 31, 2009.





During
the quarter ended December 31, 2009, operating activities used cash of
$558,521.





Investing
activities for the quarter ended December 31, 2009 used cash of
$103,582.





Financing
activities for the quarter ended December 31, 2009, provided $75,000 of net
cash.





During
quarter ended December 31, 2009, we incurred a net loss of $1,262,076 and had
negative cash flows from operating activities totaling $558,521, compared to a
net loss of $2,416,000 and negative cash flows from operating activities of
$1,122,000 for the year ended September 30, 2009.  As of September 30,
2009, our working capital deficit was $131,471 compared to a working capital
deficit of $2,421,251 at December 31, 2009.  As of December 31, 2009,
we had an accumulated deficit of $6,660,843 compared to $5,057,151 at September
30, 2009, and total stockholders’ equity at December 31, 2009 was $869,404
compared to $986,437 at September 30, 2009.





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.    We adopted this guidance on
October 1, 2009.  This guidance did not 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 adopted this guidance on October 1,
2009.  This guidance did not have a material impact on our financial
statements.


20





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 adopted this
guidance on October 1, 2009.  This guidance did not have a material
impact on our financial statements.





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. We adopted this guidance on
October 1, 2009. The adoption was considered a change in accounting principle,
and the cumulative effect from the adjustment was applied to the opening balance
of accumulated deficit. See Note 5 of the financial statement for further
discussion.





In June
2009, the FASB issued accounting guidance on the consolidation of variable
interest entities (VIEs). This new guidance revises previous guidance by
eliminating the exemption for qualifying special purpose entities, by
establishing a new approach for determining who should consolidate a
variable-interest entity and by changing when it is necessary to reassess who
should consolidate a variable-interest entity.  This guidance will be
effective at the beginning of the first fiscal year beginning after November 15,
2009. Early application is not permitted.   The Company adopted
this guidance during the quarter ended December 31, 2009.  This
guidance did not have a material impact on the financial
statements.





In
September 2009, the FASB issued guidance that changes the existing
multiple-element revenue arrangements guidance currently included under its
Revenue Arrangements with Multiple Deliverables codification. The revised
guidance primarily provides two significant changes: 1) eliminates the need for
objective and reliable evidence of the fair value for the undelivered element in
order for a delivered item to be treated as a separate unit of accounting, and
2) eliminates the residual method to allocate the arrangement consideration. In
addition, the guidance also expands the disclosure requirements for revenue
recognition. This will be effective for the first annual reporting period
beginning on or after June 15, 2010, with early adoption permitted provided that
the revised guidance is retroactively applied to the beginning of the year of
adoption. We are currently assessing the future impact of this new accounting
update to its financial statements.





In
October 2009, the FASB issued guidance on share-lending arrangements entered
into on an entity's own shares in contemplation of a convertible debt offering
or other financing.  This new guidance is effective for fiscal years
beginning on or after December 15, 2009, and fiscal years within those fiscal
years for arrangements outstanding as of the beginning of those years.
Retrospective application is required for such arrangements and early
application is not permitted.  The adoption of this guidance is not
expected to significantly impact we’s results of operations and financial
position.





In
January 2010, the FASB issued guidance which requires an entity to disclose the
following:





·
            Separately
      disclose the amounts of significant transfers in and out of Level 1 and
      Level 2 fair value measurements and describe reasons for the
      transfers.





·
            Present
      separately information about purchases, sales, issuances and settlements,
      on a gross basis, rather than on one net number, in the reconciliation for
      fair value measurements using significant unobservable inputs (Level
      3).





·
            Provide
      fair value measurement disclosures for each class of assets and
      liabilities.





·
            Provide
      disclosures about the valuation techniques and inputs used to measure fair
      value for both recurring and nonrecurring fair value measurements for fair
      value measurements that fall in either Level 2 or level
  3.





This
guidance is effective for interim and annual reporting periods beginning after
December 15, 2009, except for he disclosures about purchases, sales, issuances,
and settlements in the roll forward of activity in Level 3 fair value
measurements.  Those disclosures are effective for fiscal years
beginning after December 15, 2010. The Company adopted this guidance during the
quarter ended December 31, 2009.  This guidance did not have a
material impact on the financial statements.


21





Going
Concern





The
significant accumulated deficits and negative cash flows of the Company raise
substantial doubt about our 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 our
Care Services, to complete 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, we will be unable to
continue the development of its products and would likely cease
operations.





Item
3.  Quantitative and Qualitative Disclosures about Market
Risk





None.





Item
4.  Controls and Procedures.





Under the
supervision and with the participation of our management, including our Chief
Executive Officer and our Chief Financial Officer, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of
1934 (the “Exchange Act”)). Based upon that evaluation, the Chief Executive
Officer and the Chief Financial Officer concluded that, as of the end of the
period covered by this report, our disclosure controls and procedures were not
effective.  We and our auditors identified a material weakness
discussed below in the management’s report on internal control over financial
reporting.





Report
of Management on Internal Control over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) under the
Exchange Act. Our internal control over financial reporting is designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with U.S. generally accepted accounting principles. Our internal control over
financial reporting includes those policies and procedures that:





(i)
            pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect the transactions and dispositions of our
      assets;





(ii)
            provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with U.S. generally
      accepted accounting principles, and that our receipts and expenditures are
      being made only in accordance with authorizations of our management and
      directors; and





(iii)
            provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of assets that could have a
      material effect on the financial
statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions or that the degree of compliance
with the policies or procedures may deteriorate.





Management
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.  A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement to the Company's annual or
interim financial statements will not be prevented or detected.





In the
course of the management's assessment, it has identified the following material
weakness in internal control over financial reporting:





Because
of the small size of the Company, in terms of the number of employees, the
Company lacks segregation of duties and that is a material
weakness.  As the Company grows, this weakness will be
mitigated.





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


22





PART
II – OTHER INFORMATION





Item
1. Legal Proceedings.





We are
not involved in any legal proceedings which management believes will have a
material effect upon the financial condition of the Company, nor are any such
material legal proceedings anticipated.





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





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





None.





Item
3.  Defaults Upon Senior Securities.





None.




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





None.




Item
5. Other Information.





Subsequent
to December 31, 2009, on January 27, 2010, the common stock of ActiveCare began
trading on the over-the-counter bulletin board (“OTC”) market under the symbol
“ACAR.OB.”





Item
6. Exhibits.




Exhibit
      Number
            Description





(3)(i)
            
            Articles
      of Incorporation of Registrant (previously filed as an exhibit to the
      Company’s Registration Statement on Form S-1 and incorporated herein by
      reference).(3)(i)
            
            Articles
      of Amendment to Articles of Incorporation of Registrant (previously filed
      as an exhibit to the Company’s Registration Statement on Form S-1 and
      incorporated herein by reference).(3)(ii)
            
            Bylaws
      of Registrant (previously filed as an exhibit to the Company’s
      Registration Statement on Form S-1 and incorporated herein by
      reference).(3)(iii)
            
            Designation
      of Rights and Preferences of Series A Convertible Preferred Stock,
      September 10, 2009 (previously filed as exhibit to Current Report on Form
      8-K, filed September 11, 2009, incorporated by
  reference).(3)(iv)
            
            Articles
      of Amendment to Articles of Incorporation changing name to ActiveCare,
      Inc. (incorporated by reference from the Company’s 10-K for the year ended
      September 30, 2009) from the Company’s 10-K for the year ended September
      30, 2009)(3)(v)
            
            Certificate
      of Incorporation in Delaware, July 15, 2009, (incorporated by reference to
      exhibit filed with the Company’s 10-K for the year ended September 30,
      2009)(3)(vi)
            
            By
      Laws of Company reflecting name change (incorporated by reference to
      exhibit filed with the Company’s annual report on Form 10-K for the year
      ended September 30, 2009).




23




(4)
            
            Specimen
      of common stock certificate (previously filed as an exhibit to the
      Company’s Registration Statement on Form S-1 and incorporated herein by
      reference).(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 and incorporated herein by
    reference).(10)(ii)
            
            Loan
      Agreement between the Company and SecureAlert (previously filed as in
      exhibit to the Company’s Registration Statement on Form S-1 and
      incorporated herein by reference).(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 and incorporated herein by
      reference).(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 and incorporated
      herein by reference).(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 and incorporated herein by
      reference).(10)(vi)
            
            License
      Agreement between the Company and SecureAlert (incorporated by reference
      to exhibit filed with 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
      (incorporated by reference to exhibit filed with the Company’s report on
      Form 10-Q for the period ended June 30, 3009).(10)(viii)
            
            License
      Agreement between the Company and euromicron (incorporated by reference to
      exhibit filed with 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. (incorporated
      by reference to exhibit to Company’s report on Form 10-K for the year
      ended September 30, 2009).(11)
            
            Computation
      of Statement of Earnings (included in financial statements filed
      herewith)(31)(i)
            
            Rule
      13a–14(a)/15d–14(a) Certifications(32)
            
            Section
      1350 Certifications





24





SIGNATURES





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





ActiveCare,
      Inc./s/  James
      DaltonJames
      Dalton
              Chairman
      of the Board of Directors
              and
      Chief Executive Officer (Principal
              Executive
      Officer)





Date:
      February 16, 2010





/s/  Michael
      G. ActonMichael
      G. Acton
              Chief
      Financial Officer (Principal
              Financial
      and Accounting Officer)





Date:
      February 16, 2010







25


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