As filed with the Securities and Exchange Commission on March 13, 2017

Registration No. 333-212589

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

_________________

Amendment No. 4
to
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

_________________

ACTIVECARE, INC.
(Exact name of registrant as specified in its charter)

_________________

Delaware

 

3669

 

87-0578125

(State or Other Jurisdiction of Incorporation or Organization)

 

(Primary Standard Industrial Classification Code Number)

 

(I.R.S. Employer Identification Number)

1365 West Business Park Drive
Suite 100
Orem, Utah 84058
(877) 219-6050
(Address, including zip code, and telephone number including
area code, of Registrant’s principal executive offices)

_________________

Jeffrey Peterson
Chief Executive Officer
1365 West Business Park Drive
Suite 100
Orem, Utah 84058
(877) 219-6050
 (Name, address, including zip code, and telephone number
including area code, of agent for service)

_________________

With copies to:

Joseph M. Lucosky, Esq.
Lawrence Metelitsa, Esq.
Lucosky Brookman LLP
101 Wood Avenue South, 5
th Floor
Woodbridge, NJ 08830
Tel. No.: (732) 395-4400

Fax No.: (732) 395-4401

 

Steven D. Uslaner, Esq.
Mark F. Coldwell, Esq.
Littman Krooks LLP
655 Third Avenue, 20
th Floor
New York, NY 10017
Tel. No.: (212) 490-2020
Fax No.: (212) 490-2990

_________________

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. x

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

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

Large Accelerated Filer ¨

Accelerated Filer ¨

Non-Accelerated Filer ¨

Smaller Reporting Company x

 

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered

 

 

Proposed Maximum Aggregate Offering Price(1)

 

 

 

Amount of Registration Fee(1)

 

Units(2)

 

$

19,550,000

(3)

 

$

2,265.85

 

Common Stock, par value $0.00001, included in the units(4)

 

 

 

(6)

 

 

 

(6)

Warrants to Purchase Common Stock, included in the units(5)

 

 

 

(6)

 

 

 

(6)

Shares of Common Stock issuable upon exercise of the Warrants included in the units(4)(5)

 

 

24,437,500

(3)

 

 

2,832.31

 

Representatives’ Warrant to Purchase Common Stock(7)

 

 

N/A

 

 

 

N/A

 

Shares of Common Stock issuable upon exercise of Representatives’ Warrant(4)(7)

 

 

1,221,875

 

 

 

141.62

 

Total

 

$

45,209,375

 

 

$

5,239.78

(8)

____________

(1)      Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended (the “Securities Act”).

(2)      Each unit consists of one share of common stock, $0.0001 par value per share, and one warrant to purchase one share of common stock, $0.0001 par value per share.

(3)      Includes units and shares of common stock the underwriters have the option to purchase to cover over-allotments, if any.

(4)      Pursuant to Rule 416 under the Securities Act, the securities being registered hereunder include such indeterminate number of additional shares of common stock as may be issued after the date hereof as a result of stock splits, stock dividends or similar transactions.

(5)      The warrants are exercisable at a per share price equal to 125% of the public offering price.

(6)      Included in the price of the units. No fee required pursuant to Rule 457(g) under the Securities Act.

(7)      In accordance with Rule 457(g) under the Securities Act, because the shares of the Registrant’s common stock underlying the Warrants and Representative’s warrants are registered hereby, no separate registration fee is required with respect to the warrants registered hereby.

(8)      Previously Paid.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Commission, acting pursuant to said section 8(a), may determine.

 

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS

SUBJECT TO COMPLETION

DATED MARCH 13, 2017

680,000 Units

ActiveCare, Inc.

We are offering up to units, each unit consisting of one share of our common stock, $0.00001 par value per share, and one warrant to purchase one share of our common stock, at an assumed public offering price of $25.00 per unit. The warrants included within the units are exercisable immediately, have an exercise price of $31.25 per share (125% of the public offering price of one unit) and expire five years from the date of issuance.

The units will not be issued or certificated. Purchasers will receive only shares of common stock and warrants. The shares of common stock and warrants may be transferred separately, immediately upon issuance. The offering also includes the shares of common stock issuable from time to time upon exercise of the warrants.

Our common stock is quoted on OTC Markets Group Inc. OTCQB quotation system (the “OTCQB”) under the trading symbol “ACAR”. We have applied to have our common stock and warrants listed on The Nasdaq Capital Market under the symbols “ACAR” and “ACARW,” respectively. No assurance can be given that our application will be approved. On March 10, 2017, the last reported sale price for our common stock on the OTCQB was $25.00 per share after giving effect to the 1-for-500 reverse stock split of our common stock which was effectuated on January 27, 2017 in order to facilitate NASDAQ listing approval. There is no established public trading market for the warrants. No assurance can be given that a trading market will develop for the warrants. Quotes for shares of our common stock on the OTCQB may not be indicative of the market price on a national securities exchange, such as The Nasdaq Capital Market.

Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 13 of this prospectus for a discussion of information that should be considered in connection with an investment in our securities.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

Per Unit(1)

 

Total

Public offering price

 

$

 

$

Underwriting discounts and commissions(2)

 

$

 

$

Proceeds to us, before expenses

 

$

 

$

____________

(1)      The public offering price and underwriting discount in respect of the Units corresponds to (i) a public offering price per share of common stock of $____ and (ii) a public offering price per warrant of $.____.

(2)      Does not include a non-accountable expense allowance equal to 1% of the gross proceeds of this offering payable to Joseph Gunnar & Co., LLC, the representative of the underwriters. See “Underwriting” for a description of compensation payable to the Underwriters

We have granted a 45-day option to the representative of the underwriters to purchase up to _____ additional shares of common stock and/or ______ additional warrants to purchase shares of common stock to be offered by us, solely to cover over-allotments, if any. If the underwriters exercise their right to purchase additional shares and/or warrants to cover over-allotments in full, we estimate that we will receive gross proceeds of $19,550,000 from the sale of 782,000 units being offered, at an assumed public offering price of $25.00 per unit, and net proceeds of $ after deducting $ for underwriting discounts and commissions. The market price of our common stock is only one of several factors that will be considered in determining the actual offering price. See “Underwriting — Market Information.” The securities issuable upon exercise of the underwriter option are identical to those offered by this prospectus and have been registered under the registration statement of which this prospectus forms a part.

The underwriters expect to deliver our shares and warrants to purchasers in the offering on or about ______, 2017.

Joseph Gunnar & Co.

 

Axiom Capital Management, Inc.

 

The date of this prospectus is              , 2017

 

 

 

TABLE OF CONTENTS

Prospectus Summary

 

1

Risk Factors

 

13

Use of Proceeds

 

27

Market for Our Common Stock and Related Stockholder Matters

 

28

Capitalization

 

29

Dilution

 

30

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

33

Business

 

43

Directors and Executive Officers

 

55

Executive Compensation

 

60

Security Ownership of Certain Beneficial Owners and Management

 

66

Certain Relationships and Related Party Transactions

 

68

Description of Capital Stock

 

70

Underwriting

 

76

Transfer Agent and Registrar

 

85

Legal Matters

 

85

Experts

 

85

Where You Can Find More Information

 

85

Index to Consolidated Financial Statements

 

F-1

You should rely only on information contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. We have not, and the underwriters have not, authorized anyone to provide you with additional information or information different from that contained in this prospectus or in any free writing prospectus. Neither the delivery of this prospectus nor the sale of our securities means that the information contained in this prospectus or any free writing prospectus is correct after the date of this prospectus or such free writing prospectus. This prospectus is not an offer to sell or the solicitation of an offer to buy our securities in any circumstances under which the offer or solicitation is unlawful or in any state or other jurisdiction where the offer is not permitted.

No person is authorized in connection with this prospectus to give any information or to make any representations about us, the securities offered hereby or any matter discussed in this prospectus, other than the information and representations contained in this prospectus. If any other information or representation is given or made, such information or representation may not be relied upon as having been authorized by us.

Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than the United States. You are required to inform yourself about, and to observe any restrictions relating to, this offering and the distribution of this prospectus.

We have registered certain of our trademarks with the United States Patent and Trademark Office, including ActiveCare®, ActiveOne®, ActiveOne+® and ActiveHome®.

We also use certain trademarks, trade names, and logos that have not been registered. We claim common law rights to these unregistered trademarks, trade names and logos.

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PROSPECTUS SUMMARY

This summary highlights selected information appearing elsewhere in this prospectus. Because this is only a summary, it does not contain all of the information you should consider before investing in our securities. You should read this prospectus carefully, especially the risks and other information set forth under the heading “Risk Factors”; “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus, before making an investment decision. Our fiscal year end is September 30 and our fiscal years ended September 30, 2015 and 2016 are sometimes referred to herein as fiscal years 2015 and 2016, respectively. Some of the statements made in this prospectus discuss future events and developments, including our future strategy and our ability to generate revenue, income and cash flow. These forward-looking statements involve risks and uncertainties which could cause actual results to differ materially from those contemplated in these forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements”. Unless otherwise indicated or the context requires otherwise, the words “we,” “us,” “our,” the “Company” or “our Company” and “ActiveCare” refer to ActiveCare, Inc., a Delaware corporation, and its wholly owned subsidiaries.

Except as otherwise indicated in this prospectus, all common stock and per share information and all exercise prices with respect to our warrants reflect, on a retroactive basis, a 1-for-500 reverse stock split of our common stock, which became effective in the OTC Marketplace on January 27, 2017. This prospectus assumes the over-allotment option of the underwriters has not been exercised, unless otherwise indicated.

Overview

Our focus is on the monitoring of individuals with diabetes. Diabetes is a pandemic that, as of 2014, affected approximately 9% of the U.S. population or 29 million Americans. Studies have shown that the annual cost of treating an individual with diabetes and the comorbidities associated with the disease is approximately $13,700 per year. This combination costs the U.S. health system up to $245 billion annually. A major driver of diabetic related claims is the lack of adherence to regular glucose monitoring. It is estimated that as much as 80% of diabetics are non-compliant with their treatment plans, despite physician recommendations.

We believe we offer a unique approach to caring for chronic illnesses such as diabetes by adding a “human touch” and monitoring component to traditional disease management. To that end, we have created a “CareCenter” where our highly trained “CareSpecialists” reach out to engage members so that they can monitor their condition on a regular and real-time basis. Our personalized and active monitoring approach allows for the necessary action to be taken today to avoid major and costly events in the future. We provide our solution to self-insured companies (“SICs”) through third party administrators (“TPAs”) and a network of health insurance brokers. The members who directly engage with our CareCenter specialists are diabetic patients employed by these SICs.

Our CareSpecialists maintain consistent contact with our members helping them through the ups and downs of managing their glucose levels. For example, when test results exceed certain thresholds or a certain amount of time has passed without testing, members receive a prompt call from a CareSpecialist who will then triage the member and, if necessary, contact emergency personnel. This “live” and timely intervention provides the platform of insight for members to modify their behavior while reinforcing goals to better manage their disease. With real-time data, the CareSpecialists provide proactive support and encouragement to members before they become high risk. Our approach is designed to improve the health and wellness of our members while also lowering the overall costs of medical care paid by their employers.

Competitive Advantages/Operational Strengths

Unique Solution: The challenge facing the healthcare system is how to motivate people with diabetes to monitor their glucose levels to improve their lives. In order to address this challenge, information is needed to determine who is actually testing or not testing and who has readings that are outside of acceptable parameters. Outside of our approach, we are not aware of any companies providing a service utilizing real-time information to help patients manage diabetes and reduce future medical costs.

Real-Time Visibility: Without actionable and reliable information being available, healthcare professionals have typically relied on a diabetic’s A1C (90-day blood glucose average) test results. These reports are unable

1

to show the daily high and low blood glucose events. We believe that our solution focusing on consistent communications with patients and real time monitoring is highly preferable. Our state-of-the-art cellular glucometer allows for test results to automatically be sent wirelessly to our CareSpecialists immediately following each test. The only thing our member needs to do is test themselves and our CareSpecialists maintain consistent contact to provide advice, answer questions and to engage emergency personnel, if needed.

Proactive Approach of our CareCenter: We believe that our 24/7 CareCenter sets us apart from all other diabetes management programs. Historically, diabetics would be contacted by disease management personnel after incurring high medical costs and being classified as high risk. This method is reactionary and does nothing to prevent diabetics from becoming high risk in the first place. With real-time data, the CareCenter provides proactive support and encouragement to our members before they become high risk.

Engagement Strategy and Reward Program: The entire experience of how our CareSpecialists interact with members has been retooled and refocused on increasing engagement. This engagement strategy is designed to foster increased testing through positive reinforcement involving an on-going testing rewards program, regular educational events and increased coordination with the group’s clinical team. Our rewards program is designed to incentivize members to test more often through monetary reward. This innovative program transforms testing into an exciting and fun activity and has the effect of significantly increasing the incidence of testing.

Management Team and Key Personnel Experience: Our management team and key personnel have significant technical and entrepreneurial experience, with over 20 years of experience in the remote monitoring industry.

In summary, our monitoring program and related services provide caregivers, physicians, disease management and wellness coordinators with real-time visibility into a member’s health. Our unique approach in caring for diabetes patients is designed to improve the health and wellness of our members while also lowering the overall costs of medical care paid by their employers. We believe our approach of combining monitoring technology with a human service touch will create a paradigm shift to increase testing and improve the health of those living with diabetes.

Our Risks and Challenges

An investment in our securities involves a high degree of risk including risks related to the following:

WE HAVE A HISTORY OF ACCUMULATED DEFICITS, RECURRING LOSSES AND NEGATIVE CASH FLOWS. IN ORDER FOR US TO REMOVE SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN, WE MUST ACHIEVE PROFITABILITY, GENERATE POSITIVE CASH FLOWS FROM OPERATING ACTIVITIES OR OTHERWISE OBTAIN NECESSARY DEBT OR EQUITY FUNDING.

DUE TO OUR DEPENDENCE ON A LIMITED NUMBER OF CUSTOMERS, WE ARE SUBJECT TO A CONCENTRATION OF CREDIT RISK.

WE CURRENTLY DEPEND UPON A SINGLE SOURCE SUPPLIER FOR OUR PRODUCTS MAKING US VULNERABLE TO SUPPLY PROBLEMS AND PRICE FLUCTUATIONS, WHICH COULD HARM OUR BUSINESS.

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

The commercial success of our products will depend upon the degree of market acceptance by physicians, hospitals, third-party payors, and others in the medical community.

2

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

SOME OF Our products are subject to the risks and uncertainties associated with the protection of intellectual property and related proprietary rights. We believe that our success depends in part on our ability to obtain and enforce patents, maintain trade secrets and operate without infringing on the proprietary rights of others in the United States and in other countries.

We also rely on trade secrets laws to protect portions of our technology for which patent protection has not yet been pursued or is not believed to be appropriate or obtainable.

In February 2016, we entered into A Loan and Security Agreement with PARTNERS FOR GROWTH IV, L.P., and issued certain notes payable. THESE obligations are secured by the grant of a security interest in all of our assets. upon a default the lender may foreclose on all of our assets.

We are subject to a number of additional risks which you should be aware of before you buy our securities in this offering. These risks are discussed more fully in the section entitled “Risk Factors” following this prospectus summary.

Recent Developments

Stock Option Plan

Effective November 1, 2016, the Board approved the 2016 Incentive Stock Option (the “2016 Plan”) providing for the issuance of options to purchase up to 377,250 shares. The key terms of the 2016 Plan are set forth on page 62.

Reverse Stock Split

On November 1, 2016, we filed a Certificate of Amendment to our Certificate of Incorporation (the “Amendment”) to effectuate a 1-for-500 reverse stock split (the “Reverse Split”). On January 27, 2017, the Reverse Stock Split was approved by the Financial Industry Regulatory Authority and was effected on the OTC Marketplace. Unless otherwise noted, all warrant, option, share and per share information in this prospectus gives effect for such Reverse Split.

Partners for Growth IV, L.P. Loan Forbearance and Related Matters

On September 9, 2016, the Company and its senior secured lender, Partners for Growth IV, L.P., a Delaware limited partnership (“PFG”) entered into a Forbearance Loan and Security Agreement (the “September Forbearance Agreement”). Pursuant to the terms of the September Forbearance Agreement, PFG will forbear from exercising remedies (the “Forbearance”) with regard to certain breaches of agreements between the Company and PFG, including the Loan and Security Agreement, dated as of February 19, 2016, between the Company and PFG, and those certain security agreements entered into in connection therewith (collectively, the “Existing PFG Agreements”). Additionally, pursuant to the September Forbearance Agreement, PFG has provided the Company with the consent required under the Existing PFG Agreements to enter into the Purchase Agreement with JMJ Financial as described below and issue the Note and the Warrant thereunder. The Forbearance as set forth in the September Forbearance Agreement was in effect through October 31, 2016.

On September 9, 2016, in connection with the September Forbearance Agreement, the Company, PFG, SVB Financial Group, and PFG Equity Investors, LLC (the “Warrant Holders”) entered into a Conditionally-Effective Warrant Cancellation Agreement (the “Warrant Cancellation Agreement”). Pursuant to the terms of the

3

Warrant Cancellation Agreement, upon the Company’s consummation of an equity financing of at least $15,000,000, the Warrant Holders agree to terminate and cancel the warrants they currently hold. As an inducement to enter into the Warrant Cancellation Agreement, the Warrant Holders will receive upon termination and cancelation of the warrants an aggregate of 10,800 shares of the Company’s common stock, which will be subject to a 6 month lock-up agreement. Additionally, if the Warrant Holders terminate and cancel the warrants, the Company will issue PFG a new unsecured promissory note (the “PFG Note”) with an initial principal amount of $180,000 and will not bear cash interest and will have a three year term. In lieu of cash interest, the principal of the PFG Note will increase in the amount $3,333 each month not to exceed a maximum of $300,000.

Effective November 1, 2016, the Company and PFG entered into a Forbearance and Consent Under Loan and Security Agreement (the “November Forbearance Agreement”). Pursuant to the terms of the November Forbearance Agreement, PFG will forbear from exercising remedies (the “November Forbearance”) with regard to certain breaches of agreements between the Company and PFG, including the Existing PFG Agreements as well as the September Forbearance Agreement.

Additionally, pursuant to the November Forbearance Agreement, PFG has provided the Company with the consent required under the Existing PFG Agreements and September Forbearance Agreement to make certain payments from the proceeds of this offering. These payments include, but are not limited to (i) payments to holders of the Company’s Series E Preferred Stock, (ii) third party note and receivable payments and (iii) repayment of the bridge loan to JMJ Financial. PFG also consented to the issuance of the Company’s Series G Preferred Stock to certain affiliates of the Company. See “USE OF PROCEEDS” and “Authorization and Issuance of Series G Preferred Stock” below. In consideration for the November Forbearance, the Company has agreed to issue PFG warrants to purchase 130,000 shares of common stock at an exercise price equal to the per share price of the common stock in this offering, which shall be subject to a 12-month lock-up agreement. The Forbearance set forth in the November Forbearance Agreement will be in effect through December 31, 2016.

Effective December 31, 2016, the Company and PFG entered into a Forbearance and Consent under Loan and Security Agreement (the “December Forbearance”). Pursuant to the terms of the December Forbearance, PFG will forbear from exercising its rights and remedies under the Existing PFF Agreements. Additionally, pursuant to the December Forbearance, PFG has provided the Company with the consent required under the Existing PFG Agreements, September Forbearance and November Forbearance to make certain payments from the proceeds of this offering. In consideration for the December Forbearance, the Company has agreed to issue PFG warrants to purchase 10,000 shares of common stock at an exercise price equal to the per share price of the common stock in this offering and $50,000 of common stock at 80% of the per share issue price of the common stock in this offering, which shall be subject to a 12-month lock-up agreement. The forbearance set forth in the December Forbearance was initially in effect through February 15, 2017 and was subsequently extended to be effective through March 31, 2017.

Conversion of Convertible Debentures, Promissory Notes and Accounts Payable

On January 12, 2017, the Company entered into letter agreements (together the “Debenture Holder Letter Agreements”), as amended, with eight (8) investors (each a “Debenture Holder” and together the “Debenture Holders”) holding convertible debentures (collectively the “Debentures”) whereby the Debenture Holders agreed to convert all monies due them under the Debentures into restricted shares of common stock (the “Debenture Conversion Shares”) and warrants to purchase common stock (the “Debenture Conversion Warrants” and together with the Debenture Conversion Shares, the “Debenture Conversion Securities”), all contingent upon the completion of this offering. As of December 31, 2016, the Debenture Holders were due the aggregate sum of $6,410,795, including principal and interest (the “Debenture Obligation”). As incentive to enter into the Debenture Holder Letter Agreements, the Company agreed to add approximately $1,589,205 to the Debenture Obligation effectively making the total obligation due to Debenture Holders an aggregate of $8,000,000 (the “Total Debenture Obligation”). Pursuant to the Debenture Holder Letter Agreements, the Total Debenture Obligation will automatically convert upon consummation of this offering into the Debenture Conversion Securities at the combined price per share and warrant paid by investors in this offering (the “Conversion Price”). The terms of the Debenture Conversion Warrants will be substantially similar to the warrants being included in this offering, except such Debenture Conversion Warrants will

4

be a restricted security and will not publicly trade on NASDAQ. As a result of the foregoing, the Company will be issuing an aggregate of 320,005 Debenture Conversion Shares and Debenture Conversion Warrants to purchase 320,005 shares of Common Stock to the Debenture Holders upon the consummation of this Offering in consideration of the conversion of the Total Debenture Obligation. In addition, the Debenture Holders currently hold warrants to purchase an aggregate of 11,070 shares that will be terminated upon the consummation of this offering. In consideration for such termination, the Debenture Holders will be issued new warrants to purchase an identical number of shares of common stock at an exercise price equal to the Conversion Price. Each person entering into the Debenture Holder Letter Agreements have entered into lock-up agreements prohibiting the sale or other transfer of any securities of the Company owned by such persons for a period of 6 months.

On January 12, 2017, the Company entered into a letter agreement (the “GG Letter Agreement”), as amended, with a third party (referred to herein as “GG”), whereby GG agreed to convert all monies due him under that certain subordinated promissory note dated January 10, 2013 (“GG Note”) into common stock of the Company, contingent upon the completion of this offering. As of December 31, 2016, the aggregate amount of $104,729 (“GG Obligation”) was owed to GG pursuant to the GG Note. Pursuant to the GG Letter Agreement, the GG Obligation, together with interest accruing subsequent to December 31, 2016, will automatically convert upon consummation of this offering into such number of restricted shares of the Company’s common stock calculated by dividing the GG Obligation by 80% of the per share price of the common stock in this offering. GG has entered into a lock-up agreement prohibiting the sale or other transfer of all securities of the Company owned by him for a period of 6 months.

On January 12, 2017, the Company entered into a letter agreement (the “JG Letter Agreement”), as amended, with a third party (referred to herein as “JG”), whereby JG agreed to convert all monies due him under that certain subordinated promissory note dated March 18, 2016 (“JG Note”) into common stock of the Company, contingent upon the completion of this offering. As of December 31, 2016, the aggregate amount of $273,178 (“JG Obligation”) was owed to JG pursuant to the JG Note. Pursuant to the JG Letter Agreement, the JG Obligation, together with interest accruing subsequent to December 31, 2016, will automatically convert upon consummation of this offering into such number of restricted shares of the Company’s common stock calculated by dividing the JG Obligation by 80% of the per share price of the common stock in this offering. JG has entered into a lock-up agreement prohibiting the sale or other transfer of all securities of the Company owned by him for a period of 6 months.

On January 12, 2017, the Company entered into a letter agreement the (“M Vendor Letter Agreement”), as amended, with a third party vendor (herein referred to as “M Vendor”), whereby such entity agreed to convert all monies due it from the Company pursuant to certain accounts payable (“M Vendor Account Payable”) into common stock of the Company, contingent upon the completion of this offering. As of December 31, 2016, the aggregate amount of $73,667 (“M Vendor Obligation”) was owed to M Vendor pursuant to the M Vendor Account Payable. Pursuant to the M Vendor Letter Agreement, the M Vendor Obligation will automatically convert upon consummation of this offering into such number of restricted shares of the Company’s common stock calculated by dividing the M Vendor Obligation by the per share price of the common stock in this offering. M Vendor has entered into a lock-up agreement prohibiting the sale or other transfer of all securities of the Company owned by it for a period of 6 months.

Related Party Conversions

On January 12, 2017, the Company entered into a letter agreement with Robert Welgos, a director of the Company (the “Welgos Letter Agreement”), as amended, whereby Mr. Welgos agreed to convert all amounts due him from the Company from unpaid board service fees (“Welgos Board Service Payable”) into common stock of the Company, contingent upon the completion of this offering. As of December 31, 2016, the aggregate amount of $42,500 (“Welgos Obligation”) was owed to Welgos under the Welgos Board Service Payable. Pursuant to the Welgos Letter Agreement, the Welgos Obligation will automatically convert upon consummation of this offering into such number of restricted shares of the Company’s common stock calculated by dividing the Welgos Board Service Payable by $17.50 or 2,429 shares. Mr. Welgos has entered into a lock-up agreement prohibiting the sale or other transfer of all securities of the Company owned by him for a period of 12 months.

5

On January 12, 2017, the Company entered into a second letter agreement with Robert Welgos (the “Welgos Preferred Stock Letter Agreement”), as amended, whereby Mr. Welgos agreed to convert 13,843 shares of Series E Preferred Stock of the Company owned by him into common stock of the Company, contingent upon the completion of this offering. As of December 31, 2016, the aggregate amount of $181,297 consisting of accrued dividends, royalty and interest was owed to Welgos with respect to his Series E Preferred Stock (“Welgos Preferred Stock Obligation”). Pursuant to the Welgos Preferred Stock Letter Agreement, the Welgos Preferred Stock Obligation will automatically convert upon consummation of this offering into such number of restricted shares of the Company’s common stock calculated by dividing the Welgos Preferred Stock Obligation by $17.72 or 10,233 shares. Mr. Welgos has entered into a lock-up agreement prohibiting the sale or other transfer of all securities of the Company owned by him for a period of 12 months.

On January 12, 2017, the Company entered into a letter agreement with several entities affiliated with Jeffrey Peterson, the Company’s Chief Executive Officer and Mr. Peterson, individually (the “Peterson Letter Agreement”), as amended, whereby each of such parties agreed to convert all amounts due pursuant to three separate promissory notes (“Peterson Notes”) into common stock of the Company, contingent upon the completion of this offering. As of December 31, 2016, the aggregate amount of $4,021,507 (“Peterson Obligation”) was owed to such parties pursuant to the Peterson Notes. Pursuant to the Peterson Letter Agreement, the Peterson Obligation, together with interest accruing subsequent to December 31, 2016, will automatically convert upon consummation of this offering into such number of restricted shares of the Company’s common stock calculated by dividing the Peterson Obligation by $22.50, or 178,734 shares, exclusive of interest accruing subsequent to December 31, 2016. Each of the parties subject to the Peterson Letter Agreement have entered into a lock-up agreement prohibiting the sale or other transfer of all securities of the Company owned by such parties for a period of 12 months.

On January 12, 2017, the Company entered into a letter agreement with ADP Management, LLC, an entity controlled by David Derrick, the Company’s former Executive Chairman and a current consultant to the Company (the “ADP Letter Agreement”), as amended, whereby ADP Management agreed to convert all monies due it under that certain promissory note dated February 18, 2016 (“ADP Note”) into common stock of the Company, contingent upon the completion of this offering. As of December 31, 2016, the aggregate amount of $626,736 (“ADP Obligation”) was owed to ADP Management pursuant to the ADP Note. Pursuant to the ADP Letter Agreement, the ADP Obligation, together with interest accruing subsequent to December 31, 2016, will automatically convert upon consummation of this offering into such number of restricted shares of the Company’s common stock calculated by dividing the ADP Obligation by the per share price of the common stock in the offering, exclusive of interest accruing subsequent to December 31, 2016. ADP Management has entered into a lock-up agreement prohibiting the sale or other transfer of all securities of the Company owned by it for a period of 6 months.

Conversion of Series D Convertible Preferred Stock by Related Party and Non-Related Party

On January 12, 2017, the Company entered into a second letter agreement with GG (the “GG Preferred Stock Letter Agreement”), as amended, whereby GG agreed to convert 20,000 shares of Series D Preferred Stock of the Company owned by it into common stock of the Company based on current redemption value contingent upon the completion of this offering. As of the date hereof, the current redemption value of GG’s Series D Preferred Stock was $72,000 (“GG Preferred Stock Obligation”). Pursuant to the GG Preferred Stock Letter Agreement, the GG Preferred Stock Obligation will automatically convert upon consummation of this offering into such number of restricted shares of the Company’s common stock calculated by dividing the GG Preferred Stock Obligation by 80% of the per share price of the common stock in this offering. GG has entered into a lock-up agreement prohibiting the sale or other transfer of all securities of the Company owned by him for a period of 12 months.

On January 12, 2017, the Company entered into a letter agreement with Tyumen Holdings, LLC, an entity affiliated with Jeffrey Peterson, the Company’s Chief Executive Officer (the “Tyumen Preferred Stock Letter Agreement”), as amended, whereby Tyumen Holdings agreed to convert 25,000 shares of Series D Preferred Stock of the Company owned by it into common stock of the Company based on current redemption value, contingent upon the completion of this offering. As of the date hereof, the current redemption value of Tyumen’s Series D Preferred Stock was $300,000 (“Tyumen Preferred Stock Obligation”). Pursuant to the Tyumen Preferred Stock Letter Agreement, the Tyumen Preferred Stock Obligation will automatically

6

convert upon consummation of this offering into such number of restricted shares of the Company’s common stock calculated by dividing the Tyumen Preferred Stock Obligation by $22.50 or 13,334 shares. Tyumen has entered into a lock-up agreement prohibiting the sale or other transfer of all securities of the Company owned by it for a period of 12 months.

Redemption of Series E Preferred Stock

As of December 31, 2016, the aggregate amount of $513,074, consisting of dividends and royalties payable was owed to holders of the Company’s Series E Preferred Stock. The Company anticipates redeeming these shares with proceeds from this offering.

Authorization and Issuance of Series G Preferred Stock.

On January 31, 2017, the Company filed a certificate of designations, preferences and rights (the “Certificate of Designation”) with the Secretary of State of the State of Delaware with respect to a newly authorized class of its Series G Preferred Stock (the “Series G Preferred”). The Stated Value of one share of Series G Preferred is $500.

The Series G Preferred will automatically convert (“Automatic Conversion”) the Stated Value of such shares (the “Conversion Amount”) into fully paid and non-assessable shares of common stock of the Company (“Series G Conversion Shares”) upon (i) the Company’s receipt of Fifty Million Dollars (US$50,000,000) or more in gross revenue in a single fiscal year, (ii) the sale of the Company via asset purchase, stock sale, merger or other business combination in which the Company and/or its stockholders receive aggregate gross proceeds of Twenty-Five Million Dollars (US$25,000,000) or more, or (iii) the closing of an underwritten offering (the “Qualified Offering”) by the Company pursuant to which the Company receives aggregate gross proceeds of at least Ten Million Dollars (US$10,000,000) in consideration of the purchase of shares of common stock and/or which results in the listing of the Company’s common stock on the Nasdaq National Market, the Nasdaq Capital Market, the New York Stock Exchange, or the NYSE MKT. The number of Series G Conversion Shares issuable upon conversion of the Conversion Amount shall equal the Conversion Amount divided by the Conversion Price then in effect. The “Conversion Price” of the Series G Preferred is $22.50. Upon the trigger of an Automatic Conversion, all of the shares of Series G Preferred owned by such Holders will convert into common stock at the Conversion Price then in effect.

On January 31, 2017, the Company issued 32,415 shares of Series G Preferred to Tyumen Holdings, LLC, an entity affiliated with Jeffrey Peterson, the Company’s Chief Executive Officer and 10,805 shares of Series G Preferred to Jim Dalton, the Company’s former Chief Executive Officer and a consultant to the Company. The consideration for such issuance relates to services rendered to the Company. As a result of the foregoing, the Series G Preferred held by Tyumen Holdings and Mr. Dalton will convert to an aggregate of 960,445 shares of common stock upon the consummation of this offering. Each of Tyumen Holdings and Jim Dalton have entered into lock-up agreements, as amended, prohibiting the sale or other transfer of the Common Shares issued pursuant to the conversion of the Series G Preferred securities of the Company owned by each of them for the longer of (i) 18 months or (ii) the date the Company first has annual gross revenues in an amount of at least $20,000,000.

JMJ Financing

On September 19, 2016, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with JMJ Financial, a Nevada sole proprietorship (“JMJ”, and together with the Company, the “Parties”). Pursuant to the Purchase Agreement, as amended on November 17, 2016 and January 30, 2017, JMJ purchased from the Company (i) a Promissory Note in the aggregate principal amount of up to $1,500,000 (the “Note”) due and payable on the earlier of March 15, 2017 or the third business day after the closing of this offering, and (ii) a Common Stock Purchase Warrant (the “Warrant”) to purchase up to 60,000 shares (100% warrant coverage) of the Company’s common stock at an exercise price per share equal to the lesser of (i) 80% of the per share price of the common stock in this offering, (ii) $25 per share, (iii) 80% of the unit price in this offering (if applicable), or (iv) the exercise price of any warrants issued in

7

this offering. Upon the closing of this offering the number of shares issuable under the warrant will reset to an amount of shares equal to the aggregate exercise amount of the warrants (as defined therein) divided by the exercise price then in effect. The warrants expire in September 2021 and may be settled in a cashless exercise. The warrants may only be exercised to the extent the holder would own a maximum of 9.99% of the Company’s common stock after exercise. The Company anticipates recognizing the fair value as a debt discount, which will be amortized over the life of the borrowing. Additionally, pursuant to the Purchase Agreement, the Company will issue JMJ common stock (“Origination Shares”) on the 5th trading day after the pricing of this offering. The number of Origination Shares will equal 20% of the consideration paid by JMJ Financial to the Company under the Note divided by the lowest of (i) the lowest daily closing price of the common stock during the ten days prior to delivery of the Origination Shares or during the ten days prior to the date of the Purchase Agreement (in each case subject to adjustment for stock splits), (ii) 80% of the common stock offering price of this offering, (iii) 80% of the unit price offering price of this offering (if applicable), or (iv) 80% of the exercise price of any warrants issued in this offering. 

Effective March 3, 2107, the parties entered into a third amendment to the Purchase Agreement and the Note. Pursuant to the terms of Amendment, the maximum principal sum of the Note increased from $1,500,000 to $2,000,000. On March 3, 2017, JMJ paid an additional $200,000 in consideration to the Company, increasing the principal sum currently due to $1,700,000. In connection with the additional consideration, pursuant to the terms of the Purchase Agreement, on March 3, 2017, the Company issued JMJ a warrant to purchase up to 8,000 shares of common stock at the exercise price described above and subject to the reset provisions also described above.

In accordance with its terms, the Purchase Agreement became effective (the “Effective Date”) upon (i) execution by the Parties of the Purchase Agreement Note, the Warrant, and (ii) delivery of an initial advance pursuant to the Note of $500,000, which occurred on September 19, 2016 (the “Initial Advance”). As of the date hereof, a total of $1,700,000 has been funded by JMJ under the Note and, as a result, warrants exercisable for a total of 68,000 are required to be issued to JMJ. JMJ may, at its election, exercise the Warrant pursuant to a cashless exercise.

If the Company fails to repay the balance due under the Note, or issues a Variable Security (as defined in the Note) up to and including the date of the closing of this offering, JMJ has the right to convert all or any portion of the outstanding Note into shares of common stock, subject to the terms and conditions set forth in the Note. All amounts due under the Note become immediately due and payable upon the occurrence of an event of default as set forth in the Note.

JMJ has agreed to enter into a lock-up agreement prohibiting the sale or other transfer of all securities of the Company owned by them for a period of 6 months.

History and Corporate Information

ActiveCare, Inc. was formed March 5, 1998 as a wholly owned subsidiary of Track Group (OTCQX: TRCK), a Utah corporation, formerly known as SecureAlert, Inc. (“Track Group”). We were spun off from Track Group in February 2009. Effective July 15, 2009, we changed our name to ActiveCare, Inc., and our state of incorporation to Delaware. The address of our principal office is 1365 West Business Park Drive, Suite 100, Orem, Utah 84058 and our telephone number is (877) 219-6050. Our web site is located at www.activecare.com. Our website and the information contained in, or accessible through, our website will not be deemed to be incorporated by reference into this prospectus and does not constitute part of this prospectus.

8

The Offering

Issuer:

 

ActiveCare, Inc.

 

 

 

Securities offered by us:

 

680,000 units, each consisting of one share of common stock and one warrant to purchase one share of common stock. The warrants included within the units are exercisable immediately, have an exercise price of $31.25 per share (125% of the public offering price of one unit) and expire five years from the date of issuance.

 

 

 

Assumed Public Offering Price:

 

$25 per unit (1)

 

 

 

Common stock outstanding before the offering:

 

232,100 Shares

 

 

 

Common stock to be outstanding after the offering:

 


2,478,093, which includes the 680,000 units sold in the offering, plus an additional 1,565,993 shares that will be issued at the closing of the offering in connection with the conversion of preferred stock, debt and other liabilities, as well as other obligations to issue shares at closing as further described below.  Excludes 680,000 shares issuable upon exercise of the warrants sold in this offering and any securities that would be issued if the underwriters’ over-allotment option is exercised.

 

 

 

Overallotment option:

 

We have granted the underwriters a 45 day option to purchase up to _____ additional shares of our common stock at a public offering price of $___ per share and/or warrants to purchase ___ shares of our common stock at a public offering price of $0.01 per warrant, solely to cover over-allotments, if any.

 

 

 

Use of Proceeds:

 

We intend to use the net proceeds of this offering for research and development activities; sales and marketing, purchase of inventory, repayment of certain indebtedness and for general working capital purposes. See “Use of Proceeds.”

 

 

 

Risk Factors:

 

Investing in our securities is highly speculative and involves a high degree of risk. You should carefully consider the information set forth in the “Risk Factors” section beginning on page 13 before deciding to invest in our securities.

 

 

 

Trading Symbol:

 

Our common stock is currently quoted on the OTCQB under the trading symbol “ACAR”. We have applied to the NASDAQ Capital Market to list our common stock under the symbol “ACAR” and our warrants under the symbol “ACARW.” No assurance can be given that our applications will be approved. In order to obtain NASDAQ listing approval we effected a 1 for 500 reverse split of our common stock effective January 27, 2017.

 

 

 

Lock-up:

 

We and our directors, officers and principal stockholders have agreed with the underwriters not to offer for sale, issue, sell, contract to sell, pledge or otherwise dispose of any of our common stock or securities convertible into common stock for a period of 365 days after the date of this prospectus, in the case of our directors and officers, and 90 days after the date of this prospectus, in the case of certain of our principal stockholders. See “Underwriting” section on page 76.

____________

(1)      The assumed public offering price of $25.00 per unit is based on the last reported sale price of our common stock on March 10, 2017. The actual number of units we will offer will be determined based on the actual public offering price.

9

NASDAQ listing requirements include, among other things, a stock price threshold. As a result, prior to effectiveness, on November 1, 2016 we filed a Certificate of Amendment to our Certificate of Incorporation (the “Amendment”) to effectuate a 1-for-500 reverse stock split (the “Reverse Split”). On January 27, 2017, the Reverse Stock Split was approved by the Financial Industry Regulatory Authority and was effected on the OTC Marketplace.

The common stock to be outstanding after this offering is based on 232,100 shares outstanding as of March 10, 2017, and excludes the following as of such date:

The 2,478,093 shares of common stock to be outstanding after this offering is based on 232,100 shares outstanding as of March 10, 2017, plus the following shares to be issued at the closing of the offering, assuming an initial public offering price of $25.00 per share:

         17,000 shares issuable to JMJ Financial, See “SUMMARY — Recent Developments — JMJ Financing”;

         10,800 shares issuable upon cancellation of warrants held by PFG and its affiliates;

         2,500 additional shares issuable to PFG and its affiliates;

         222,700 shares of common stock issuable upon the conversion of the aggregate principal amount plus accrued interest calculated through December 31, 2016 on unsecured convertible promissory notes described under “Recent Developments” above;

         320,005 shares of common stock issuable upon the conversion of the aggregate principal amount plus accrued interest calculated through December 31, 2016 on unsecured convertible debentures described under “Recent Developments” above;

         16,934 shares of common stock issuable upon the conversion of Series D Preferred Stock as described under “Recent Developments” above;

         10,233 shares of common stock issuable upon the conversion of Series E Preferred Stock as described under “Recent Developments” above;

         960,445 shares of common stock issuable upon the conversion of Series G Preferred Stock as described under “Recent Developments” above;

         5,376 shares of common stock issuable upon the conversion of certain accounts payable and other obligations as described under “Recent Developments” above;

The 2,478,093 shares of common stock to be outstanding after this offering excludes the following:

         An indeterminable amount of shares to be issued upon conversion of unsecured convertible promissory notes for accrued interest  from January 1, 2017 through the date of closing.

         6,012 shares issuable upon exercise of outstanding warrants with a weighted average exercise price of $212.92;

         85,000 shares issuable upon exercise of warrants held by JMJ Financial at an exercise price of $20.00, subject to adjustment;

         140,000 shares issuable upon exercise of warrants held by PFG and its affiliates at an exercise price of $    ;

         11,070 shares of common stock issuable upon the exercise of warrants that are being issued to holders of unsecured convertible debentures in connection with their conversion of such debentures as described under “Recent Developments” above;

         320,005 shares of common stock issuable upon the exercise of warrants issuable upon the conversion of the aggregate principal amount plus accrued interest calculated through December 31, 2016 on unsecured convertible debentures described under “Recent Developments” above;

         377,250 shares of common stock reserved for issuance pursuant to the 2016 Plan;

         34,000 shares of common stock issuable upon exercise of warrants to be issued to the underwriters in connection with this offering; and

         680,000 shares of common stock issuable upon exercise of outstanding warrants sold in this offering.

Unless otherwise stated, all information in this prospectus assumes no exercise of the underwriters’ over-allotment option to purchase additional shares  and/or warrants.

10

SUMMARY CONSOLIDATED FINANCIAL INFORMATION

The following summary consolidated statements of operations data for the years ended September 30, 2016 and 2015 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The historical financial data presented below is not necessarily indicative of our financial results in future periods, and the results for the three months ended December 31, 2016 are not necessarily indicative of our operating results to be expected for the full fiscal year ending September 30, 2017 or any other period. You should read the summary consolidated financial data in conjunction with those financial statements and the accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our consolidated financial statements are prepared and presented in accordance with United States generally accepted accounting principles, or U.S. GAAP. Our unaudited condensed consolidated financial statements have been prepared on a basis consistent with our audited financial statements and include all adjustments, consisting only of normal and recurring adjustments that we consider necessary for a fair presentation of the financial position and results of operations as of and for such periods. Except as otherwise noted, all share and per share data for the periods shown have been adjusted, on a retroactive basis, to reflect a 1-for-500 reverse stock split, which became effective on January 27, 2017, but not the automatic conversion of all of 115,070 outstanding shares of preferred stock and the conversion of the aggregate principal amount, plus accrued interest, of unsecured convertible promissory notes and convertible accrued liabilities, into shares of common stock, which will occur upon consummation of the offering.

SUMMARY STATEMENTS OF OPERATIONS DATA

 

 

For the Three Months Ended December 31, 2016

 

Fiscal Years Ended
September 30,*

 

 

(unaudited)

 

(unaudited)

 

 

 

 

 

 

2016

 

2015

 

2016

 

2015

Total revenues

 

$

1,861,594

 

 

$

2,087,670

 

 

$

7,464,146

 

 

$

6,597,981

 

Cost of revenues

 

 

1,300,150

 

 

 

1,593,356

 

 

 

(5,334,172

)

 

 

(5,196,827

)

Gross profit (loss)

 

 

561,444

 

 

 

494,314

 

 

 

2,129,974

 

 

 

1,401,154

 

General and administrative expenses

 

 

1,210,294

 

 

 

2,346,705

 

 

 

(8,194,678

)

 

 

(10,358,410

)

Research and development expenses

 

 

167,608

 

 

 

22,909

 

 

 

(248,441

)

 

 

(106,526

)

Other income (expense), net

 

 

(3,537,577

)

 

 

(444,238

)

 

 

(2,809,415

)

 

 

(2,277,655

)

Discontinued operations

 

 

 

 

 

 

 

 

 

 

 

(186,232

)

Net loss

 

 

(4,354,036

)

 

 

(2,319,538

)

 

 

(9,122,560

)

 

 

(11,527,669

)

Net loss to common shareholders

 

$

(4,388,214

)

 

$

(2,723,086

)

 

$

(16,338,456

)

 

$

(12,823,749

)

Basic net loss per common share:

 

$

(18.91

)

 

$

(17.27

)

 

$

(84.50

)

 

$

(124.63

)

Diluted net loss per common share:

 

$

(18.91

)

 

$

(17.27

)

 

$

(92.78

)

 

$

(124.63

)

Weighted average common shares outstanding – basic

 

 

232,100

 

 

 

157,652

 

 

 

193,365

 

 

 

102,897

 

Weighted average common shares outstanding – diluted

 

 

232,100

 

 

 

157,652

 

 

 

196,122

 

 

 

102,897

 

____________

*         derived from audited consolidated financial statements

The following table presents consolidated balance sheet data as of December 31, 2016 on:

         an actual basis;

         a pro forma basis, giving effect to the sale by us of 680,000 units in this offering at an assumed public offering price of $25.00 per unit after deducting underwriting discounts and commissions and estimated offering expenses

The pro forma information will be adjusted based on the actual public offering price and other terms of this offering determined at pricing.

11

 

 

Actual

 

Pro Forma(1)

Consolidated Balance Sheet Data:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

292,724

 

 

$

13,939,356

Working capital (deficit)

 

 

(17,484,150

)

 

 

8,045,596

Total assets

 

 

2,490,458

 

 

 

15,683,888

Total liabilities

 

 

26,977,920

 

 

 

8,921,605

Total stockholders’ equity (deficit)

 

 

(24,487,462

)

 

 

6,762,284

____________

(1)      A $1.00 increase or decrease in the assumed public offering price per unit would increase or decrease our cash and cash equivalents, working capital (deficit), total assets and total stockholders’ equity (deficit) by approximately $600,000, assuming the number of units offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discount and estimated offering expenses payable by us.

12

RISK FACTORS

Investing in our common stock involves a great deal of risk. Careful consideration should be made of the following factors as well as other information included in this prospectus before deciding to purchase our common stock. There are many risks that affect our business and results of operations, some of which are beyond our control. Our business, financial condition or operating results could be materially harmed by any of these risks. This could cause the trading price of our common stock to decline, and you may lose all or part of your investment. Additional risks that we do not yet know of or that we currently think are immaterial may also affect our business and results of operations.

Risks Related To Our Business

BECAUSE OF OUR HISTORY OF ACCUMULATED DEFICITS, RECURRING LOSSES, NEGATIVE CASH FLOWS FROM OPERATING ACTIVITIES, NEGATIVE TOTAL EQUITY AND CERTAIN DEBT BEING IN DEFAULT, WE MUST ACHIEVE PROFITABILITY AND MAY BE REQUIRED TO OBTAIN ADDITIONAL FINANCING IF WE ARE TO CONTINUE AS A “GOING CONCERN.”

We incurred negative cash flows from operating activities and recurring net losses for the three months ended December 31, 2016 and in fiscal years 2016 and 2015. We had negative working capital at the end of each of those years. As of September 30, 2016 and 2015, our accumulated deficit was $108,178,614 and $91,840,158, respectively. These factors, among others, raise substantial doubt about our ability to continue as a going concern. The financial statements included in this prospectus do not include any adjustments that might result from the outcome of this uncertainty. In order for us to remove substantial doubt about our ability to continue as a going concern, we must achieve profitability, generate positive cash flows from operating activities and obtain necessary debt or equity funding. If we are unable to increase revenues or obtain additional financing, we will be unable to continue the development of our products and services and we may have to cease operations.

Our financial statements have been prepared on the assumption that we will continue as a going concern. Our independent registered public accounting firm has included an explanatory paragraph in its opinion on our financial statements for the fiscal years ended September 30, 2016 and 2015 stating that our recurring losses, negative cash flows from operating activities, negative working capital, negative total equity and certain debt that is in default, and other conditions, raise substantial doubt about our ability to continue as a going concern. It has been necessary to rely upon debt and the sale of our equity securities to sustain operations. Our management anticipates that we will require additional capital to fund ongoing operations without taking into account the proceeds from this offering. There can be no guarantee that we will be able to obtain such funds, or obtain them on satisfactory terms, and that such funds would be sufficient. If such additional funding is not obtained, we may be required to scale back or cease operations.

IF WE ARE UNABLE TO OBTAIN ADDITIONAL FINANCING, BUSINESS OPERATIONS WILL BE HARMED AND IF WE DO OBTAIN ADDITIONAL FINANCING THEN EXISTING SHAREHOLDERS MAY SUFFER SUBSTANTIAL DILUTION.

As of December 31, 2016, we had cash of $292,724. We expect the net proceeds from this offering, along with our current cash position, will enable us to fund our operating expenses and capital expenditure requirements for at least the next 24 months. Thereafter, unless we achieve profitability, we anticipate that we will need to raise additional capital to fund our operations and to otherwise implement our overall business strategy. We currently do not have any contracts or commitments for additional financing. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. The inability to obtain additional capital will restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we will likely be required to curtail and possibly cease operations. In addition, any additional equity financing may involve substantial dilution to then existing shareholders.

DUE TO OUR DEPENDENCE ON A LIMITED NUMBER OF CUSTOMERS, WE ARE SUBJECT TO A CONCENTRATION OF CREDIT RISK.

For the three months ended December 31, 2016, three customers accounted for 68% of our total revenues. For the fiscal year ended September 30, 2016, two customers accounted for 64% of our 2016 total revenues. For the fiscal year ended September 30, 2015, revenues from three customers represented 69% of our 2015

13

total revenues. Revenues from one of these customers, Rx Benefits, have declined to under 15% over the past six months and we anticipate revenues from Rx Benefits will fall below 5% of revenues in the future.

The loss of any of significant customers, other than Rx Benefits, would likely have a material adverse effect on our business, financial condition and results of operations. In addition, in the case of insolvency of any of our significant customers, receivables from that customer might not be collectible, might not be fully collectible, or might be collectible over longer than normal terms, each of which could have a material adverse effect on our business, financial condition, liquidity and results of operations.

WE CURRENTLY DEPEND UPON A SINGLE SOURCE SUPPLIER FOR OUR PRODUCTS, MAKING US VULNERABLE TO SUPPLY PROBLEMS AND PRICE FLUCTUATIONS, WHICH COULD HARM OUR BUSINESS.

During the three months ended December 31, 2016 and for fiscal years 2016 and 2015, we purchased substantially all of our products and supplies from one third-party vendor. We expect to rely on this single source third-party vendor for the manufacture of our Chronic Illness Monitoring products such as our current glucometer and the test strips required for that device until such time as we develop our own testing products. Although there are other vendors who manufacture similar products and supplies, our systems would need to be modified to accommodate those products and supplies. Consequently, we are dependent on this contract manufacturer for the production of our products and will depend on third-party manufacturing resources to manufacture products we may add to our product line in the future.

Our reliance on this vendor also subjects us to risks that could harm our business, including:

         we may not be able to obtain adequate supply in a timely manner or on commercially reasonable terms;

         we may have difficulty locating and qualifying alternative suppliers;

         our supplier manufactures products for a range of customers, and fluctuations in demand for the products it supplies for others may affect its ability to deliver product to us in a timely manner; and

         our supplier may encounter financial hardships unrelated to our demand for product, which could inhibit its ability to fulfill our orders and meet our requirements.

Any interruption or delay in the supply of products or materials, or our inability to obtain product from alternate sources at acceptable prices in a timely manner, could impair our ability to meet the demand of our customers and cause them to cancel orders or switch to competitive products, and could therefore have a material adverse effect on our business, financial condition, operating results and cash flows.

Our profitability depends upon MANY FACTORS for which no assurance CAN BE given.

Profitability depends upon many factors, including the ability to develop and maintain valuable product and monitoring solutions, our ability to identify and obtain the rights to additional products to add to our existing product line, success and expansion of our sales programs, expansion of our customer base, obtaining the right balance of expense levels and the overall success of our business activities. We anticipate that we will generate operating income in the next 12 months although no assurance can be given in this regard. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our product offerings or even continue our operations. A decline in the value of our stock could also cause you to lose all or part of your investment.

The commercial success of our products will depend upon the degree of market acceptance by physicians, hospitals, third-party PAYERS, and others in the medical community.

Ultimately, none of our current products or products in development, even if they receive approval, may ever gain market acceptance by physicians, hospitals, third-party payers or others in the medical community.

14

If these products do not achieve an adequate level of acceptance, we may not generate significant product revenue and we may not become profitable. The degree of market acceptance of our products, will depend on a number of factors, including:

         the efficacy and potential advantages over alternative treatments;

         the ability to offer our products and services for sale at competitive prices;

         the willingness of the target population to accept and adopt our products and services;

         the strength of marketing and distribution support and the timing of market introduction of competitive products and services; and

         publicity concerning our products and services or competing products and services.

Even if a potential product displays a favorable profile, market acceptance of the product will not be known until after it is launched. Our efforts to educate the medical community and third-party payers on the benefits of our products and services may require significant resources and may never be successful. Such efforts to educate the marketplace may require more resources than are required by conventional technologies marketed by our competitors.

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

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

Recent changes in insurance and health care laws have created uncertainty in the health care industry.

The Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act, each enacted in March 2010, generally known as the Health Care Reform Law, significantly expanded health insurance coverage to uninsured Americans and changed the way health care is financed by both governmental and private payers. We expect expansion of access to health insurance to increase the demand for our products and services, but other provisions of the Health Care Reform Law could affect us adversely. Additionally, further federal and state proposals for health care reform are likely. We cannot predict what further reform proposals, if any, will be adopted, when they may be adopted, or what impact they may have on us.

The collection, retention and disclosure of personal information and patient health information is regulated by law and subjects us and our business associates to potential liability for unauthorized disclosure and other use of such information.

State, federal and foreign laws, such as the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA), regulate the confidentiality of sensitive personal information and the circumstances under which such information may be released. These measures may govern the disclosure and use of personal and patient medical record information and may require users of such information to implement specified security measures, and to notify individuals in the event of privacy and security breaches. Evolving laws

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and regulations in this area could restrict the ability of our customers to obtain, use or disseminate patient information, or could require us to incur significant additional costs to re-design our products in a timely manner to reflect these legal requirements, either of which could have an adverse impact on our results of operations. Other health information standards, such as regulations under HIPAA, establish standards regarding electronic health data transmissions and transaction code set rules for specified electronic transactions, for example, transactions involving claims submissions to third-party payers. These also continue to evolve and are often unclear and difficult to apply. In addition, under the federal Health Information Technology for Economic and Clinical Health Act (HITECH Act), which was passed in 2009, some of our business that was previously only indirectly subject to federal HIPAA privacy and security rules became directly subject to such rules because we may serve as “business associates” to persons or entities that are subject to these rules. On January 17, 2013, the Office for Civil Rights of the Department of Health and Human Services released a final rule implementing the HITECH Act and making certain other changes to HIPAA privacy and security requirements. Compliance with the rule was required by September 23, 2013, and increased the requirements applicable to some of our business. Failure to maintain the confidentiality of sensitive personal information in accordance with the applicable regulatory requirements, or to abide by electronic health data transmission standards, could expose us to breach of contract claims, fines and penalties, costs for remediation and harm to our reputation.

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

We face, and will continue to face, competition in the Chronic Illness Monitoring market. Many of our competitors and potential competitors may have greater access to capital and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Moreover, many of our competitors may have greater name recognition and experience in the Chronic Illness Monitoring industry. Smaller and other early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. There can be no assurance that competition from other companies will not render our products and services noncompetitive.

THE LOSS OF ONE OR MORE MEMBERS OF OUR SENIOR MANAGEMENT OR KEY EMPLOYEES MAY ADVERSELY AFFECT OUR ABILITY TO IMPLEMENT OUR STRATEGY.

Our success depends to a significant extent upon the continued services of Mr. Jeffrey Peterson. The loss of the services of Mr. Peterson could have a material adverse effect on our growth, revenues, and prospective business. This individual is committed to the Company and willing to devote a large amount of time and energy to the Company. This employee could leave us with little or no prior notice. We do not have “key person” life insurance policies covering any of our employees. Additionally, there are a limited number of qualified technical personnel with significant experience in the design, development, manufacture, and sale of our products, and we may face challenges hiring and retaining these types of employees.

We depend on our experienced management team and the loss of one or more key executives could have a negative impact on our business. We also depend on our ability to retain and motivate key employees and attract qualified new employees. If we lose a member of the management team or a key employee, we may not be able to replace him or her. Integrating new employees into our management team and training new employees with no prior experience in our industry could prove disruptive to our operations, require a disproportionate amount of resources and management attention and ultimately prove unsuccessful. An inability to attract and retain sufficient technical and managerial personnel could limit or delay our development efforts, which could have a material adverse effect on our business, financial condition and results of operations.

Our NEWLY HIRED Chief Financial Officer WILL BE WORKING PART TIME FOR US RESULTING IN A potential lack of availability DUE TO OTHER ComMitments.

Mr. Eric Robinson, our newly hired Chief Financial Officer, Secretary and Treasurer, will be devoting two days a week in the performance of his duties to the Company. Mr. Robinson also has other commitments and obligations, which may result in a lack of availability when needed. It is anticipated that Mr. Robinson

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will be joining the Company on a full time basis in the future and is currently negotiating the terms of such engagement in good faith.

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

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

FUTURE CASH FLOW FLUCTUATIONS MAY AFFECT OUR ABILITY TO FUND OUR WORKING CAPITAL REQUIREMENTS OR ACHIEVE OUR BUSINESS OBJECTIVES IN A TIMELY MANNER.

Our working capital requirements and cash flows historically have been, and are expected to continue to be, subject to quarterly and yearly fluctuations, depending on such factors as timing and size of capital expenditures, levels of sales, timing of deliveries and collection of receivables, inventory levels, customer payment terms and supplier terms and conditions. We expect the net proceeds from this offering, along with our current cash position and cash available under our line of credit, will enable us to fund our operating expenses and capital expenditure requirements for at least the next 24 months. However, a greater than expected slow-down in capital spending by our customers may require us to adjust our current business model. As a result, our revenues and cash flows may be materially lower than we expect and we may be required to reduce our capital expenditures and investments or take other measures in order to meet our cash requirements. We may seek additional funds from liquidity-generating transactions and other conventional sources of external financing (which may include a variety of debt, convertible debt and/or equity financings). We cannot provide any assurance that our net cash requirements will be as we currently expect. Our inability to manage cash flow fluctuations resulting from the above factors could have a material adverse effect on our ability to fund our working capital requirements from operating cash flows and other sources of liquidity or to achieve our business objectives in a timely manner.

OUR DEBT FINANCING IS secured by the grant of a security interest in all of our assets and upon a default the lender may foreclose on all of our assets.

In February 2016, we entered into a loan and security agreement with Partners for Growth IV, L.P. (the “Loan and Security Agreement”) and issued certain notes payable in connection therewith (the “PFG Notes” together with the Loan and Security Agreement, the “PFG Obligations”). The PFG Obligations, which have an outstanding balance of principal and interest in the aggregate of $2,441,750 as of December 31, 2016, are secured by the grant of a security interest in all of the Company’s assets. In the event of the Company’s failure to make such payments or to comply with the terms of the working capital line of credit under the Loan and Security Agreement or the PFG Notes, PFG can declare a default and seek to foreclose on the Company’s assets. The Company and PFG entered into the December Forbearance Agreement, pursuant to which PFG agreed to forbear, through March 31, 2017, from exercising remedies with regard to certain breaches of agreements between the Company and PFG, under the Existing PFG Agreements.

If the Company is unable to repay or refinance its indebtedness to PFG it may be forced to cease operations and the holders of the Company’s common stock may lose their entire investment. also “Prospectus Summary — Recent Developments — “Partners for Growth IV, L.P. Loan Forbearance and Related Matters.

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OUR BUSINESS MAY BE MATERIALLY AND ADVERSELY AFFECTED BY INCREASED LEVELS OF DEBT.

In order to finance our business or to finance possible acquisitions we may incur significant levels of debt compared to historical levels, and we may need to secure additional sources of funding, which may include debt or convertible debt financing, in the future. A high level of debt, arduous or restrictive terms and conditions relating to accessing certain sources of funding, failure to meet the financial and/or other covenants in our credit and/or support facilities and any significant reduction in, or access to, such facilities, poor business performance or lower than expected cash inflows could have adverse consequences on our ability to fund our business operations. Other effects of a high level of debt include the following:

         we may have difficulty borrowing money in the future or accessing sources of funding;

         we may need to use a large portion of our cash flows from operating activities to pay principal and interest on our indebtedness, which would reduce the amount of cash available to finance our operations and other business activities;

         a high debt level, arduous or restrictive terms and conditions, or lower than expected cash flows would make us more vulnerable to economic downturns and adverse developments in our business; and

         if operating cash flows are not sufficient to meet our operating expenses, capital expenditures and debt service requirements as they become due, we may be required, in order to meet our debt service obligations, to delay or reduce capital expenditures or the introduction of new products and services, sell assets and/or forego business opportunities including acquisitions, research and development projects or product design enhancements.

WE MUST BE ABLE TO ESTABLISH AND MAINTAIN REQUIRED DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING AND TO MEET THE PUBLIC REPORTING AND THE FINANCIAL REQUIREMENTS FOR OUR BUSINESS.

Our management has a legal and fiduciary duty to establish and maintain disclosure controls and control procedures in compliance with the securities laws, including the requirements mandated by the Sarbanes-Oxley Act of 2002. The standards that must be met for management to assess the internal control over financial reporting as effective are complex, and require significant documentation, testing and possible remediation to meet the detailed standards. Because we have limited resources, we may encounter problems or delays in completing activities necessary to make an assessment of our internal control over financial reporting, and disclosure controls and procedures, if required. In addition, if we are required to obtain attestation by our independent registered public accounting firm, we may encounter problems or delays in completing the implementation of any requested improvements and receiving an attestation of our assessment by our independent registered public accounting firm. If we cannot assess our internal control over financial reporting as effective or provide adequate disclosure controls or implement sufficient control procedures, or our independent registered public accounting firm is unable to provide an unqualified attestation report on such assessment if required, investor confidence and share value may be negatively impacted.

RAPID GROWTH COULD RESULT IN A STRAIN ON OUR RESOURCES.

Because of our size, growth will likely place a significant strain on our financial, technical, operational and management resources. The failure to continue to upgrade our technical, administrative, operating and financial control systems or the occurrence of unexpected expansion difficulties, including the recruitment and retention of experienced managers, could have a material adverse effect on our business, financial condition and results of operations and our ability to timely execute this aspect of our business plan.

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Risks Related to Our Intellectual Property

SOME OF Our products MAY BE subject to the risks and uncertainties associated with the protection of intellectual property and related proprietary rights. We believe that our success depends in part on our ability to obtain and enforce patents, maintain trade secrets and operate without infringing on the proprietary rights of others in the United States and in other countries.

We own or have license rights under several patents; we have also applied for several additional patents and those applications are awaiting action by the United States Patent Office. There is no assurance those patents will issue or that when they do issue they will include all of the claims currently included in the applications. Even if they do issue, those new patents and our existing patents must be protected against possible infringement. The enforcement of patent rights can be uncertain and involve complex legal and factual questions. The scope and enforceability of patent claims are not systematically predictable with absolute accuracy. The strength of our own patent rights depends, in part, upon the breadth and scope of protection provided by the patent and the validity of our patents, if any.

We also rely on trade secrets laws to protect portions of our technology for which patent protection has not yet been pursued or is not believed to be appropriate or obtainable.

These laws may protect us against the unlawful or unpermitted disclosure of any information of a confidential and proprietary nature, including but not limited to our know-how, trade secrets, methods of operation, names and information relating to vendors or suppliers and customer names and addresses. We intend to protect this unpatentable and unpatented proprietary technology and processes, in addition to other confidential and proprietary information in part, by entering into confidentiality agreements with employees, collaborative partners, consultants and certain contractors. There can be no assurance that these agreements will not be breached, that we will have adequate remedies for any breach, or that our trade secrets and other confidential and proprietary information will not otherwise become known or be independently discovered or reverse-engineered by competitors.

WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, WHICH COULD AFFECT OUR ABILITY TO COMPETE.

There can be no assurance that trade secrets and other intellectual property will not be challenged, invalidated, misappropriated or circumvented by third parties. In some instances, we have augmented our technology base by licensing the proprietary intellectual property of others. In the future, we may not be able to obtain necessary licenses on commercially reasonable terms. We enter into confidentiality and invention assignment agreements with our employees and enter into non-disclosure agreements with our suppliers and appropriate customers so as to limit access to and prevent disclosure of our proprietary information. These measures may not suffice to deter misappropriation or third-party development of similar technologies. Moreover, the laws concerning intellectual property vary among nations and the protection provided to our intellectual property by the laws and courts of foreign nations may not be as advantageous to us as the protection available under U.S. law.

Costly litigation may be necessary to protect our intellectual property rights and we may be subject to claims alleging the violation of the intellectual property rights of others.

We may face significant expense and liability as a result of litigation or other proceedings relating to patents and intellectual property rights of others. In the event that another party has also filed a patent application or been issued a patent relating to an invention or technology claimed by us in pending applications, we may be required to participate in an interference proceeding declared by the United States Patent and Trademark Office to determine priority of invention, which could result in substantial uncertainties and costs for us, even if the eventual outcome was favorable to us. We, or our licensors, also could be required to participate in interference proceedings involving issued patents and pending applications of another entity. An adverse outcome in an interference proceeding could require us to cease using the technology, substantially modify it or to license rights from prevailing third parties.

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The cost to us of any patent litigation or other proceeding relating to our licensed patents or patent applications, even if resolved in our favor, could be substantial, especially given our early stage of development. Our ability to enforce our patent protection could be limited by our financial resources, and may be subject to lengthy delays. A third party may claim that we are using inventions claimed by their patents and may go to court to stop us from engaging in our normal operations and activities, such as research, development and the sale of any future products and services. Such lawsuits are expensive and would consume significant time and other resources. There is a risk that a court will decide that we are infringing the third party’s patents and will order us to stop the activities claimed by the patents. In addition, there is a risk that a court will order us to pay the other party damages for having infringed their patents.

Moreover, there is no guarantee that any prevailing patent owner would offer us a license so that we could continue to engage in activities claimed by the patent, or that such a license, if made available to us, could be acquired on commercially acceptable terms. In addition, third parties may, in the future, assert other intellectual property infringement claims against us with respect to our services, technologies or other matters.

We have limited foreign intellectual property rights and may not be able to protect our intellectual property rights throughout the world.

We have limited intellectual property rights outside the United States. Filing, prosecuting and defending patents on devices in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property to the same extent as laws in the United States. Consequently, we may not be able to prevent third parties from mimicking our inventions in all countries outside the United States, or from selling or importing products made using our inventions into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patents to develop their own products and further, may export otherwise infringing products to territories where we have patents, but enforcement is not as strong as that in the United States.

Many companies have encountered significant problems in protecting and defending intellectual property in foreign jurisdictions. The legal systems of certain countries, particularly China and certain other developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property, particularly those relating to medical devices and biopharmaceutical products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. To date, we have not sought to enforce any issued patents in these foreign jurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. The requirements for patentability may differ in certain countries, particularly developing countries. Certain countries in Europe and developing countries, including China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party, which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

THIRD PARTIES MAY CLAIM IN THE FUTURE THAT WE ARE INFRINGING DIRECTLY OR INDIRECTLY UPON THEIR INTELLECTUAL PROPERTY RIGHTS, AND THIRD PARTIES MAY INFRINGE UPON OUR INTELLECTUAL PROPERTY RIGHTS.

Many of the markets we serve are characterized by vigorous protection and pursuit of intellectual property rights, which may result in protracted and expensive litigation. Third parties may claim in the future that we are infringing directly or indirectly upon their intellectual property rights, and we may be found to be infringing or to have infringed directly or indirectly upon those intellectual property rights. Claims of

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intellectual property infringement might also require us to enter into costly royalty or license agreements. Moreover, we may not be able to obtain royalty or license agreements on terms acceptable to us, or at all. We also may be subject to significant damages or injunctions against development and sale of certain of our products, services and solutions. Our success depends in large part on our proprietary technology. We rely on a combination of patents, copyrights, trademarks, trade secrets, know-how, confidentiality provisions and licensing arrangements to establish and protect our intellectual property rights. If we fail to successfully protect and enforce these rights, our competitive position could suffer. Our pending patent and trademark registration applications may not be allowed, or competitors may challenge the validity or scope of our patents or trademark registrations. In addition, our patents may not provide us a significant competitive advantage. We may be required to spend significant resources to monitor and police our intellectual property rights. We may not be able to detect infringement and our competitive position may be harmed before we do so. In addition, competitors may design around our technology or develop competing technologies.

Risks Relating to Ownership of our Common Stock

WE CURRENTLY DO NOT INTEND TO PAY DIVIDENDS ON OUR COMMON STOCK. AS A RESULT, YOUR ONLY OPPORTUNITY TO ACHIEVE A RETURN ON YOUR INVESTMENT IS IF THE PRICE OF OUR COMMON STOCK APPRECIATES.

We currently do not expect to declare or pay dividends on our common stock. In addition, in the future we may enter into agreements that prohibit or restrict our ability to declare or pay dividends on our common stock. As a result, your only opportunity to achieve a return on your investment will be if the market price of our common stock appreciates and you sell your shares at a profit.

YOU MAY EXPERIENCE DILUTION OF YOUR OWNERSHIP INTEREST DUE TO THE FUTURE ISSUANCE OF ADDITIONAL SHARES OF OUR COMMON STOCK.

We are in a capital intensive business and we do not have sufficient funds to finance the growth of our business or to support our projected capital expenditures. As a result, we will require additional funds from future equity or debt financings, including sales of preferred shares or convertible debt, to complete the development of new projects and pay the general and administrative costs of our business. We may in the future issue our previously authorized and unissued securities, resulting in the dilution of the ownership interests of holders of our common stock. We are currently authorized to issue 200,000,000 shares of common stock and 10,000,000 shares of preferred stock. Additionally, the Board of Directors may subsequently approve increases in authorized common stock. The potential issuance of such additional shares of common or preferred stock or convertible debt may create downward pressure on the trading price of our common stock. We may also issue additional shares of common stock or other securities that are convertible into or exercisable for common stock in future public offerings or private placements for capital raising purposes or for other business purposes. The future issuance of a substantial number of common shares into the public market, or the perception that such issuance could occur, could adversely affect the prevailing market price of our common shares. A decline in the price of our common shares could make it more difficult to raise funds through future offerings of our common shares or securities convertible into common shares.

Our Amended and Restated Certificate of Incorporation allows for our board of directors to create new series of preferred stock without further approval by our stockholders, which could have an anti-takeover effect and could adversely affect holders of our common stock.

Our authorized capital includes preferred stock issuable in one or more series. Our board of directors has the authority to issue preferred stock and determine the price, designation, rights, preferences, privileges, restrictions and conditions, including voting and dividend rights, of those shares without any further vote or action by stockholders. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future. The issuance of additional preferred stock, while providing desirable flexibility in connection with possible financings and acquisitions and other corporate purposes, could make it more difficult for a third party to acquire a majority of the voting power of our outstanding voting securities, which could deprive our holders of common stock of a premium that they might otherwise realize in connection with a proposed acquisition of our company.

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There can be no assurances that our shares AND/OR WARRANTS will be listed on the NASDAQ Capital Market and, if they are, our shares will be subject to potential delisting if we do not meet or continue to maintain the listing requirements of the NASDAQ Capital Market.

We intend to apply to list the shares of our common stock on the NASDAQ Capital Market, or NASDAQ. An approval of our listing application by NASDAQ will be subject to, among other things, our fulfilling all of the listing requirements of NASDAQ. In addition, NASDAQ has rules for continued listing, including, without limitation, minimum market capitalization and other requirements. Failure to maintain our listing, or de-listing from NASDAQ, would make it more difficult for shareholders to sell our common stock and more difficult to obtain accurate price quotations on our common stock. This could have an adverse effect on the price of our common stock. Our ability to issue additional securities for financing or other purposes, or otherwise to arrange for any financing we may need in the future, may also be materially and adversely affected if our common stock is not traded on a national securities exchange.

THERE IS CURRENTLY ONLY A LIMITED PUBLIC MARKET FOR OUR COMMON STOCK AND NO PUBLIC MARKET FOR OUR WARRANTS. FAILURE TO DEVELOP OR MAINTAIN A TRADING MARKET COULD NEGATIVELY AFFECT THEIR VALUE AND MAKE IT DIFFICULT OR IMPOSSIBLE FOR YOU TO SELL YOUR SHARES.

There is currently only a limited public market for our common stock and no market for our warrants and the public offering price of the units may bear no relationship to the price at which our common stock and warrants will trade after this offering. An active public market for our common stock and/or warrants may not develop or be sustained. Failure to develop or maintain an active trading market could make it difficult for you to sell your shares or warrants without depressing the market price for such securities or recover any part of your investment in us. Even if an active market for our common stock and warrants does develop, the market price of such securities may be highly volatile. In addition to the uncertainties relating to future operating performance and the profitability of operations, factors such as variations in interim financial results or various, as yet unpredictable, factors, many of which are beyond our control, may have a negative effect on the market price of our securities. Further, quotes for shares of our common stock on the OTCQB may not be indicative of the market price on a national securities exchange, such as The Nasdaq Capital Market.

If and when a larger trading market for our SECURITIES develops, the market price of SUCH SECURITIES is still likely to be highly volatile and subject to wide fluctuations, and you may be unable to resell your sECURITIES at or above the price at which you acquired them.

The stock market in general and the market for smaller health service companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. The market price for our securities may be influenced by many factors that are beyond our control, including, but not limited to:

         variations in our revenue and operating expenses;

         market conditions in our industry and the economy as a whole;

         actual or expected changes in our growth rates or our competitors’ growth rates;

         developments or disputes concerning patent applications, issued patents or other proprietary rights;

         developments in the financial markets and worldwide or regional economies;

         variations in our financial results or those of companies that are perceived to be similar to us;

         announcements by the government relating to regulations that govern our industry;

         the recruitment or departure of key scientific or management personnel;

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         sales of our common stock or other securities by us or in the open market;

         changes in the market valuations of other comparable companies;

         general economic, industry and market conditions; and

         the other factors described in this “Risk Factors” section.

The trading price of our shares might also decline in reaction to events that affect other companies in our industry, even if these events do not directly affect us. Each of these factors, among others, could harm the value of your investment in our securities. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect our business, operating results and financial condition.

Efforts to comply with the applicable provisions of Section 404 of the Sarbanes-Oxley Act will involve significant expenditures, and non-compliance with Section 404 of the Sarbanes-Oxley Act may adversely affect us and the market price of our common stock.

Under current SEC rules, we have been required to report on our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404, and related rules and regulations of the SEC. We will be required to review on an annual basis our internal control over financial reporting, and on a quarterly and annual basis to evaluate and disclose changes in our internal control over financial reporting. This process may result in a diversion of management’s time and attention and may involve significant expenditures. We cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or the impact of the same on our operations, and we may not be able to ensure that the process is effective or that our internal control over financial reporting is or will be effective in a timely manner. In the event that we are unable to maintain or achieve compliance with the applicable provisions of Section 404 of the Sarbanes-Oxley Act and related rules, we and the market price of our common stock may be adversely affected.

If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. If any of the analysts who may cover us change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, our stock price would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent a change in control of our company and may affect the trading price of our common stock and warrants.

We are a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change in control would be beneficial to our existing stockholders. In addition, our certificate of incorporation and bylaws may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable. Our certificate of incorporation and bylaws:

         authorize the issuance of “blank check” preferred stock that could be issued by our Board of Directors to thwart a takeover attempt;

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         provide that vacancies on our Board of Directors, including newly created directorships, may be filled by a majority vote of directors then in office;

         place restrictive requirements (including advance notification of stockholder nominations and proposals) on how special meetings of stockholders may be called by our stockholders;

         do not provide stockholders with the ability to cumulate their votes; and

         provide that our Board of Directors or a majority of our stockholders may amend our bylaws.

Risks Related to the Offering

Investors in this offering will experience immediate and substantial dilution in net tangible book value.

The public offering price per unit will be substantially higher than the net tangible book value per share of our outstanding shares of common stock. As a result, investors in this offering will incur immediate dilution of $22.35 per share, based on the assumed public offering price of $25.00 per unit. Investors in this offering will pay a price per unit that substantially exceeds the book value of our assets after subtracting our liabilities. See “Dilution” for a more complete description of how the value of your investment will be diluted upon the completion of this offering.

In the event that our common stock AND WARRANTS ARE listed on the NASDAQ our stock price could fall and we could be delisted in which case broker-dealers may be discouraged from effecting transactions in shares of our common stock because they may be considered penny stocks and thus be subject to the penny stock rules.

The SEC has adopted a number of rules to regulate “penny stocks” that restricts transactions involving stock which is deemed to be penny stock. Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange Act of 1934, as amended. These rules may have the effect of reducing the liquidity of penny stocks. “Penny stocks” generally are equity securities with a price of less than $5.00 per share (other than securities registered on certain national securities exchanges or quoted on the NASDAQ Stock Market if current price and volume information with respect to transactions in such securities is provided by the exchange or system). Our securities have in the past constituted, and may again in the future constitute, “penny stock” within the meaning of the rules. The additional sales practice and disclosure requirements imposed upon U.S. broker-dealers may discourage such broker-dealers from effecting transactions in shares of our common stock, which could severely limit the market liquidity of such shares and impede their sale in the secondary market.

A U.S. broker-dealer selling penny stock to anyone other than an established customer or “accredited investor” (generally, an individual with net worth in excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse) must make a special suitability determination for the purchaser and must receive the purchaser’s written consent to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt. In addition, the “penny stock” regulations require the U.S. broker-dealer to deliver, prior to any transaction involving a “penny stock”, a disclosure schedule prepared in accordance with SEC standards relating to the “penny stock” market, unless the broker-dealer or the transaction is otherwise exempt. A U.S. broker-dealer is also required to disclose commissions payable to the U.S. broker-dealer and the registered representative and current quotations for the securities. Finally, a U.S. broker-dealer is required to submit monthly statements disclosing recent price information with respect to the “penny stock” held in a customer’s account and information with respect to the limited market in “penny stocks”.

Stockholders should be aware that, according to the SEC, the market for “penny stocks” has suffered in recent years from patterns of fraud and abuse. Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) “boiler

24

room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, resulting in investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.

Speculative nature of warrants.

The warrants offered in this offering do not confer any rights of common stock ownership on their holders, such as voting rights or the right to receive dividends, but rather merely represent the right to acquire shares of our common stock at a fixed price for a limited period of time. Specifically, commencing on the date of issuance, holders of the warrants may exercise their right to acquire the common stock and pay an exercise price of ___ per share, prior to five years from the date of issuance, after which date any unexercised warrants will expire and have no further value. Moreover, following this offering, the market value of the warrants is uncertain and there can be no assurance that the market value of the warrants will equal or exceed their public offering price. There can be no assurance that the market price of the common stock will ever equal or exceed the exercise price of the warrants, and consequently, whether it will ever be profitable for holders of the warrants to exercise the warrants.

We may need additional capital, and the sale of additional shares or equity or debt securities could result in additional dilution to our stockholders.

We believe that our existing cash, together with the net proceeds from this offering, will be sufficient to meet our anticipated cash needs for at least the next 24 months. We may, however, require additional cash resources due to changed business conditions or other future developments. If these resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain one or more credit facilities. The sale of additional equity securities could result in additional dilution to our stockholders and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. It is uncertain whether financing will be available in amounts or on terms acceptable to us, if at all.

If we raise additional funds through government or other third-party funding, collaborations, strategic alliances, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue stream or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

Our management will have broad discretion in the application of the net proceeds, including for any of the purposes described in the section of this prospectus entitled “Use of Proceeds.” You will be relying on the judgment of our management with regard to the use of these net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the net proceeds are being used appropriately. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our securities to decline and delay the development of our product candidates. Pending the application of these funds, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.

25

Sales of a substantial number of shares of our common stock following this offering may adversely affect the market price of our common stock and the issuance of additional shares will dilute all other stockholders.

Sales of a substantial number of shares of our common stock in the public market or otherwise following this offering, or the perception that such sales could occur, could adversely affect the market price of our common stock. After completion of this offering at an assumed offering price of $25.00 per unit, our existing stockholders will own approximately     % of our common stock assuming there is no exercise of the underwriters’ over-allotment option.

After completion of this offering at an assumed offering price of $25.00  per unit there will be          shares of our common stock outstanding. In addition, our certificate of incorporation, as amended, permits the issuance of up to approximately          additional shares of common stock after the completion of this offering. Thus, we have the ability to issue substantial amounts of common stock in the future, which would dilute the percentage ownership held by the investors who purchase shares of our common stock in this offering.

We and our officers, directors and certain stockholders have agreed, subject to customary exceptions, not to, without the prior written consent of Joseph Gunnar & Co., LLC, the representative of the underwriters, during the period ending 365 days from the date of this offering in the case of us and our certain directors and officers, 90 days from the date of this offering in the case of our stockholders who beneficially own more than 5% of our common stock (See “Conversion of Convertible Debentures, Promissory Notes and Accounts Payable”), directly or indirectly, offer to sell, sell, pledge or otherwise transfer or dispose of any of shares of our common stock, enter into any swap or other derivatives transaction that transfers to another any of the economic benefits or risks of ownership of shares of our common stock, make any demand for or exercise any right or cause to be filed a registration statement, including any amendments thereto, with respect to the registration of any shares of common stock or securities convertible into or exercisable or exchangeable for common stock or any other securities of the Company or publicly disclose the intention to do any of the foregoing.

After the lock-up agreements with certain of our principal stockholders pertaining to this offering expire 90 days from the date of this offering unless waived earlier by the representative, up to          of the shares that had been locked up will be eligible for future sale in the public market. After the lock-up agreements with our directors and officers pertaining to this offering expire 365 days from the date of this offering unless waived earlier by the managing underwriter, up to          of the shares (net of any shares also restricted by lock-up agreements with our principal stockholders) that had been locked up will be eligible for future sale in the public market. After the lock-up agreements with certain directors, officers and principal stockholders pertaining to this offering expire 12 months from the date of this offering unless waived earlier by the managing underwriter, up to          of the shares (net of any shares also restricted by lock-up agreements with our principal stockholders) that had been locked up will be eligible for future sale in the public market. Sales of a significant number of these shares of common stock in the public market could reduce the market price of the common stock.

26

USE OF PROCEEDS

We estimate that the net proceeds from the sale of the units that we are offering will be approximately $         million, based on an assumed public offering price of $25.00 per unit, and after deducting the underwriting discounts and commissions and estimated offering expenses, or $         million if the underwriters exercise their over-allotment option in full.

We currently expect to use the net proceeds of this offering primarily for the following purposes:

         approximately $3,000,000 for research and development for new products and improvements to existing products including but not limited to our proprietary glucometer and development of behavior predictive software;

         approximately $2,000,000 for the purchase of inventory;

         approximately $1,000,000 to upgrade sales and marketing capabilities including but not limited to professional relations and adding additional staff;

         *approximately $3,287,574 for the repayment of certain vendor payables, dividends and royalties due to holders of Series E Preferred Stock, debt, and other obligations; and

         the remainder for working capital and other general corporate purposes.

*Consisting of the following approximate amounts: (i) vendor payables in the amount of $590,000, (ii) payments to holders of the Series E Preferred Stock in the amount $513,074, (iii) reimbursements of employee expenses in the aggregate amount of $59,000, and (iv) non-interest bearing notes payable to JMJ Financial, LLC in the anticipated amount of $1,700,000 which matures on the earlier of March 15, 2017 or five days following the Company raising $10,000,000 in gross proceeds from an equity financing, (v) note payable to Green Wire, LLC in the amount of $370,000, which obligation bears interest at the rate of 12% per annum and is currently due and (vi) related-party notes payable to three past employees totaling $55,500.

We believe that the expected net proceeds from this offering and our existing cash and cash equivalents, together with interest thereon, will be sufficient to fund our operations for at least the next 24 months, although we cannot assure you that this will occur.

The amount and timing of our actual expenditures will depend on numerous factors, including the status of our development efforts, sales and marketing activities and the amount of cash generated or used by our operations. We may find it necessary or advisable to use portions of the proceeds for other purposes, and we will have broad discretion and flexibility in the application of the net proceeds. Pending these uses, the proceeds will be invested in short-term bank deposits.

27

MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Market and Other Information

Our common stock is quoted on the OTC Markets Group Inc.’s OTCQB Link quotation platform (the “OTCQB”) under the trading symbol “ACAR”. We have applied to the NASDAQ Capital Market to list our common stock under the symbol “ACAR” and our warrants under the symbol “ACARW.”

On January 27, 2017, we completed a 1-for-500 reverse split of our common stock. All share and per share information in the table below gives effect, retroactively, to the reverse stock split but not the conversion of our preferred stock into common stock upon consummation of the offering.

Immediately following the offering, we expect to have one class of common stock, and no preferred stock outstanding. As of December 31, 2016, there were approximately 2,183 registered holders of record of our common stock, and the last reported sale price of our common stock on the OTCQB was $25.00 per share on March 10, 2017.

Our common stock was initially quoted on the OTCQB in 2009 and the following table sets forth the high and low sales price of our common stock on the OTCQB for the periods set forth below. These prices are based on inter-dealer bid and asked prices, without markup, markdown, commissions, and may not represent actual transactions.

 

 

U.S. $

PERIOD

 

High

 

Low

Fiscal Year Ending September 30, 2017:

 

 

 

 

 

 

Quarter Ended March 31, 2017 (through March 10)

 

$

175.00

 

$

2.02

Quarter Ended December 31, 2016

 

 

35.00

 

 

10.00

Fiscal Year Ending September 30, 2016:

 

 

 

 

 

 

Quarter Ended September 30, 2016

 

$

32.50

 

$

12.50

Quarter Ended June 30, 2016

 

 

55.00

 

 

20.00

Quarter Ended March 31, 2016

 

 

90.00

 

 

13.00

Quarter Ended December 31, 2015

 

 

67.50

 

 

11.50

Fiscal Year Ending September 30, 2015:

 

 

 

 

 

 

Quarter Ended September 30, 2015

 

 

139.95

 

 

56.30

Quarter Ended June 30, 2015

 

 

175.00

 

 

100.00

Quarter Ended March 31, 2015

 

 

212.50

 

 

25.00

Quarter Ended December 31, 2014

 

 

220.00

 

 

60.00

Dividend Policy

To date, we have not paid any dividends on our common stock and do not anticipate paying any dividends in the foreseeable future. The declaration and payment of dividends on the common stock is at the discretion of our board of directors and will depend on, among other things, our operating results, financial condition, capital requirements, contractual restrictions or such other factors as our board of directors may deem relevant. We currently expect to use all available funds to finance the future development and expansion of our business and do not anticipate paying dividends on our common stock in the foreseeable future. In addition, the payment of cash dividends is prohibited under our current financing agreements.

28

CAPITALIZATION

The following table sets forth our consolidated cash and capitalization as of December 31, 2016. Such information is set forth on the following basis:

         actual basis (giving effect, on a retroactive basis, to a 1-for-500 reverse stock split which was consummated on January 27, 2017);

         on a pro forma basis, giving effect to (a) the conversion 45,000 shares of Series D Preferred Stock into approximately 16,934 shares of common stock, the conversion of 13,843 shares of Series E Preferred Stock into 10,233 shares of common stock and the conversion of 43,220 shares of Series G Preferred Stock into 960,445 shares of common stock, (b) the conversion of $11,436,945 in the aggregate principal amount of unsecured convertible promissory notes and debentures, plus accrued interest, into 542,705 shares of common stock (based upon amounts owing at December 31, 2016), (c) the conversion of an aggregate $116,167 of accounts payable into 5,376 shares of common stock in each case, upon consummation of this offering, (d) the issuance of 17,000 shares to JMJ Financial upon consummation of this offering, (e) the cancellation of warrants held by PFG in exchange for approximately 10,800 shares of common stock and $180,000 of notes payable, (f) the issuance of 2,500 shares of common stock and warrants for the purchase of 140,000 shares of common stock to PFG for forbearance fees, (g) the cash buyout of all remaining shares of Series E Preferred Stock for $513,074 and (h) the payoff of $1,480,294 in the aggregate principal amount of unsecured convertible promissory notes, plus accrued interest; and

         on a pro forma basis, giving effect to the sale by us of shares of common stock in this offering at an assumed public offering price of $25.00 per unit after deducting underwriting discounts and commissions and estimated offering expenses.

The pro forma information below is illustrative only and our capitalization following the completion of this offering will be adjusted based on the actual public offering price and other terms of this offering determined at pricing. You should read this table together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited and unaudited consolidated financial statements and the related notes appearing elsewhere in this prospectus.

 

 

Actual

 

Pro Forma(1)(2)

Cash and cash equivalents

 

$

292,724

 

 

$

13,939,356

 

Total liabilities

 

 

26,977,920

 

 

 

8,921,605

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

 

Preferred stock, $0.00001 par value: 10,000,000 shares authorized; 45,000 and 0 shares of Series D; and 70,070 and 0 shares of Series E outstanding, respectively

 

 

1

 

 

 

 

Common stock, $0.00001 par value; 200,000,000 shares authorized; 232,100 shares issued and outstanding actual, 2,478,093 shares issued and outstanding pro forma

 

 

2

 

 

 

25

 

Additional paid-in capital, common and preferred

 

 

88,079,363

 

 

 

129,647,813

 

Accumulated deficit

 

 

(112,566,828

)

 

 

(122,885,554

)

Accumulated other comprehensive loss

 

 

 

 

 

 

Total stockholders’ equity (deficit)

 

 

(24,487,462

)

 

 

6,762,284

 

____________

(1)      Excludes (i) 6,012 shares of our common stock issuable upon exercise of outstanding warrants at a weighted average exercise price of $212.92 per share as of December 31, 2016, (ii) 11,070 shares of common stock underlying the warrants to be returned and issued to certain lenders upon the closing of this offering, (iii) 34,000 shares of common stock underlying the warrants to be issued to the underwriters in connection with this offering, (iv) 85,000 shares of our common stock issuable upon exercise of warrants held by JMJ Financial (v) 140,000 shares of our common stock issuable upon exercise of warrants issued to PFG upon the closing of the offering and (vi) 90,000 shares of common stock issuable upon the exercise of the underwriters’ over-allotment option.

(2)      A $1.00 increase or decrease in the assumed public offering price per unit would increase or decrease our pro forma cash, additional paid-in capital, total stockholders’ equity (deficit) and total capitalization by approximately $652,174 assuming the number of units offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discount and estimated offering expenses payable by us.

29

DILUTION

If you invest in our securities, your investment will be diluted immediately to the extent of the difference between the public offering price you pay in this offering, and the pro forma net tangible book value per share of common stock immediately after this offering.

Net tangible book value dilution per share represents the difference between the amount per unit paid by the investors who purchased units in this offering and the pro forma net tangible book value per share of common stock immediately after completion of this offering as of December 31, 2016, after giving effect to (a) the conversion of 45,000 shares of Series D Preferred Stock into 16,934 shares of common stock, the conversion of 13,843 shares of Series E Preferred Stock into 10,233 shares of common stock and the conversion of 43,220 shares of Series G Preferred Stock into approximately 960,445 shares of common stock, (b) the conversion of $11,436,945 in the aggregate principal amount of unsecured convertible promissory notes and debentures, plus accrued interest and $1,589,205 of additional consideration, into 542,705 shares of common stock (based upon amounts owing at December 31, 2016), (c) the conversion of an aggregate $116,167 of accounts payable into 5,376 shares of common stock in each case, upon consummation of this offering, (d) the issuance of 17,000 shares to JMJ Financial upon consummation of this offering, (e) the cancellation of warrants held by PFG in exchange for approximately 10,800 shares of common stock and $180,000 of notes payable, (f) the issuance of 2,500 shares of common stock  and warrants for the purchase of 140,000 shares of common stock to PFG for forbearance fees, (g) the cash buyout of all remaining shares of Series E Preferred Stock for $513,074 and (h) the payoff of $1,480,294 in the aggregate principal amount of unsecured convertible promissory notes, plus accrued interest. As of December 31, 2016, our actual net tangible deficit value was $25,141,614 and our net tangible book deficit per share was $107.67. The calculation of pro forma net tangible book value as of December 31, 2016 assumes the conversion of certain convertible debts and accounts payable as well as Series D and Series E preferred stock into common stock at the conversion rates in effect at December 31, 2016.

After giving effect to the sale of shares of common stock at the assumed public offering price of $25.00 per share included in the units we are offering by this prospectus, and after deducting the underwriting discount and commission and estimated offering expenses, our pro forma net tangible book value (deficit) as of December 31, 2016 would have been $6,561,333 or $2.65 per share. This represents an immediate increase in pro forma net tangible book value (deficit) of $110.32 per share to existing stockholders and an immediate dilution of $22.35 per share to new investors purchasing shares in the offering.

The following table illustrates this per share dilution:

 

 

As of

 

 

 

 

December 31,

 

 

 

 

2016(1)

 

Pro Forma(2)

Assumed public offering price per unit

 

 

 

 

 

$

25.00

 

Net tangible book value per share as of December 31, 2016

 

$

(107.67

)

 

$

(107.67

)

Increase in pro forma net tangible book value per share attributable to new investors

 

 

 

 

 

$

110.32

 

Pro forma net tangible book value per share after giving effect to this offering

 

 

 

 

 

$

2.65

 

Dilution in net tangible book value per share to new investors

 

 

 

 

 

$

22.35

 

____________

(1)      The calculation of net tangible book value (deficit) as of December 31, 2016 (assumes the conversion of Series D and Series E preferred stock into common stock at the conversion rates in effect at December 31, 2016).

(2)      Calculated on a pro forma basis, giving effect to the conversion of all our outstanding shares of preferred stock into common stock.

The information above is as of December 31, 2016 and excludes the following:

         6,012 shares of our common stock issuable upon exercise of outstanding warrants at a weighted average exercise price of $212.92 per share as of December 31, 2016,

         11,070 shares of common stock underlying the warrants to be returned and issued to certain lenders upon the closing of this offering;

30

         85,000 shares of our common stock issuable upon exercise of warrants held by JMJ Financial;

         140,000 shares of our common stock issuable upon exercise of underlying warrants issued to PFG upon the closing of the offering;

         34,000 shares of common stock (39,100 shares of common stock if over-allotment is exercised in full) underlying the warrants to be issued to the underwriters in connection with this offering; and

         102,000 shares of common stock issuable upon the exercise of the underwriters’ over-allotment option.

If the underwriter’s overallotment option is exercised in full, our adjusted pro forma net tangible book value following the offering will be $3.53 per share, and the dilution to new investors in the offering will be $21.47 per share.

A $1.00 increase or decrease in the assumed public offering price per unit would increase or decrease our pro forma as adjusted net tangible book value after this offering by approximately $680,000, and dilution per share to new investors by approximately $0.27 for an increase of $1.00, or $(0.55) for a decrease of $1.00, after deducting the underwriting discount and estimated offering expenses payable by us.

31

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. Forward-looking statements present our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Forward-looking statements involve risks and uncertainties and include statements regarding, among other things, our projected revenue growth and profitability, our growth strategies and opportunity, anticipated trends in our market and our anticipated needs for working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plans,” “potential,” “projects,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend” or the negative of these words or other variations on these words or comparable terminology. These statements may be found under the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” as well as in this prospectus generally. In particular, these include statements relating to future actions, prospective products, market acceptance, future performance or results of current and anticipated products, sales efforts, expenses, and the outcome of contingencies such as legal proceedings and financial results.

Examples of forward-looking statements in this prospectus include, but are not limited to, our expectations regarding our business strategy, business prospects, operating results, operating expenses, working capital, liquidity and capital expenditure requirements. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products and services, the cost, terms and availability of components, pricing levels, the timing and cost of capital expenditures, competitive conditions and general economic conditions. These statements are based on our management’s expectations, beliefs and assumptions concerning future events affecting us, which in turn are based on currently available information. These assumptions could prove inaccurate. Although we believe that the estimates and projections reflected in the forward-looking statements are reasonable, our expectations may prove to be incorrect.

Important factors that could cause actual results to differ materially from the results and events anticipated or implied by such forward-looking statements include, but are not limited to:

         changes in the market acceptance of our products and services;

         increased levels of competition;

         changes in political, economic or regulatory conditions generally and in the markets in which we operate;

         our relationships with our key customers;

         adverse conditions in the industries in which our customers operate;

         our ability to retain and attract senior management and other key employees;

         our ability to quickly and effectively respond to new technological developments;

         our ability to protect our trade secrets or other proprietary rights, operate without infringing upon the proprietary rights of others and prevent others from infringing on the proprietary rights of the Company; and

         other risks, including those described in the “Risk Factors” discussion of this prospectus.

We operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all of those risks, nor can we assess the impact of all of those risks on our business or the extent to which any factor may cause actual results to differ materially from those contained in any forward-looking statement. The forward-looking statements in this prospectus are based on assumptions management believes are reasonable. However, due to the uncertainties associated with forward-looking statements, you should not place undue reliance on any forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and unless required by law, we expressly disclaim any obligation or undertaking to publicly update any of them in light of new information, future events, or otherwise.

32

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with the “Summary Statements of Operations Data” and our consolidated financial statements and the notes to those statements appearing elsewhere in this prospectus. This discussion and analysis contains forward-looking statements reflecting our management’s current expectations that involve risks, uncertainties and assumptions. Our actual results and the timing of events may differ materially from those described in or implied by these forward-looking statements due to a number of factors, including those discussed below and elsewhere in this prospectus particularly on page 13 entitled “Risk Factors”.

Overview

ActiveCare, Inc. is a Delaware corporation, formed March 5, 1998. Our fiscal year ends on September 30.

Our focus is on the monitoring of individuals with diabetes. Diabetes is a pandemic that, as of 2014, affected approximately 9% of the U.S. population or 29 million Americans. Studies have shown that the annual cost of treating an individual with diabetes and the comorbidities associated with the disease is approximately $13,700 per year. This combination costs the U.S. health system up to $245 billion annually. A major driver of diabetic-related claims is the lack of adherence to regular glucose monitoring. It is estimated that less than 20% of diabetics monitor their blood glucose levels on a regular basis, despite physician recommendations. ActiveCare offers what it believes to be a unique approach to caring for chronic illnesses such as diabetes by adding a “human touch” and monitoring component to traditional disease management. To that end, ActiveCare has created a “CareCenter” where its highly trained staff reaches out to assist its members in real-time. Historically, disease management, such as diabetes has been reserved for only the extreme high risk and high claim members. However, the ActiveCare solution brings clarity and light to the diabetic population, identifying who needs help today. Knowing who to worry about allows for the necessary action to be taken today to avoid major and costly events in the future.

Going Concern

We have financed operations primarily through the sale of equity securities, long-term debt and short-term debt. Until revenues are sufficient to meet our needs, we will continue to attempt to secure financing through equity or debt securities, including the sale of securities in this offering. We continue to incur negative cash flows from operating activities and net losses. We had minimal cash, negative working capital, and negative total equity as of December 31, 2016 and September 30, 2016, and are in default with respect to certain debt. These factors, among others, raise substantial doubt about our ability to continue as a going concern. The financial statements included in this prospectus do not include any adjustments that might result from the outcome of this uncertainty.

In order for us to eliminate substantial doubt about our ability to continue as a going concern, we must achieve profitability, generate positive cash flows from operating activities and obtain the necessary debt or equity funding to meet our projected capital investment requirements. Our management’s plans with respect to this uncertainty consist of raising additional capital by issuing debt or equity securities and increasing the sales of our products and services. If we are successful in completing the offering, we believe the net proceeds of the offering together with anticipated growth of the business will be sufficient to eliminate substantial doubt about our ability to continue as a going concern. There can be no assurance, however, that we will be able to complete the offering, raise sufficient additional capital or that revenues will increase rapidly enough to offset operating losses. If we are unable to increase revenues or obtain additional financing, we will be unable to continue the development of our products and services and may have to cease operations.

Research and Development Program

During the three months ended December 31, 2016, we spent approximately $168,000, compared to $23,000  during the comparable period from the prior year, on research and development related to chronic illness monitoring. The research and development program focuses on ongoing improvements to methods and systems along with new technologies for the capture and analysis of data, as well as scalable architectures to migrate to production applications and deployments.

33

Critical Accounting Policies

Our consolidated financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (or US GAAP).

This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with US GAAP. The preparation of these consolidated financial statements requires making estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenues and expenses for the reporting periods. On an ongoing basis, we evaluate such estimates and judgments. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ (perhaps significantly) from these estimates under different assumptions or conditions. The following summary includes accounting policies that we deem to be most critical to our business. Management considers an accounting estimate to be critical if:

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

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

Our significant accounting policies are described in Note 2 to our audited consolidated financial statements appearing elsewhere in this prospectus and are hereby incorporated by reference.

Liability Related to Options and Warrants

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

During the three months ended December 31, 2016, the Company measured the fair value of warrants classified as liabilities on the date of issuance and on each re-measurement date using the Monte Carlo valuation model. For this liability, the Company and valuation specialists developed their own assumptions that do not have observable inputs or available market data to support the fair value. This method of valuation involves using inputs such as the fair value of the Company’s common stock, stock price volatility, the contractual term of the warrants, risk–free interest rates and dividend yields. Due to the nature of these inputs, the valuation of the warrants uses Level 3 measurements.

Fair Value of Financial Instruments

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

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Accounts Receivable

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

Inventory

Inventory consists of glucometers and diabetic supplies and is recorded at the lower of cost or market, cost being determined using the first-in, first-out (“FIFO”) method. Inventory held by distributors is reported as inventory until the supplies are shipped to the end user by the distributor. We estimate an inventory reserve for obsolescence and excessive quantities. Due to competitive pressures and technological innovation, it is possible that estimates of net realizable values could change in the near term.

Goodwill

Goodwill is reviewed for impairment annually or more frequently when an event occurs or circumstances change that indicate that the carrying value may not be recoverable. Our annual testing date is September 30. The estimates of fair value are based on the best information available as of the date of the assessment, which primarily incorporates management assumptions about expected future cash flows and the Company’s overall market capitalization. Future cash flows can be affected by changes in industry or market conditions. Goodwill was impaired by $826,000 as of September 30, 2015, due, in part, to a potentially long-term reduction in the market capitalization of the Company subsequent to September 30, 2015. As a result, the Company no longer presents goodwill as an asset in its balance sheets.

Impairment of Long-Lived Assets

Purchased intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets, which range from two to twenty years. Long-lived assets, including intangible assets with finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. No long-lived assets were considered to be impaired as of December 31, 2016.

Extinguishment of Debt

We compare the cash flows of a modified note payable on the date of modification to the original terms of the note payable. The original note is derecognized and a gain or loss on the extinguishment is recognized if the present value of the cash outflows of the original note payable is 10% or more than the modified note payable.

Revenue Recognition

During the three months ended December 31, 2016 and the comparable period from 2015, revenues came from Chronic Illness Monitoring products and services. Information regarding revenue recognition policies relating to Chronic Illness Monitoring is contained in the following paragraphs.

Chronic Illness Monitoring

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

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

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and supplies are deployed to the end user. We also monitor the end user’s test results in real-time with our 24x7 CareCenter. Customers who are billed separately for monitoring are obligated to pay as the service is performed and revenue is recognized ratably over the period of the contract. The term of these contracts is generally one year and, unless terminated by either party, will automatically renew annually until terminated. Collection terms are net 30 days after claims are submitted. There is no contingent revenue in these contracts.

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

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

Multiple-Element Arrangements

Sales of Chronic Illness Monitoring products and services contain multiple elements. We evaluate each element in a multiple-element arrangement to determine whether it represents a separate unit of accounting. In order to account for elements in a multiple-element arrangement as separate units of accounting, the deliverables must have stand-alone value upon delivery. In determining whether monitoring services have stand-alone value, the nature of our monitoring services, whether we sell supplies to new customers without monitoring services, and availability of monitoring services from the other vendors are factors that are considered.

When multiple elements included in an arrangement are separable into different units of accounting, the arrangement consideration is allocated to the identified separate units of accounting based on the relative selling prices. Multiple-element arrangements accounting guidance provides a hierarchy to use when determining the relative selling price for each unit of accounting. Vendor-specific objective evidence (VSOE) of selling price, based on the price at which the item is regularly sold by the vendor on a stand-alone basis, should be used if it exists. If VSOE of selling price is not available, third-party evidence (TPE) of selling price is used to establish the selling price if it exists. If VSOE of selling price and TPE of selling price are not available, then the best estimate of selling price is to be used. Total consideration under our multiple-element contracts is allocated to supplies and monitoring through application of the relative fair value method or selling price.

Stock-Based Compensation

We measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized in the statement of operations over the period during which the employee is required to provide service in exchange for the award — the requisite service period. The grant-date fair values of the equity instruments are estimated using option-pricing models adjusted for the unique characteristics of those instruments.

Results of Operations

Three Months Ended December 31, 2016 and 2015

Revenues

Revenues for the three months ended December 31, 2016 were $1,862,000 compared to $2,088,000 for the same period in 2015, a decrease of $226,000, or 11%. The decrease is primarily due to the Company focusing on completing the Offering and a lower number of new members joined during the three months ended December 31, 2016 compared to the same period in 2015.

Cost of Revenues

Cost of revenues for the three months ended December 31, 2016 was $1,300,000, compared to $1,593,000 for the same period in 2015, a decrease of $293,000, or 18%. The decrease in cost of revenues is primarily due to fewer new members during the three months ended December 31, 2016 compared to the same period in 2015.

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Gross Profit

Gross profit for the three months ended December 31, 2016 was $561,000, compared to $494,000 for the same period in 2015, an increase of $67,000 as a result in reduction in the cost of revenues. We expect gross profit to improve throughout the remainder of fiscal year 2017 as we acquire more Chronic Illness Monitoring members and retain existing members.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended December 31, 2016 were $1,210,000, compared to $2,347,000 for the same period in 2015, a decrease of $1,137,000. Included in selling, general and administrative expenses is $12,000 and $1,180,000 of stock-based compensation incurred during the three months ended December 31, 2016 and 2015, respectively. The decrease in expenses incurred due primarily to decreases in stock-based compensation expense and travel expense, offset, in part, by an increase in payroll expense.

Research and Development Expenses

Research and development expenses for the three months ended December 31, 2016 were $168,000, compared to $23,000 for the same period in 2015, an increase of $145,000. The increase was due to continued investing in research and development as we develop new products and platforms for Chronic Illness Monitoring. We expect to continue invest into innovating new products as funds become available.

Gain on Derivatives Liability

Gain on derivatives liability for the three months ended December 31, 2016 was $22,000, compared to a gain of $46,000 for the same period in 2015. The derivative liability recorded as of December 31, 2016 relates to variable conversion price adjustments on outstanding notes payable and warrants. The derivatives liability recorded as of December 31, 2015 relates to a variable conversion feature at a 15% discount from the fair value of the Company’s common stock on the maturity date.

Interest Expense

Interest expense for the three months ended December 31, 2016 was $1,555,000, compared to $491,000 for the same period in 2015, an increase of $1,064,000. The increase is primarily due to additional notes payable issued and modifications made to existing notes payable during the fiscal year ended September 30, 2016 and the three months ended December 31, 2016.

Loss on Extinguishment of Debt

During the three months ended December 31, 2016 we recognized a loss on extinguishment of debt of $2,004,000. This loss result from a gain of $40,000 on the partial extinguishment of a derivative on a note payable as payments were made and a loss of $2,044,000 related to the extinguishment of debt related to the forbearance agreement on a secured note payable and related line of credit.

Net Loss

Net loss for the three months ended December 31, 2016, was $4,354,000, compared to a net loss of $2,320,000 for the same period in 2015, for the reasons described above.

Dividends on Preferred Stock

Dividends on preferred stock for the three months ended December 31, 2016, were $34,000, compared to $404,000 for the same period in 2015. The decrease was primarily due to the conversion of Series F Preferred into convertible notes payable and common stock during February 2016 and the reduction in the Series E Preferred dividend rate.

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Results of Operations

Fiscal Year 2016 Compared to Fiscal Year 2015

Net Revenues

Net revenues for fiscal year 2016 were $7,464,000, compared to $6,598,000 for fiscal year 2015, an increase of $866,000, or 13%. The increase is primarily due to resupply shipments to end users who were newly enrolled during fiscal years 2016 and 2015, an increase in the frequency of resupply shipments, and sales to new customers.

Cost of Revenues

Cost of revenues for fiscal year 2016 was $5,334,000, compared to $5,197,000 for fiscal year 2015, an increase of $137,000. The increase in cost of revenues is due to increased revenues during fiscal year 2016 and an increase in warranty liability, offset, in part, by a decrease in the reserve for inventory obsolescence.

Gross Profit

Gross profit for fiscal year 2016 was $2,130,000, compared to $1,401,000 for fiscal year 2015 for the reasons described above. We expect gross profit to improve in fiscal year 2017 as we acquire more Chronic Illness Monitoring members and retain existing members. We do not expect that the reduction in revenues from Rx Benefits will cause a decline in our aggregate gross revenues.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for fiscal year 2016 were $8,195,000, compared to $10,358,000 for fiscal year 2015, a decrease of $2,163,000, or 21%. The decrease in expenses incurred due primarily to decreases in stock-based compensation expense, payroll expense, investor relations expense, depreciation and amortization expense, and travel expense, offset, in part, by an increase in legal and professional fees expense.

Research and Development Expenses

Research and development expenses for fiscal year 2016 were $248,000, compared to $107,000 for fiscal year 2015, an increase of $141,000. We expect to continue investing in research and development as we develop new products and platforms for Chronic Illness Monitoring as funds become available.

Gain on Derivatives Liability

Gain on derivatives liability for fiscal year 2016 was $3,405,000, compared to $129,000 for fiscal year 2015. The derivative liability recorded as of September 30, 2016 relates to variable conversion price adjustments on outstanding notes payable and warrants. The derivatives liability recorded as of September 30, 2015 relates to a variable conversion feature at a 15% discount from the fair value of the Company’s common stock on the maturity date.

Gain on Liability Settlements

During fiscal year 2016 we entered into agreements which settled payables due to third parties, which resulted in gains totaling $297,000, compared to $261,000 for fiscal year 2015.

Gain on Lease Termination

During June 2015, a non-cancelable operating lease for office space was terminated resulting in a gain of $92,000 related primarily to the straight-line accounting for the lease agreement.

Impairment of Goodwill

The Company made an $826,000 adjustment to fully impair its goodwill as of September 30, 2015.

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Loss on Induced Conversion of Debt and Sale of Common Stock

During February 2016, we converted notes payable with outstanding principal balances totaling approximately $233,000 into 11,600 shares of common stock, at $20.00 per common share, which was below the fair value of the Company’s common stock on the date of conversion, which resulted in a loss on induced conversion of debt of $231,000.

During February 2016, we converted notes payable with outstanding principal balances totaling $350,000 plus accrued interest of $16,000 into 18,576 shares of common stock, at $20.00 per common share, which was below the fair value of the stock on the date of conversion. The conversion resulted in a loss on induced conversion of debt of $148,000 and a gain on extinguishment of debt of $64,000.

Interest Expense

Interest expense for fiscal year 2016 was $2,964,000, compared to $977,000 for fiscal year 2015. The increase is primarily due to additional notes payable issued and modifications made to existing notes payable during the fiscal years ended September 30, 2016 and 2015.

Loss on Extinguishment of Debt

During February 2016, we terminated notes payable to third parties with outstanding principal, net of discounts, of $697,000 and accrued interest of $39,000, for $1,123,000 in cash, and incurred fees of $50,000 to third parties and $75,000 to a related party, which resulted in a loss on extinguishment of debt of $512,000 in connection with these terminations.

During February 2016, we modified notes payable to related parties to subordinate to notes payable also issued during February 2016. The modifications also reduced the conversion price to $30.00 per common share, which was below the fair value of the stock on the date of the modifications, and limited conversion to a maximum of 58,500 shares of common stock. The modifications resulted in a loss on extinguishment of debt of $2,032,000. Also during February 2016, we modified a note payable to subordinate to notes payable also issued during February 2016, reducing the conversion price to $30.00 per common share, which resulted in a loss on extinguishment of debt of $381,000.

During February 2016, we modified a note payable to related parties to bifurcate the note into two notes payable. We assigned the majority bifurcated note and part of the smaller bifurcated note to a third party, which then converted the amounts into a convertible note payable. The fair value of the conversion feature was recorded as a derivative liability and resulted in a loss on extinguishment of debt of $182,000.

During February 2016, notes payable with outstanding principal balances totaling $350,000 plus accrued interest of $16,000 were converted into 18,576 shares of common stock, at $20.00 per common share, which was below the fair value of the stock on the date of conversion. The conversion resulted in a loss on induced conversion of debt of $148,000 and a gain on extinguishment of debt of $64,000.

During June 2016, $14,000 of principal and $11,000 of accrued interest converted into 952 shares of common stock, pursuant to the terms of a note payable, which resulted in a loss on extinguishment of debt of $15,000.

During August 2016, $65,000 of principal and $10,000 of accrued interest converted into 9,203 shares of common stock, pursuant to the terms of a note payable, which resulted in a loss on extinguishment of debt of $104,000.

During fiscal year 2015, we entered into settlement agreements on notes payable and accounts payable with related and unrelated parties that resulted in new notes. In connection therewith, a loss on extinguishment of debt of $928,000 was recorded. See Notes 9 and 10 to the consolidated financial statements.

Discontinued Operations

During December 2014, we sold substantially all of our customer contracts and equipment leased to customers associated with our CareServices segment. Additional equipment held in stock was sold to the buyer pursuant to a written invoice. The purchase price included a cash receipt of $412,000 for the

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customer contracts and $66,000 for the leased equipment. During fiscal year 2015 we recognized a loss from discontinued operations of $186,000.

Net Loss

Net loss for fiscal year 2016 was $9,123,000, compared to $11,528,000 fiscal year 2015 for the reasons described above.

Deemed Dividends on Redemption of Preferred Stock

During February 2016, we redeemed all 5,361 outstanding shares of our Series F preferred stock and related accrued dividends in exchange for 20,005 shares of common stock and notes payable of $5,900,000. We also exchanged warrants held by Series F preferred stockholders for the purchase 11,069 shares of common stock for new warrants for the purchase of the same number of shares with new terms. We recorded a deemed dividend of $6,484,000 as a result of these transactions.

Dividends on Preferred Stock

Dividends on preferred stock for fiscal year 2016 were $732,000, compared to $995,000 for fiscal year 2015. The decrease was primarily due to the conversion of Series F preferred stock into convertible notes payable and common stock during February 2016 and the reduction in the Series E preferred stock dividend rate, offset, in part, by an increase in the dividend rate of the Series F preferred stock from 8% to 25%, as provided by the certificate of designation of the Series F preferred stock.

Deemed Dividends on Conversion of Accrued Dividends to Common Stock

During fiscal year 2015, $944,000 of common stock was issued for the conversion of $572,000 of dividends payable and $71,000 of common stock was issued for the prepayment of dividends related to Series F preferred stock. The agreed-upon conversion rate per common share issued was less than the fair value of the common stock as of the conversion date, therefore, the additional fair value of $301,000 was recorded as a deemed dividend.

Liquidity and Capital Resources

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

Our cash balance as of December 31, 2016, was $292,724. At that time, we had a working capital deficit of $17,484,150, compared to a working capital deficit of $12,871,220 as of September 30, 2016. The increase in working capital deficit is primarily due to additions to accounts payable, accrued liabilities, notes payable, and derivatives liabilities related to the issuance of notes payable, offset, in part, by additions to accounts receivable.

Operating activities for the three months ended December 31, 2016, used cash of $47,985, compared to $502,588 for the same period in 2015. The decrease in cash used in operating activities is primarily due to the increase in accounts payable during the three months ended December 31, 2016, compared to the same period in 2015, offset, in part, by the increase in accounts receivable and inventory during the three months ended December 31, 2016, compared to the increase in accounts receivable and decrease in inventory the same period in 2015.

Investing activities did not use cash or have cash proceeds for the three months ended December 31, 2016. Investing activities used cash used of $2,074 for the same period in 2015. The decrease in cash used by investing activities is primarily due to the purchase and sale of property and equipment during the three months ended December 31, 2015 and none during the same period in 2016.

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Financing activities for the three months ended December 31, 2016, provided cash of $172,972, compared to $547,564 for the same period in 2015. The decrease in cash provided by financing activities is primarily due to a net increase in principal payments on debt during the three months ended December 31, 2016, compared to the same period in fiscal year 2015, offset, in part, by the net increase in proceeds from the issuance of debt during the three months ended December 31, 2016, compared to the same period in fiscal year 2015.

We had an accumulated deficit as of December 31, 2016, of $112,566,828, compared to $108,178,614 as of September 30, 2016. Our total stockholders’ deficit as of December 31, 2016, was $24,487,462 compared to $20,111,201 as of September 30, 2016. These changes were primarily due to our net loss during the three months ended December 31, 2016.

Off Balance Sheet Arrangements

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

Impact of Inflation

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

Recent Accounting Pronouncements

A discussion of recent accounting pronouncements is described in Note 2 to our audited consolidated financial statements appearing elsewhere in this prospectus and is hereby incorporated by reference.

Subsequent Events

In addition to the subsequent events described in the Prospectus Summary under the heading “Recent Developments” the following subsequent events occurred after our fiscal year end.

On January 3, 2017, the Company terminated a secured note payable with a principal balance of $162,539 as of September 30, 2016. No additional consideration was given as part of the termination.

On January 27, 2017, the Company sold $280,000 of future customer receipts to a third party for $200,000 in cash. The $80,000 difference between the future customer receipts and cash received by the Company is being amortized to interest expense over the term of the note. The note is subordinated to another note.

On February 14, 2017, the Company amended a note payable with principal balance of $334,464 to extend the maturity date to the earlier of the closing of the offering or March 31, 2017.

During January 2017, the Company amended a note payable to an entity controlled by the Chief Executive Officer with principal balance of $25,463 to extend the maturity date to February 15, 2017. The note was further amended during February 2017 to extend the maturity date to March 31, 2017.

The Company repaid all $135,000 of a cash advance from ADP in full satisfaction of such advance.

The Company sold $210,000 of future customer receipts to a third party for $150,000 in cash. The $60,000 difference between the future customer receipts and cash received by the Company is being amortized to interest expense over the term of the note. The note is subordinated to the secured note issued in favor of PFG.

The Company sold $560,000 of future customer receipts to a third party for $400,000 in cash. The $160,000 difference between the future customer receipts and cash received by the Company is being amortized to interest expense over the term of the note. The note is subordinated to secured note issued in favor of PFG.

The Company received cash advances from third parties in the amount of $817,500 and repaid $227,000, inclusive of fees.

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The Company amended a convertible note payable to a third party to extend the maturity date month-by-month through no later than April 30, 2017 for a fee of $5,000 per month.

The Company amended a note payable in the principal amount of $334,464 to extend the maturity date to the earlier of this offering or February 15, 2017.

The Company sold $225,750 of future customer receipts to a third party for $175,000 in cash. The $50,750 difference between the future customer receipts and cash received by the Company is being amortized to interest expense over the term of the note. The note is subordinated to another note.

The Company terminated a secured note payable with a principal balance of $110,533 as of January 3, 2017. No additional consideration was given as part of the termination.

The Company sold $280,000 of future customer receipts to a third party for $200,000 in cash. The $80,000 difference between the future customer receipts and cash received by the Company is being amortized to interest expense over the term of the note. The note is subordinated to the Company’s senior secured note with PFG.

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BUSINESS

Overview

Our focus is on the monitoring of individuals with diabetes. Diabetes is a pandemic that, as of 2014, affected approximately 9% of the U.S. population or 29 million Americans. Studies have shown that the annual cost of treating an individual with diabetes and the comorbidities associated with the disease is approximately $13,700 per year. This combination costs the U.S. health system up to $245 billion annually. The lack of regular glucose monitoring by diabetics is a major driver of diabetic related claims. It is estimated that as much as 80% of diabetics are non-compliant with their treatment plans, despite physician recommendations.

We believe we offer a unique approach to caring for individuals with diabetes by adding a “human touch” and monitoring component to traditional disease management. We have created a “CareCenter” where our “CareSpecialists” reach out to engage members while monitoring their condition on a regular and real-time basis. Our personalized and active monitoring approach allows for issues to be addressed promptly, avoiding major and costly future health complications.

The Problem: Diabetes and its Effect on Healthcare

Diabetes is a condition in which the body does not properly process food for use as energy. Most of the food we eat is turned into glucose, or sugar, for our bodies to use as energy. In order to do so, our pancreas produces a hormone called insulin to help glucose be absorbed by the cells of our bodies. Diabetes results from the body not producing sufficient levels of insulin needed to convert sugar, starches and other food into energy needed for daily life. In some instances, the body does not respond appropriately to insulin, a condition called “insulin resistance,” resulting in elevated blood glucose levels. With heightened glucose levels, the blood thickens becoming concentrated, almost “gel-like,” causing the heart and other organs to work harder in order to pump and circulate the blood throughout the body.

Diabetes can cause serious health complications including heart disease, blindness, kidney failure and lower extremity amputations. The National Diabetes Statistics Report for 2014, published by the Center for Disease Control and Prevention, estimates that 29.1 million people or 9.3% of the U.S. population is suffering from diabetes, comprised of 21 million diagnosed cases and 8.1 million undiagnosed cases. Diabetes is the seventh leading cause of death in the United States.

There are two types of diabetes:

Type I Diabetes — Accounting for between 5% – 10% of all diagnosed cases of diabetes as reported by the Centers for Disease Control and Prevention, type I diabetes is a chronic disease that usually appears during childhood or the teenage years in which the pancreas does not produce insulin. For unknown reasons, the immune system of people with type I diabetes attacks various cells in the body, including the insulin-producing ones of the pancreas. As a result, the body has a total depletion of the insulin hormone. The body’s process of converting sugar into energy is disrupted when insulin is not present. This disruption causes the build-up of sugar in the blood, leading to complications such as dehydration, weight loss and ultimately serious damage to the body. There is no cure for type I diabetes and it is not preventable.

Type II Diabetes Type II diabetes accounts for between 90% – 95% of all diagnosed cases of diabetes and differs from type I diabetes in that the body cannot use insulin properly, a condition called insulin resistance. At first, a patient’s pancreas makes extra insulin to make up for it. Over time the pancreas is not able to keep up and cannot make enough insulin to keep blood glucose at normal levels. Type II diabetes can develop at any age, most commonly becoming apparent during adulthood. However, type II diabetes in children is rising.

Whereas type I diabetes cannot be prevented, type II diabetes can be prevented or delayed with proper management. Proper management and control begins with adherence to treatment plans prescribed by medical providers. These plans are a combination of lifestyle changes, medication and regular testing (the American Diabetes Association recommends 3-4 tests per day). By testing at least 3 times per day, an individual with type II diabetes can learn how to control their chronic illness through proper food intake, weight control and exercise.

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If diabetics do not properly manage their disease, their blood will thicken. This causes the heart and other organs to work harder in order to pump and circulate blood and leads to the following comorbidities:

•       Blindness — diabetes is a leading cause of blindness.

•       Stroke — diabetics are 1.5 times as likely to have a stroke as compared to non-diabetics.

•       Heart attack — diabetics are 1.8 times as likely to have a heart attack as compared to non-diabetics.

•       Kidney disease — diabetes is the leading cause of kidney failure.

•       Amputation — diabetes is the leading cause of non-traumatic lower limb amputations.

A problem with diabetics’ management of their disease is clearly evident: between 50-80% of those with diabetes remain non-compliant with their treatment plans. Traditional programs remain ineffective because they provide no real-time visibility to medical professionals. Vital readings and information into a patient’s daily health and behaviors remain on the meter or testing devices and are often never shared or seen by a qualified medical professional.

With actionable and reliable information unavailable, healthcare professionals rely mainly on patients’ self-reporting and their A1C (90 day blood glucose average) test results. While these data points provide some historic insight, they are unable to show the daily high and low blood glucose events. We believe that something different is needed to effect and change behavior.

Healthcare professionals lack data on their diabetic patient’s daily health, there is no way to effectively monitor an individual’s condition. Without active monitoring, there is no way to know if an individual requires attention before their situation becomes critical and requires medical intervention either through the emergency room or a patient hospital stay. In our estimation, current diabetes management programs lack the ability to share and transfer information in “real-time.” This results in a reactionary approach that focuses and supports individuals after they have had a high cost claim and are considered high risk.

The ActiveCare Solution

The ActiveCare solution is focused on getting diabetic patients to test and manage their chronic illness on a regular and real-time basis. ActiveCare provides its solution to self-insured companies (“SICs”) through third party administrators (“TPAs”) and a network of health insurance brokers. In accordance with HIPAA regulations, a SIC cannot administer its own health plan due to privacy regulation and a SIC must have an unaffiliated third party administer the healthcare plan. The members that directly engage with our CareCenter specialists (or CareSpecialists) are diabetic patients employed by these SICs.

An ActiveCare member’s introduction to our program begins his/her receipt of a state-of-the-art cellular glucometer and testing supplies. Our CareSpecialist will then walk the new member through how to use the new device and direct the member to register on a private and secure website that records all of the member’s readings. From that point forward, the CareSpecialist establishes a personal working relationship with the diabetic member — encouraging testing; helping the member better understand their test results and how to respond to high or low readings — all on a real-time basis. It is this relationship that facilitates better health for our members, while ultimately saving the healthcare provider significant amounts in reduced claims.

As part of these efforts, we have staffed our CareCenter with highly trained “CareSpecialists” that maintain consistent contact with our members helping them through the ups and downs of managing their glucose levels. For example, when test results exceed certain thresholds (e.g., glucose readings being too high or too low) or a certain amount of time has passed without testing, members receive a prompt call from a CareSpecialist who will triage the member and, if necessary, contact emergency personnel. This “live” and timely intervention provides the platform of insight for members to modify their behavior while reinforcing goals to better manage their disease. Based on our internal data, we believe that each CareSpecialist can handle approximately 2,000 active diabetic members and make 300 outbound calls per week, as well as respond to emergency calls when readings are out of stated parameters. With real-time data, the CareSpecialists provide proactive support and encouragement to members before they become

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high risk. Our approach is designed to improve the health and wellness of members while also lowering the overall costs of medical care paid by their employers.

Our CareCenter is centrally located at our headquarters in Orem, Utah and can monitor diabetics throughout the United States. Our CareCenter location is also an ideal location for locating and training our CareSpecialists as it is within a five mile radius of some of the top universities with access to over 70,000 graduating students to draw from as CareSpecialists. If we desire to expand our service offerings in other countries, we would set up additional CareCenters in such regions as needed, in order to meet the appropriate dialect, customs and regulations required to support the end member.

Training of our CareSpecialists

CareSpecialists receive extensive initial and on-going training comparable to the training received by 911 emergency dispatchers (National Academy of Emergency Dispatchers). Upon being hired, a CareSpecialist goes through a two week course, in which they have classroom training on the ActiveCare solution; what diabetes is; corporate culture, opportunities within the Company; meeting Company personnel; how to on-board members and how to handle compliance calls and alert calls. This classroom training takes place for the first week, with half of each day dedicated to the classroom, and the remaining half day shadowing a team lead. The second week trainees perform calls while a team leader is there to assist and intervene if needed. During the following 90 days, the new hire is on probation and their phone calls are heavily audited, a review of attendance, production and behavior is analyzed and 911 certification is obtained. Further training continues throughout the employment of a CareSpecialist which includes but is not limited to the following:

•       How to coach and handle diabetics.

-       Proper diet

-       Proper testing

-       Managing the disease, including various motivating techniques to change the patient’s behavior

-       Communicating with doctors and nurses.

•       Emergency Medical Dispatch training.

-       Instructions in life-threatening situations.

-       Certified through the National Academy of Emergency Dispatch.

•       Software training in helping diabetics understand their charts and goals.

Strategy and Results

The ActiveCare solution brings forth a strategy that utilizes real-time information to immediately improve a patient’s outcome. With real-time data, the CareSpecialists provide proactive support and encouragement to members before they become high risk. To this end, we provide documentation of progress of individuals or populations over time. In the form of regular reports, members, employers, disease management providers and channel partners are provided relevant data detailing the progress of any group, sub-group, or individual in the ActiveCare program.

The outcomes of the ActiveCare approach have been significant. Based on our internal data, testing trends for ActiveCare members show that the more frequently a member tests, the blood sugar can be better managed and kept within a normal range. Without testing, there is no way for a member with diabetes to monitor and control their condition. Regular testing allows members to better monitor and modify behaviors to improve their health. The American Diabetes Association has advocated for years that the best way to control diabetes is by testing at least three times per day.

A peer-reviewed study funded by ActiveCare (the “ActiveCare Study”) documented the efficacy of the ActiveCare program and was published in the January 2014 edition of US Endocrinology. The ActiveCare Study began with half of program participants actively engaged in the program as the study group, and

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those choosing not to participate as the control group. In a year-over-year comparison, the diabetics who did not actively engage in the ActiveCare diabetes management program saw an average increase in medical costs of $282 per person which we believe is directly correlated to costs associated with complications that may have been avoided through proper testing. The diabetics in the study group who regularly tested their blood sugar levels and actively participated in our diabetes program showed a year-over-year reduction of medical costs of $3,384. We believe that these results suggest that through ActiveCare’s engagement programs, including but not limited to incentives and points systems (as described below) combined with comprehensive real time monitoring, result in healthier patients and lower overall costs of care.

Competitive Advantages/Operational Strengths

Unique Solution

The challenge facing the healthcare system is not whether to implement proper glucose monitoring and control, but rather how to motivate people with diabetes to monitor their glucose levels to improve their lives. In order to address this challenge, information indicating who is actually testing or not testing and who has readings that are outside of acceptable parameters is needed. Outside of our approach, we are not aware of any companies providing a service utilizing real-time information to help patients manage diabetes, reduce future medical costs and ultimately provide the information needed to address the challenge of ensuring individuals continue to properly test themselves.

Real-Time Visibility

Without the availability of actionable and reliable information, healthcare professionals have typically relied on a diabetic’s A1C (90-day blood glucose average) test results. While A1C test results provide some historic insight, these reports do not to show daily high and low blood glucose levels. We believe that our solution, with its emphasis on consistent communications with patients and real time monitoring is preferable to reliance on A1C test results. Our state-of-the-art cellular glucometer and testing supplies allow for test results to automatically be sent wirelessly to ActiveCare immediately following each test. The only thing a member of our service needs to do is test themselves and our CareSpecialists maintain regular contact to provide advice, answer questions and to engage emergency personnel if needed. ActiveCare provides caregivers, physicians, disease management, and wellness coordinators with real-time visibility into a member’s health.

Proactive Approach of our CareCenter

We believe that our 24/7 Care Center sets us apart from all other diabetes management programs. Historically, diabetics would be contacted by disease management personnel only after incurring high medical costs and being classified as high risk. This method is reactionary and does nothing to prevent diabetics from becoming high risk in the first place. With real-time data, the CareCenter provides proactive support and encouragement to our members before they become high risk. In addition, this “live” and timely intervention provides the platform of insight for members to modify their behavior while reinforcing goals to better manage their disease.

Engagement Strategy and Reward Program

The entire experience of how CareSpecialists interact with members has been retooled and refocused on increasing engagement. This engagement strategy is designed to foster increased testing through positive reinforcement involving an on-going testing rewards program, regular educational events and increased coordination with the group’s clinical team. Our rewards program is designed to incentivize members to test more often through monetary reward. Similar to other rewards programs from credit cards or airlines, members will earn points for each test they take, which accumulates in the members’ rewards account over the course of the year. Members can redeem the points through a rewards catalog within their account. This innovative program transforms testing into an exciting and fun activity and has the effect of significantly increasing the incidence of testing.

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Management Team and Key Personnel Experience

Our management team and key personnel have significant technical and entrepreneurial experience, with over 20 years of experience in the remote monitoring industry.

We believe our unique approach of combining monitoring technology with a human service touch will create a paradigm shift to increase testing and improve the health of those living with diabetes.

Growth Strategy

Increase Marketing and Sales Force

We market our products and services through a channel partner approach by establishing relationships with insurance companies, disease management companies, third-party administrators (“TPAs”) and self-insured companies (“SICs”). TPAs administer the claims, payments, co-pays, and medical coding for SICs and effectively act as the medical benefits administrators for their customers, who typically are not large enough to justify a fully operational in-house department. Disease management companies are hired by insurance companies and SICs to actively engage with members and employees with the goal that more interaction will reduce significant health care claims. Through TPAs and broker networks, we have serviced over 26,000 individuals with diabetes from over 800 SICs.

As our Company continues to evolve, we will seek to expand our channel partner strategy with the goal of increasing revenues. The expansion of existing SICs secured through this model provides us with a high volume of members to accomplish these goals. In addition to this channel partner strategy, we also anticipate initiating in the near future a direct sales model. In this model, we anticipate that sales executives with existing relationships and a regional market presence will call directly on large SICs (with over 2,000 employees). This direct sales model will allow the ActiveCare value proposition to be promoted directly by the sales executive to SICs and will provide direct insight to the Company’s executives on the progress of the sale.

Increase Testing and Membership

The key to the ActiveCare strategy is member engagement. When ActiveCare brings on a new client, the number of members of that client with diabetes who are testing is usually around 18%. Currently with ActiveCare’s engagement strategy, that figure typically more than doubles to 40%. Part of the ActiveCare strategy is to increase that percentage to 60% through various incentive programs that will also increase daily testing to three times per day.

These programs are coordinated with our customers (SICs) and include the following:

•       Financial rewards to member for their initial adoption

•       Financial rewards for testing multiple times per day

•       Onsite events to help train and educate members

•       Mailers, emails and videos that motivate and educate the member

We expect this engagement to not only increase the health of the diabetic population that uses the testing and monitoring services provided by our CareCenters, but also to increase our revenues and gross profits in a significant manner. This increase is achieved by increasing members testing behavior and the sales of test strips. Members are resupplied test strips on an as-needed basis as they test. As ActiveCare facilitates members to test more frequently, its revenues should increase on the increased sales of test strips alone. More importantly, increased monitoring is expected to result in our diabetic customers statistically having lower claims. This aligns ActiveCare’s increased sales goals with that of the healthcare provider who has a significant interest in improving the health of its members thereby reducing the attendant medical costs.

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Data Mining

The CareCenter is the real-time recipient of all test results which are delivered using the cellular glucometers that we provide to members. In addition to the real-time monitoring performed by our CareSpecialists, we also have in-house statisticians who analyze the test results data and provide written reports to our clients. This information is gathered, sorted and analyzed by ActiveCare, which in turn produces reports to the given groups (SICs, TPAs or Disease Management personnel). With this information, disease management personnel are offered real time visibility into the daily health of the members they are treating. The ultimate objective is to increase the percentage of diabetics who are regularly testing, which has been proven to be a major factor in reducing the cost of claims based on statistical data derived from the ActiveCare Study.

Technological Innovation/Product Development

Hardware

ActiveCare currently purchases all of it glucometers from a third-party vendor and provides these glucometers to its members at no cost upon their enrollment in our program. However, ActiveCare is in the process of building its own proprietary glucometer with custom designed functions that we believe will increase member engagement and CareCenter interaction. To that end, we have engaged with a third-party manufacturer with specific expertise in manufacturing and applying for FDA approval of glucometers.

Our proprietary glucometer is contemplated to have the following new functionalities:

•       Voice communication through the glucometer. At the touch of a button the diabetic can be in instant contact with ActiveCare’s CareCenter where he/she can be coached on how to manage his/her diabetic problems

•       Touch screen technology which will simplify the diabetic’s usage of the glucometer.

•       Built-in reminders that alert the diabetic member that it is time to test.

In addition, since over 57% of all diabetics suffer from complications and other chronic conditions caused by diabetes such as heart disease, congestive heart failure and obesity, our growth strategy specifically contemplates that our glucometer will be equipped with technology allowing other chronic conditions to be monitored by us. This would include the monitoring of blood pressure, blood oxygen levels, weight and heart rate measurements. This will allow us to further improve the health of our members and has the potential to broaden ActiveCare’s revenue base from our existing members.

Software

For the past four years, our R&D/IT expenditures were focused on developing a secured web based platform that allow our members, SICs, TPAs and disease management specialists the best experience possible in managing diabetes. In order to further develop these tools given the highly sensitive environment of cybersecurity surrounding HIPAA, we have continued to develop our own proprietary software solutions in which we are able to identify diabetics, produce statistical reports, and most importantly, continually improve the portal in which our members, SICs, TPAs, and others can set up their own alerting parameters to help the member succeed in their goals they have set with their doctor or disease management personnel. It is when a member is able to connect with others, and garner their support that life-changing actions can occur. We believe that our software and personnel facilitate these changes.

Chronic Illness Monitoring of other diseases

We plan to invest in research and development and patent filings, as we broaden the services we offer. We will continue to look for ways to provide solutions for other chronic illness and disease states markets. Our ultimate objective is to become a chronic illness monitoring company measuring not only blood sugar for diabetics, but also blood pressure, weight, and blood oxygen levels. Once we have proven our full turn-key

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solution within the diabetes disease market, we believe that our clients will want to engage our services to monitor other chronic diseases. We have found that the human touch factor, coupled with innovating technologies, allows us to connect with our members and provide them the support and coaching they need to understand the disease which they have, and how to live a healthy life. Roughly one in every four Americans suffers from a chronic illness like diabetes. Approximately 84 million people in this country suffer from some form of cardiovascular disease. One in every three adults suffers from high blood pressure. Nearly 3.7 million people per year are admitted to the hospital with heart disease. Since we already provide our diabetes monitoring services to over 800 SICs, expanding the Company’s monitoring capabilities to other chronic illnesses is a logical extension of building out our business and increasing revenues.

Material Customers

ActiveCare has two significant clients that accounted for 64% of our total revenues for our 2016 fiscal year as follows:

•       Office of Group Benefits (OGB), State of Louisiana — OGB accounted for 42% of 2015 revenues and 39% of 2016 revenues.

•       Rx Benefits — Rx Benefits accounted for 12% of 2015 revenues and 25% of 2016 revenues, however, over the past six months, Rx Benefits’ percentage of revenues has declined to under 15% and we anticipate revenues from Rx Benefits will fall below 5% of revenues in the future.

In addition, Key Benefits accounted for 15% of 2015 revenues. Key Benefits accounted for less than 10% of 2016 revenues.

Research and Development

Technology to facilitate data-driven chronic illness monitoring consists of three components: (1) biometric monitoring products and supplies, (2) medical and claims data aggregation, and (3) algorithms for the analysis of the data.

Biometric monitoring products and supplies are provided by numerous medical hardware providers and deliver a wide range of features and functionality. ActiveCare is agnostic to any specific device requirement, and has the ability to integrate and capture data from any 510(k) or HL7 compliant monitoring device. See “Regulatory Matters.”

We are currently in the process of building our own proprietary glucometer with custom designed functions that we believe will strengthen member engagement and CareCenter interaction. As mentioned above, our proprietary glucometer is expected to incorporate an easy to use touch screen interface, voice communication technology, testing notifications and reminders, as well the technology to sync with other future devices and analyze data related to other chronic conditions.

During fiscal year 2016, we spent approximately $248,000, compared to $107,000 in fiscal year 2015, on research and development related to chronic illness monitoring. In addition to costs incurred in connection with our proposed and proprietary glucometer, the research and development program focused on ongoing improvements to methods and systems for the capture and analysis of data, as well as scalable architectures to migrate to production applications and deployments during fiscal year 2015 that were developed during fiscal years 2013 and 2012.

Sales and Marketing

We currently service over 800 SICs through relationships with TPAs, our health insurance broker network, disease management companies and others. We market directly to TPAs and healthcare brokers through participation in healthcare fairs and events as well as through direct contact with our staff and direct mailings of our marketing materials. We plan to continue to mine our existing network of SICs for members as we further prove out our business model and the efficacy of our programs.

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Additionally, we are looking to deploy, upon consummation of this offering, a direct sales model to market directly to SICs. We anticipate that sales executives with existing relationships and a regional market presence will call directly on large SICs (with over 2,000 employees), which will effectively decrease our reliance on our relationship with TPAs and other third parties. Increasing our salesforce personnel will enable us to have a greater localized presence in the given geographic regions.

Competition

Over the past decade, technology device manufacturers have rushed to provide peripheral devices to capture data related to chronic health conditions rather than provide any assessment or intelligence regarding the data being captured. In most cases the data captured remains static on the peripheral device or data capture system, providing little to no perspective on the current and recent condition of the patient. In cases in which the data is utilized, the application of that data is typically limited to the “point of care” or physician’s office. The ActiveCare solution is a complex combination of components that provide an overall care system. ActiveCare’s combination of state-of-the-art technology including a cellular glucometer that sends test results to ActiveCare in real-time, along with its 24/7 CareCenter and engagement programs, provides a comprehensive and unique solution in the market. This real-time information allows ActiveCare’s 24/7 CareCenter to reach out to members moments after a dangerous reading. We believe that this real-time intervention along with ActiveCare’s proactive approach to engagement sets ActiveCare apart in the industry.

Our primary competitors are:

•       Livongo — Relatively new to the market, Livongo provides a cellular glucometer that reports to an online record. Generally, the focus of Livongo is with small pilot groups, in which it captures the members’ data who were already previously managing their disease.

•       GenesisHealth Technologies — Focused solely on the technology, GenesisHealth Technologies (“Genesis”) provides a cellular meter that sends results to an online record. Similar to traditional solutions focused solely on supplies, we do not believe that Genesis provides any solutions to increase engagement (i.e., get members testing) and therefore improve the health of members necessary to significantly reduce medical claims.

•       Telcare — Similar to GenesisHealth, Telcare is focused solely on the technology, in which they provide a cellular meter that sends results to an online record. Similar to traditional solutions focused solely on supplies, we do not believe that Telecare provides any solutions to increase engagement and therefore improve the health of members necessary to significantly reduce medical claims.

Intellectual Property

Trademarks

We have registered certain of our trademarks with the United States Patent and Trademark Office, including ActiveCare®, ActiveOne®, ActiveOne+®, and ActiveHome®. We also use certain trademarks, trade names, and logos that have not been registered. We claim common law rights to these unregistered trademarks, trade names and logos. We also own domain names, including www.activecare.com, and we claim ownership of certain unregistered copyrights of our website content. We also rely on a variety of proprietary rights that we license from third parties as described below.

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Patents

We own the following patents and patent applications:

Patent or
Application No.

 

Country

 

Issue/Filing Date

 

Title of Patent

9,161,198

 

United States

 

Issued 10/13/15

 

Systems and Devices for Emergency Tracking and Health Monitoring

 

 

 

 

 

 

 

8,942,676

 

United States

 

Issued 1/27/15

 

Systems and Devices for Emergency Tracking and Health Monitoring

 

 

 

 

 

 

 

14,286,695

 

United States

 

Pending 5/24/2014

 

System and Method for Identifying, Tracking and Treating Chronic Illness Using Real-time Biometric Data

 

 

 

 

 

 

 

7,251,471

 

United States

 

Issued 7/31/2007

 

Emergency Phone with Single Button Activation

We have exclusive licenses for the use of the following patents:

8,797,210

 

United States

 

Issued 8/5/2014

 

Remote Tracking Device and System and Method for Two-Way Voice Communication Between Device and a Monitoring Center

 

 

 

 

 

 

 

7,545,318

 

United States

 

Issued 6/9/2009

 

Remote Tracking System and Device with Variable Sampling and Sending Capabilities Based on Environmental Factors

We have non-exclusive licenses for the use of the following patents:

6,612,985

 

United States

 

Issued 9/2/2003

 

Method and System for Monitoring and Treating a Patient

 

 

 

 

 

 

 

6,307,481

 

United States

 

Issued 10/23/2001

 

Systems Within A Communication Device For Evaluating Movement Of A Body And Methods Of Operating The Same

 

 

 

 

 

 

 

6,501,386

 

United States

 

Issued 12/31/2002

 

Systems Within A Communication Device For Evaluating Movement Of A Body And Methods Of Operating The Same

 

 

 

 

 

 

 

6,661,347

 

United States

 

Issued 12/09/2003

 

Systems Within A Communication Device For Evaluating Movement Of A Body And Methods Of Operating The Same

 

 

 

 

 

 

 

6,703,939

 

United States

 

Issued 3/9/2004

 

System and Method For Analyzing Activity of A Body

 

 

 

 

 

 

 

6,864,796

 

United States

 

Issued 3/8/2005

 

Systems Within A Communication Device For Evaluating Movement Of A Body And Methods Of Operating The Same

 

 

 

 

 

 

 

7,095,331

 

United States

 

Issued 8/22/2006

 

System and Method For Analyzing Activity of A Body

 

 

 

 

 

 

 

7,145,461

 

United States

 

Issued 12/05/2006

 

System and Method For Analyzing Activity of A Body

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Trade Secrets

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

Regulatory Matters

The testing, manufacture, distribution, advertising and marketing of medical devices in the United States is subject to extensive regulation by federal, state and local governmental authorities, including the Food & Drug Administration (“FDA”). Certain of our products may be subject to and required to receive regulatory clearances or approvals, as the case may be, before we may market them. Under United States law, a medical device is an article, which, among other things, is intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment or prevention of disease, in man or other animals (see Food, Drug & Cosmetic Act (the “Act”) § 201(h)).

Devices are subject to varying levels of regulatory control, the most comprehensive of which requires that a clinical evaluation be conducted before a device receives clearance or approval for commercial distribution. The FDA classifies medical devices into one of three classes. Class I devices are relatively simple and can be manufactured and distributed with general controls. Class II devices are somewhat more complex and require greater scrutiny. Class III devices are new and frequently help sustain life. Examples of the varying levels of regulatory control are described in the following paragraphs.

In the United States, a company generally can obtain permission to distribute a new device in two ways — through a Section 510(k) premarket notification application (“510(k) submission”), or through a Section 515 premarket approval (“PMA”) application. The 510(k) submission applies to any device that is substantially equivalent to a “Predicate Device” (a device first marketed prior to May 28, 1976 or a device marketed after that date which was substantially equivalent to a pre-May 28, 1976 device). These devices are either Class I or Class II devices. Under the 510(k) submission process, the FDA will issue an order finding substantial equivalence to a Predicate Device and permitting commercial distribution of that device for its intended use. A 510(k) submission must provide information supporting its claim of substantial equivalence to the Predicate Device. The FDA permits certain low risk medical devices to be marketed without requiring the manufacturer to submit a premarket notification. In other instances, the FDA may not only require that a premarket notification be submitted, but also that such notification be accompanied by clinical data. If clinical data from human experiences are required to support the 510(k) submission, these data must be gathered in compliance with Integral Device Exemption (“IDE”) regulations for clinical trials performed in the United States. The FDA review process for premarket notifications submitted pursuant to section 510(k) should take about 90 days on average, but it can take substantially longer if the FDA has concerns. Furthermore, there is no guarantee that the FDA will “clear” the device for marketing, in which case the device cannot be distributed in the United States. There is no guarantee that the FDA will deem the device subject to the 510(k) process, as opposed to the more time-consuming, resource intensive and problematic process described below.

We do not currently manufacture our own chronic disease monitoring devices. We are currently working with a third party to manufacture our own proprietary cellular glucometer and strips. Manufacturers of medical devices are required to register with the FDA before they begin to manufacture devices for commercial distribution. As a result, any entity that manufactures products on our behalf will be subject to periodic inspection by the FDA for compliance with the FDA’s Quality System Regulation (“QSR”) requirements and other regulations. These regulations require us and our manufacturers to manufacture products and maintain documents in a prescribed manner with respect to design, manufacturing, testing and control activities. Further, we are required to comply with various FDA and other agency requirements for labeling and promotion. The Medical Device Reporting regulations require that we provide information to the FDA whenever there is evidence to reasonably suggest that a device may have caused or contributed to a death or serious injury or, if a malfunction were to occur, could cause or contribute to a death or serious injury. In addition, the FDA prohibits us from promoting a medical device for unapproved indications.

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In the United States, Health Insurance Portability and Accountability Act (“HIPAA”) regulations require national standards for some types of electronic health information transactions and the data elements used in those transactions, security standards to ensure the integrity and confidentiality of health information and standards to protect the privacy of individually identifiable health information. Covered entities under HIPAA, which include health care organizations such as our clients, our employer clinic business model and our claims processing, transmission and submission services, are required to comply with the privacy standards, the transaction regulations and the security regulations. As a business associate of our clients who are covered entities, we are generally required by contract to comply with the HIPAA regulations as they pertain to handling of covered client data. However, the extension of these HIPAA obligations to business associates by law has created additional liability risks related to the privacy and security of individually identifiable health information.

In the United States, the federal Health Insurance Portability and Accountability Act of 1996, Public Law 104-191 (the “HIPAA Statute”), and its related “Privacy Rules” (45 C.F.R. Part 164 Subparts A and E) and “Security Rules” (45 C.F.R. Part 164 Subpart C) and “Breach Notification Rules” (45 C.F.R. Part 164 Subpart D) as amended by the Health Information Technology for Economic and Clinical Health Act (the “HITECH Statute”) and any regulations promulgated thereunder (collectively, “HIPAA”), impose minimum requirements for the confidentiality, integrity and availability of individuals’ health information under certain conditions. Briefly, HIPAA requires “Covered Entities” as defined under HIPAA to comply with all applicable HIPAA requirements.

HIPAA also requires “Business Associates” to comply with the Security Rules as well as any additional specific obligations under HIPAA depending upon the services provided to “Covered Entities”. As a “Business Associate” of our clients who are “Covered Entities”, we are required to comply with the Security Rules in connection with our clients’ “Protected Health Information” or “PHI” as such terms are defined under HIPAA. Our obligations under the Security Rules and other applicable provisions of HIPAA are also imposed pursuant to contract with our “Covered Entity” clients. Such obligations under the Security Rules, other applicable requirements under HIPAA as well as contracts with “Covered Entity” clients (or with clients who are “Business Associates” where we would be deemed to be a “Subcontractor” under HIPAA) create liability risks for failure to abide by maintaining the confidentiality, integrity and availability of “PHI” in accordance with HIPAA and the contracts with “Covered Entity” (and “Business Associate”) clients.

Employees

As of March 10, 2017, we had thirty-eight (38) full-time and one (1) part-time employee. None of these employees are represented by a labor union or subject to a collective bargaining agreement. We have never experienced a work stoppage and our management believes that our relations with employees are good.

Legal Proceedings

On May 28, 2015, an investor in the Company, filed a lawsuit against the Company, James Dalton, our former CEO and Chairman, ADP Management, an entity controlled by David Derrick, our former Executive Chairman, and 4G Biometrics, a wholly owned subsidiary of the Company in the District Court of Utah-Central Division (Case No. 2:15-CV-00373-BCW). The lawsuit alleges a breach of contract, breach of the implied covenant of good faith and fair dealing, fraud and conspiracy to commit fraud and seeks damages in excess of $1,000,000, exclusive of interest and costs. The Company has engaged legal counsel regarding the matter. At this time, it is not possible to predict the outcome of the matter. The Company intends to vigorously dispute the litigation and believes it has meritorious defenses to the claims.

On November 4, 2015, the Company received a demand for payment of $275,000 from a former employee of the Company and former principal of 4G Biometrics who was terminated for cause in regards to his employment agreement. On December 4, 2015, the Company filed a complaint in the Third Judicial District Court in Salt Lake County, State of Utah (Case No. 150908531) against Kenith Lewis, a former employee, Randall K. Gardner, a former employee, and Darrell Meador, our President of Sales, all of

53

whom are the former owners of 4G Biometrics, seeking damages in excess of $300,000 related to alleged misrepresentations made to induce ActiveCare to acquire 4G Biometrics. In February 2016, the Company entered into settlement agreements with each of Kenith Lewis and Randall K. Gardner and Darrell Meador whereby all parties released all claims against each other.

With the exception of the foregoing, the Company is not involved in any disputes and does not have any litigation matters pending.

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DIRECTORS AND EXECUTIVE OFFICERS

As of the date of this prospectus, our directors, executive officers and significant employees are as follows:

Name

 

Age

 

Position

Jeffrey Peterson

 

39

 

Executive Chairman (Director) and Chief Executive Officer

Bradley Robinson

 

47

 

Director

Robert J. Welgos

 

78

 

Director

Chad Olsen

 

45

 

Director Nominee*

David Hall

 

48

 

Director Nominee*

Eric Robinson

 

50

 

Chief Financial Officer, In-House Counsel, Secretary and Treasurer

____________

*         Chad Olsen and David Hall have been appointed to the Board, pending the effectiveness of this registration statement.

Jeffrey S. Peterson — Chief Executive Officer and Chairman

Mr. Jeffrey Peterson was appointed as our Chief Executive Officer and Chairman on July 7, 2016. As a founding investor, Mr. Peterson was our Chief Financial Officer from September 2015 through July 7, 2016 and joined our Board of Directors in April 2014. He has been involved in numerous early stage ventures in the public and private sectors, with an emphasis in healthcare and technology. Mr. Peterson served in various capacities within ActiveCare from July 2011 through the present, including Director of Investor Relations and V.P. of Finance and Chief Financial Officer. From January 2010 until July 2012, he was the Director of Investor Relations for Track Group. Prior to Track Group, Mr. Peterson was a co-owner of a stock brokerage firm in Utah, where his roles included broker, market maker, AML officer and communications officer, while holding numerous FINRA security licenses.

He graduated from the University of Utah with a Bachelor of Arts Degree in Finance and Business Administration and is a founding member of the University Venture Fund. Mr. Peterson also currently holds board observation seats with Juneau Biosciences and CoNextions Medical.

In evaluating Mr. Peterson’s specific experience, qualifications, attributes and skills in connection with his appointment to our board, we took into account his numerous years of experience in finance, and his proven track record of success in such endeavors.

Bradley Robinson — Director

Mr. Bradley Robinson joined our Board of Directors in July 2016. Since March 2015 he has served as CEO of Predictive Technology Group, Inc. (PRED). PRED develops and commercializes discoveries and technologies involved in novel molecular diagnostic and stem cell/pharmaceutical therapeutic products. PRED has developed and/or acquired a number of technologies that open a window into the origin of human disease and the role that genes and their related proteins play in the disease’s onset and progression. Mr. Robinson has been a founding member of three such ventures in healthcare, one of which (Specialized Health Products International, Inc. was publicly traded until its acquisition in March 2008 by C.R. Bard. Mr. Robinson was the CEO and co-founder of Infusive Technologies, LLC from November 2004 until September 2008 when it was acquired by Sagent Pharmaceuticals, Inc. As part of the acquisition, Mr. Robinson became President of the medical device division of Sagent Pharmaceuticals. Sagent Pharmaceuticals is a specialty injectable pharmaceutical products company. He left Sagent Pharmaceuticals to become Vice President of Business Development of Juneau BioSciences in May 2010. Juneau develops and commercializes genetic tests related to women’s healthcare. He was responsible for developing strategic partnerships and the company’s capitalization. From March 2011 until September 2013 he was Chief Executive Officer and President of LifeCord Genetics, LLC. Mr. Robinson earned an MBA/MIM from the Graduate School of International Management (Thunderbird).

We believe Mr. Robinson is qualified to serve on our Board of Directors because of his experience with the early stage structuring of ventures in the areas of pharmaceuticals, medical devices and information technology.

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Eric Robinson — Chief Financial Officer, In-House Counsel, Secretary and Treasurer

Mr. Eric Robinson joined ActiveCare part-time as Chief Financial Officer, In-House Counsel, Secretary and Treasurer in July 2016. We expect Mr. Robinson to join us full-time in the future. Mr. Robinson spent fourteen years in private practice as a corporate attorney, including eleven years as a partner in the Salt Lake City, Utah law firm of Blackburn & Stoll, LC. Mr. Robinson’s law practice focused on securities, corporate and other business transactions. During the past five years, Mr. Robinson has been principally employed as (i) General Counsel, Chief Financial Officer and director of MicroPower Global Limited, a company in the semiconductor business since 2009, (ii) as the General Counsel, Chief Financial Officer and a director of Juneau Biosciences, LLC, a genetic research company, from 2008 until 2015 and (iii) a private attorney. Mr. Robinson also acts as a director and chairman of the audit committee of ClearOne, Inc. (NasdaqCM: CLRO). His legal practice includes working with companies in connection with public and private offerings of securities, corporate partnering, mergers and acquisitions, licensing and technology transfer and compensation planning. He graduated from the University of Utah with honors with a B.S. degree in accounting and he subsequently passed the CPA exam (unlicensed). He graduated from Vanderbilt University with a J.D. where he graduated Order of the Coif.

Robert J. Welgos — Director

Mr. Welgos joined our Board of Directors in June 2009. He has a Bachelor of Science in engineering from the Newark College of Engineering (1962), and worked for 38 years with Allied Signal Corp (now Honeywell International), in various technical department management positions, including being responsible for operations of Customer Technical Service Dept., Design Engineering, Testing Laboratories, and Process Laboratories. He also served as the Manager, North American Distributor Sales and Director of International Operations, where he established distribution networks throughout the Pacific Rim and South America. During this period, he was instrumental in the creation of joint ventures with Lucky Goldstar in Korea and Japan Synthetic Rubber in Japan. Mr. Welgos retired from Allied Signal Corp in 2000. Mr. Welgos is the Chairman of our board’s Compensation and Audit Committees. Among other things, Mr. Welgos’ education and extensive experience in the industries described above qualify him to advise management in our research and development agenda and customer service solutions. In addition, his experience in Asia is important as we source our products and manufacturing.

Chad Olsen — Director Nominee

Mr. Olsen has been appointed to the Board of Directors pending the effectiveness of this registration statement. Since May 2016, Mr. Olsen has served as the Chief Financial Officer and Chief Operating Officer of Search Group Partners, Inc., a premier recruiting firm that offers professional talent acquisition and consulting services to both local and nation-wide searches with its headquarters located in Salt Lake City, Utah. Previously, he provided accounting and consulting services as the founder and president of Acreal, LLC from May 2014 to May 2016. Prior to Acreal, he served for four years as Chief Financial Officer for Track Group, Inc. from January 2010 to May 2014, which provided electronic monitoring services as a lower-cost alternative to incarceration. Previous to his appointment as CFO, he served as Track Group’s corporate controller from September 2001 to January 2010. Additionally, he served as Track Group’s corporate secretary from January 2010 to November 2011. From 1997 to 2001, Mr. Olsen worked at Kartchner and Purser, P.C., a certified public accounting firm in performing tax, auditing, and business advisory services. From 1992 to 1996, Mr. Olsen worked in the banking industry with Universal Community Credit Union where he supervised teller and member services employees. Mr. Olsen received a Bachelor of Science Degree in Accounting from Brigham Young University. In evaluating Mr. Olsen’s experience and qualifications, we took into account Mr. Olsen’s extensive financial background, experience with general management, corporate governance and talent acquisitions.

David Hall — Director Nominee

Mr. Hall has been appointed to the Board of Directors pending the effectiveness of this registration statement. Mr. Hall is the founder and President of HSA Health Insurance Company (a.k.a HSA Heath Plan), a health insurance company that offers HSA based health plans exclusively to the fully insured group market and

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the self-funded group market. Prior to HSA Heath Plan, in 2003 Mr. Hall co-founded HealthEquity, Inc. (NASDAQ: HQY), a leader in the Consumer Directed Healthcare space HealthEquity with over $4 billion of assets under management and over 2.2 million HSAs. Prior to co-founding HealthEquity, Mr. Hall worked with Peppers & Rogers Group, a firm specializing in Customer Relationship Management strategy from May 2000 through January 2003. In addition to these business ventures, Mr. Hall served as President from May 1999 to May 2000 of TimeMarker, Inc., a company that helped other businesses leverage the Internet to sell their time-perishable inventory using a proprietary wireless exchange platform. Prior to this, he worked for Ernst & Young LLP in its Strategic Advisory Services group from May 1997 through May 1999. Mr. Hall received a master of business administration from Brigham Young University and a bachelor’s in English from Weber State University. In evaluating Mr. Hall’s experience we took into account his extensive management experience as well as background in health insurance which we believe to be synergistic with our business.

Family Relationships

Mr. Bradley Robinson and Mr. Eric Robinson are brothers. There are no other family relationships among any of our directors or executive officers.

Board Composition and Director Independence

Our board of directors consists of three members: Mr. Jeffrey Peterson, Mr. Robert J. Welgos and Mr. Bradley Robinson. Additionally, on November 1, 2016, we appointed Chad Olsen and David Hall to the Board, pending effectiveness of this registration statement. The directors will serve until our next annual meeting and until their successors are duly elected and qualified. The Company defines “independent” as that term is defined in Rule 5605(a)(2) of the NASDAQ Capital Market listing standards.

In making the determination of whether a member of the board is independent, our board considers, among other things, transactions and relationships between each director and his immediate family and the Company, including those reported under the caption “Related Party Transactions.” The purpose of this review is to determine whether any such relationships or transactions are material and, therefore, inconsistent with a determination that the directors are independent. On the basis of such review and its understanding of such relationships and transactions, our board affirmatively determined that Messrs. Hall, Olsen and Welgos are qualified as independent and do not have any material relationships with us that might interfere with his exercise of independent judgment.

Board Committees

Upon effectiveness of this registration statement, our board of directors will establish an audit committee and a nominating and corporate governance committee and our compensation committee will be reorganized. Upon effectiveness of this registration statement, each committee will have its own charter, which will be available on our website at www.activecare.com. Information contained on our website is not incorporated herein by reference. Each of the board committees will have the composition and responsibilities described below.

Members will serve on these committees until their resignation or until otherwise determined by our Board of Directors.

Audit Committee

Upon the effectiveness of this registration statement, we will have a separately designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act of 1934, as amended (the “Exchange Act”). The Committee will consist of three “independent” members, within the meaning of Rule 10A-3 under the Exchange Act and the NASDAQ Stock Market Rules. The Committee will consist of Director Nominee Chad Olsen (chair), Director Nominee David Hall and Mr. Robert Welgos. Our board has determined that Chad Olsen is currently qualified as an “audit committee financial expert”, as such term is defined in Item 407(d)(5) of Regulation S-K.

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The Audit Committee will oversee our accounting and financial reporting processes and oversee the audit of our financial statements and the effectiveness of our internal control over financial reporting. The specific functions of this Committee include, but are not limited to:

•       selecting and recommending to our board of directors the appointment of an independent registered public accounting firm and overseeing the engagement of such firm;

•       approving the fees to be paid to the independent registered public accounting firm;

•       helping to ensure the independence of the independent registered public accounting firm;

•       overseeing the integrity of our financial statements;

•       preparing an audit committee report as required by the SEC to be included in our annual proxy statement;

•       resolving any disagreements between management and the auditors regarding financial reporting;

•       reviewing with management and the independent auditors any correspondence with regulators and any published reports that raise material issues regarding the Company’s accounting policies;

•       reviewing and approving all related-party transactions; and

•       overseeing compliance with legal and regulatory requirements.

Compensation Committee

Upon the effectiveness of this registration statement, the members of our Compensation Committee will consist of three members, Director Nominee Chad Olsen, Director Nominee David Hall and Mr. Robert Welgos (Chair). Each such member will be “independent” within the meaning of the NASDAQ Stock Market Rules. In addition, each member of our Compensation Committee will qualify as a “non-employee director” under Rule 16b-3 of the Exchange Act. Our Compensation Committee assists the board of directors in the discharge of its responsibilities relating to the compensation of the board of directors and our executive officers.

The Committee’s compensation-related responsibilities include, but are not limited to:

•       reviewing and approving on an annual basis the corporate goals and objectives with respect to compensation for our Chief Executive Officer;

•       reviewing, approving and recommending to our board of directors on an annual basis the evaluation process and compensation structure for our other executive officers;

•       determining the need for and the appropriateness of employment agreements and change in control agreements for each of our executive officers and any other officers recommended by the Chief Executive Officer or board of directors;

•       providing oversight of management’s decisions concerning the performance and compensation of other company officers, employees, consultants and advisors;

•       reviewing our incentive compensation and other equity-based plans and recommending changes in such plans to our board of directors as needed, and exercising all the authority of our board of directors with respect to the administration of such plans;

•       reviewing and recommending to our board of directors the compensation of independent directors, including incentive and equity-based compensation; and

•       selecting, retaining and terminating such compensation consultants, outside counsel or other advisors as it deems necessary or appropriate.

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Nominating and Corporate Governance Committee

Upon the effectiveness of this registration statement, there will be three members of our Nominating and Corporate Governance Committee. Each such member will be “independent” within the meaning of the NASDAQ Stock Market Rules. The Committee will consist of Director Nominee Chad Olsen, Director Nominee David Hall (chair) and Mr. Robert Welgos. The purpose of the Nominating and Corporate Governance Committee is to recommend to the board nominees for election as directors and persons to be elected to fill any vacancies on the board, develop and recommend a set of corporate governance principles and oversee the performance of the board.

The Committee’s responsibilities include:

•       recommending to the board of directors nominees for election as directors at any meeting of stockholders and nominees to fill vacancies on the board;

•       considering candidates proposed by stockholders in accordance with the requirements in the Committee charter;

•       overseeing the administration of the Company’s code of business conduct and ethics;

•       reviewing with the entire board of directors, on an annual basis, the requisite skills and criteria for board candidates and the composition of the board as a whole;

•       the authority to retain search firms to assist in identifying board candidates, approve the terms of the search firm’s engagement, and cause the Company to pay the engaged search firm’s engagement fee;

•       recommending to the board of directors on an annual basis the directors to be appointed to each committee of the board of directors;

•       overseeing an annual self-evaluation of the board of directors and its committees to determine whether it and its committees are functioning effectively; and

•       developing and recommending to the board a set of corporate governance guidelines applicable to the Company.

The Nominating and Corporate Governance Committee may delegate any of its responsibilities to subcommittees as it deems appropriate. The Nominating and Corporate Governance Committee is authorized to retain independent legal and other advisors, and conduct or authorize investigations into any matter within the scope of its duties.

Code of Business Conduct and Ethics

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

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EXECUTIVE COMPENSATION

The following table summarizes information concerning the compensation awarded to, earned by, or paid to, our Chief Executive Officer (Principal Executive Officer or PEO) and our two most highly compensated executive officers other than the Principal Executive Officer during fiscal years 2016 and 2015 (collectively, the “Named Executive Officers”) who were serving in such capacities as of September 30, 2016, as well as James Dalton who served as our Chief Executive Officer from April 2015 through June 2016 and Michael Jones who served as our Principal Executive Officer from September 2014 to March 2015.

Summary Compensation Table

Name and principal

 

Year ended

 

Salary

 

Bonus

 

Stock awards

 

Warrant awards

 

All other compensation

 

Total

position
(a)

 

9/30
(b)

 

($)
(c)

 

($)
(d)

 

($)
(e)

 

($)
(f)

 

($)
(i)

 

($)
(j)

Jeffrey Peterson

 

2016

 

$

270,000

 

$

270,000

 

$

1,018,516

 

$

 

$

17,892

 

$

1,576,408

PEO. Former Chief Financial Officer

 

2015

 

$

60,000

 

$

 

$

1,245,941

 

$

 

$

3,035

 

$

1,308,976

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

James J. Dalton

 

2016

 

$

360,000

 

$

 

$

703,900

 

$

 

$

38,445

 

$

1,102,345

Former PEO

 

2015

 

$

120,000

 

$

 

$

954,828

 

$

20,472

 

$

982

 

$

1,096,282

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Darrell Meador,

 

2016

 

$

136,550

 

$

 

$

25,163

 

$

 

$

5,312

 

$

167,025

Former President of Sales

 

2015

 

$

135,000

 

$

50,000

 

$

197,162

 

$

12,569

 

$

19,769

 

$

414,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Michael Jones

 

2016

 

$

 

$

 

$

 

$

 

$

 

$

Former PEO

 

2015

 

$

67,500

 

$

 

$

240,550

 

$

 

 

$

7,947

 

$

315,997

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