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

                                   FORM 10-KSB

[X]       ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
          OF 1934
                                    For the fiscal year ended September 30, 2004

[   ]     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
          ACT OF 1934
                            For transition period from to                      .
                                                          ---------    ---------

Commission file number 0-23153

                                 REMOTEMDX, INC.
                 (Name of small business issuer in its charter)

         UTAH                                                    87-0543981
(State or other jurisdiction of                                 (IRS Employer
incorporation or organization)                               Identification No.)

5095 West 2100 South
Salt Lake City, Utah
                                                                     84120
 (Address of principal executive offices)                          (Zip Code)

 Issuer's telephone number: (801) 974-9474
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<S>                                                           <C>
 Securities registered under Section 12(b) of the Act:        Name of each exchange on which registered:
                  None                                                                   None

 Securities registered under Section 12(g) of the Act:        Common Stock, $0.0001 par value
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes No X

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]

Issuer's revenues for the fiscal year ended September 30, 2004 were $1,117,520.

Registrant's common stock has not traded and there is no market for the common
stock at this time. Based solely on the price per share of $0.54 paid to the
registrant in recent sales of shares of common stock by third party investors in
the past , it is estimated that the aggregate market value of the voting and
non-voting common equity held by non-affiliates is approximately $12,544,000.

There were 33,312,512 shares of common stock of the registrant outstanding as of
June 10, 2005.

Transitional Small Business Disclosure Format (Check one): Yes ___ No X


                                        1
<PAGE>


                                TABLE OF CONTENTS

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<CAPTION>

                                                                                                              Page
                                                                                                               No.
                                                                                                              ----

PART I.
<S>        <C>                                                                                                   <C>
Item 1.    Description of Business................................................................................3

Item 2.    Description of Property...............................................................................13

Item 3.    Legal Proceedings.....................................................................................13

Item 4.    Submission of Matters to a Vote of Security Holders...................................................13

PART II.

Item 5.    Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of
           Equity Securities.....................................................................................14

Item 6.    Management's Discussion and Analysis or Plan of Operation.............................................15

Item 7.    Financial Statements..................................................................................30

Item 8.    Changes In and Disagreement with Accountants on Accounting and Financial Disclosure...................30

Item 8A.   Controls and Procedures...............................................................................30

Item 8B.   Other Information.....................................................................................31

PART III

Item 9.    Directors and Executive Officers of the Registrant....................................................31

Item 10.   Executive Compensation................................................................................33

Item 11.   Security Ownership of Certain Beneficial Owners and Management and
           Related Stockholder Matters...........................................................................35

Item 12.   Certain Relationships and Related Transactions........................................................37

Item 13.   Exhibits, List and Reports on Form 8-K................................................................39

Item 14.   Principal Accountant Fees and Services................................................................40

Signatures ......................................................................................................41

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                                        2
<PAGE>
                                     PART I

Item 1. Description of Business

General

RemoteMDx, Inc. ("RemoteMDx" or the "Company") markets and sells patented
wireless location technologies and the related monitoring services, and
develops, markets and sells personal security, senior supervision, and health
monitoring devices and monitoring services. The RemoteMDx products and
monitoring services feature wireless products that utilize GPS and cellular
technologies in conjunction with a monitoring center. The products are
manufactured by the Company's equity and technology partner, Matsushita Electric
Works ("MEW"). These devices include a mobile emergency response device,
MobilePAL(TM), which can locate persons in distress, no matter where they may
be, and dispatch the closest emergency service to their location. The Company
has recently developed and has several working prototypes of a tracking device,
TrackerPAL, which will be used to monitor convicted offenders in the criminal
justice system. The Company believes that its technologies and services will
benefit the healthcare and penal system as they allow both care providers and
law enforcement officials to respond immediately to a medical event or criminal
activity. Our customers will be able to better monitor and manage their own
chronic disease and medical conditions, giving peace of mind to them and their
loved ones and care providers.

The Company's primary health monitoring products and service market consists of
approximately 35 million Americans that are over the age of sixty-five. Of these
35 million seniors, it is estimated that 9.7 million seniors currently live
alone. However, in most cases, the Company anticipates that the senior customer
will not purchase the Company's products for themselves. Instead, in RemoteMDx's
analysis and experience, it would be more effective to target the children or
caregivers of these seniors. Therefore, the primary target market is children,
friends, and spouses of these individuals.

Additionally, the Company has identified a growing need in the parole/probation
market, which in 2003, consisted of 4.9 million adults in the criminal justice
system at any given time. In order to meet the needs of this growing demand, the
Company is developing a mobile monitoring device that works in conjunction with
our monitoring center. To date the company has not received any revenue from
this market.

We derive our revenues from the following sources:

         o    Medical Diagnostic Stains - We sell medical diagnostic stains and
              equipment to laboratories throughout the United States. The
              Company anticipates that these sales will decrease in the futures
              as a percentage of total sales.

         o    Monitoring Activation - We sell our MobilePAL(TM) and anticipate
              leasing our TrackerPAL devices as part of a monitoring contract,
              with prepaid activation charges.

         o    Monitoring Services - Following activation, our MobilePAL and
              TrackerPAL customers pay a monthly monitoring fee and fees for
              additional services offered by our contract providers or by us.

In addition to the foregoing sources, we have contractual rights to receive
royalty revenues from a license agreement with MEW and from sales of telematic
products and services under marketing agreements. "Telematic" means any wireless
communication system designed for the collection and dissemination of data. To
date these royalty agreements have not produced any royalty income.


                                        3
<PAGE>

Our Strategy

Our goal is to establish the Company as a significant marketer and distributor
of leading technology and services we have developed for the mobile personal
emergency, the parolee and probation market, and the health monitoring
industries. Until the beginning of calendar 2003, most of our revenues were
provided by the distribution of consumer electronics through a business acquired
by a wholly owned subsidiary, SecureAlert, Inc. ("SecureAlert") in July 2001. As
of January 1, 2004, we discontinued the consumer electronics business. All
revenues and operations related to the sale of the consumer electronics have
been reflected in the financial statements as discontinued operations. With our
decision to refocus our business and product development efforts on the mobile
health and emergency monitoring and law enforcement industries, which previously
comprised a smaller part of our business, we discontinued the distribution of
consumer electronics and automotive telematic products during 2003.

Background

We have been engaged in our original business of manufacturing and marketing
medical diagnostic stains, solutions and related equipment for over 10 years.
Since 1997 this business has been conducted through a wholly owned subsidiary,
Volu-Sol Reagents Corporation. Our remote health monitoring and diagnostic
business is conducted under the names "Remote Medical Diagnostics" and
"RemoteMDx." In July 2001, we acquired and now operate the business conducted by
SecureAlert. SecureAlert's business involves manufacturing and marketing mobile
emergency and personal health monitoring systems, and also will focus on the
parolee and probation market.

Our primary founders and owners are David Derrick ("Derrick") and James Dalton
("Dalton"), who are identified in this report under Item 9, Directors and
Executive Officers.

In April 2000, we entered into a research agreement with Battelle Memorial
Institute ("Battelle"), a large research and development firm, to assist us in
developing our technology for remote monitoring and personal medical
diagnostics. Although the agreement with Battelle expired in November, 2002, it
resulted in the development of design and technologies included in our current
MobilePAL and TrackerPAL products today.

In July 2001, we acquired SecureAlert and added its patents and technology to
our business plan. In October 2001, we began developing our telematic monitoring
center in conjunction with Bishop Engineering ("Bishop"), an innovator in
telematic and GPS technologies. By July 2002, this collaboration with Bishop
culminated in the development of a monitoring center jointly operated with
Aradiant Corp ("Aradiant"). In July 2004, we moved the monitoring center from
its location in the San Diego area to the Company's headquarters in Salt Lake
City. This move allows the Company to better manage and control the monitoring
center and its employees. This monitoring center enables our PAL Services
Network to offer location, concierge services, medical triage advice, emergency
response, call switching and health monitoring to our subscribers. This
monitoring center and its related services will also help us serve our customers
in the criminal justice industry. To date we have not sold any products or
services to the criminal justice industry. There can be no assurance that our
products will be accepted or that we will be able to obtain customers in this
industry.

In April 2002, we entered into a manufacturing and product development agreement
with MEW. This strategic alliance included an equity investment in the Company
by MEW and an arrangement under which MEW was designated our preferred
manufacturer, and the Company agreed to act as MEW's preferred worldwide service
provider for GPS products. During 2002 and 2003, working with MEW and another
manufacturer, we successfully designed and began to market products that combine
cellular technology, including our patented single-button emergency feature, and
GPS, allowing the two systems to work simultaneously in a single unit.

                                        4
<PAGE>

Marketing

Over the past three years, we have developed our menu of services and core
technology, which we refer to as the Personal Assistant Link ("PAL(TM)")
Services Network. Gross revenues for the year ended September 30, 2004, were
approximately $1.2 million. We look to expand our sales of these products and
services by relying on and establishing our distribution network. In fiscal year
2003, approximately 8% of our revenues were derived from the sale of PAL
products and services. In fiscal year 2004, approximately 46% of our revenues
were derived from the sale of PAL products and services. We expect to see this
percentage continually increase as we pursue our business plan to emphasize this
service. This sales effort will be focused on the homebound Personal Emergency
Response System ("PERS") industry and the parole/probation market.

During the fiscal year ended September 30, 2004, the Company began to implement
a direct-to-consumer marketing strategy, which it has since abandoned. This
campaign employed a variety of media including radio, print, online marketing,
and direct mail to reach our target customers. Our target market was the
estimated 35 million Americans that are over the age of sixty-five. Of these 35
million seniors, we estimate that approximately 9.7 million currently live
alone, with approximately 1.3 million of these homebound. Our experience with
direct-to-consumer marketing shows that the senior customers do not personally
make the decision to purchase our products and services. Instead, we have
learned that the children or caregivers of these seniors make the purchase
decisions. We have also learned that a direct to consumer marketing campaign is
very expensive and that our efforts would be better rewarded by focusing on
distributors and dealers selling our products and services.

To focus more on distributors and dealers, we have entered into strategic
marketing arrangements with Universal American Financial Corporation ("UAFC"),
Hanger Orthopedic Group, Inc. ("Hanger"), and ADT, Inc ("ADT").

UAFC is an insurance company specializing on the senior market. Hanger is the
largest and oldest prosthetics company in the United States with approximately
700 stores in 42 states. ADT is the largest security company in the United
States.

Under our current business model, our customers own our devices. We hope to
implement in the future a model where customers do not own the devices. The
customer would rent our device on a month-to-month contract. The customer can
terminate the service by simply returning the device to us. We charge the
customer a one-time activation fee and a monthly monitoring fee for as long as
the customer keeps the device. We may also pay a monthly fee to the dealer or
distributor for each contract originated through that dealer or distributor.

To further expand the viability of our distribution and marketing plan, we are
working with state Medicaid agencies, insurance companies, and correctional
agencies to pursue reimbursement for our products and services. The MobilePAL
product is Medicaid-approved in Colorado and Maryland and we hope to replicate
this success in other states. In addition, we are working with insurers to
obtain private reimbursement approval. There can be no assurance that these
efforts will be successful.

In addition to the PERS market, we will also focus our efforts in the parole and
probation market. According to 2003 Bureau of Justice Statistics, in the United
States there are a record number 4.9 million adult men and women who are on
supervised probation or parole. This number is expected to continue to grow as
state budget deficits are requiring prisons to be closed, putting additional
pressure on the already swelling parole and probation market. The total adult
correctional population, including those incarcerated and those being supervised
in the community, in 2003 was 6.9 million and growing at the rate of 2.4% per
year. In 2003 this equaled 3.2% of the U.S. population or about 1 in every 32
adults.

This increase has strained the ability of parole officers and supervisors to
manage the burgeoning growth in parolees. RemoteMDx has created a product and
service to answer this problem called PAL Services Offender Tracking Network
(the "Network").


                                        5
<PAGE>

We believe the Network and its accompanying products that will be marketed and
sold by RemoteMDx will create a shift in the parole/probation market. The
Network strategy transforms the current market to one that provides offender
monitoring products and services. The Network allows a supervisor to manage
dozens of parolees simultaneously. Under the Network program, a parolee is
required to wear the device twenty-four hours a day, seven days a week, which
allows the PAL monitoring center to track where the parolee is in real time
(active monitoring). The computer at the monitoring center automatically checks
to make sure that the parolee is within inclusion areas and does not enter any
exclusionary zones. At any sign of problems, the monitoring center can contact
directly the parolee and if necessary put the parole officer in direct contact
with the parolee. The parole officer can also access a secured web site that
shows where the parolee is and where he has been, allowing the supervisor to
better manage the parolee.

The PAL Operator can provide a multitude of services for the offender and the
supervising officer. The various services offered are as follows:

         o    24/7 nationwide two-way voice communication;
         o    Automated reporting of location and alarms (breadcrumbs);
         o    Inclusion and exclusion alarms;
         o    Proximity alarm;
         o    Automated alert notification;
         o    Tamper resistant band and alarm;
         o    Battery status alerts (rechargeable/replaceable);
         o    Web-based real-time tracking;
         o    Active monitoring; and
         o    Enhanced GPS/GSM locate.

Research and Development Program

                                        6
<PAGE>

The PAL Products

In 2000, as a direct result of our strategic relationship with Battelle, we
began our efforts to develop a mobile solution to the PERS market. We eventually
determined that combining cellular and GPS technologies could expand the PERS
market from approximately 1.3 million homebound patients to more than 10 million
seniors living alone in the United States. We began by reviewing patents and
products previously developed that might be utilized in this market. Our
research led us to SecureAlert, owner of patents and circuitry that we believed
could help accelerate our move into the market.

Our first product line utilizing these patents was MobilePAL, a cellular-based
emergency and concierge device with one-button access to our PAL Services
Operators. The first version of the MobilePAL unit was an analog cell device. We
used analog technology because of its more expansive coverage in North America
at that time. Our first unit could be configured to call 911 Emergency only, or
could accept a Mobile Identification Number (MIN) and make outbound calls to
either of two predetermined phone numbers.

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

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

Shortly after commencing sales of the new GPS-enabled MobilePAL, MEW began
working with us to develop an improved MobilePAL device complete with an
improved GPS engine, speakerphone, and cellular chipset. The result was the
MobilePAL GPS2000. The GPS2000 has several advantages over the earlier versions.
The first is the improved quality of the GPS engine. MEW partnered with Sirf, a
leading GPS technology company, to create a new, smaller GPS device with greater
sensitivity and acquisition times of less than one minute. The GPS2000 is able
to use the GPS engine concurrently with the cellular circuitry in the device,
unlike the GPS1000 which temporarily drops the cellular signal during the time
that the GPS engine is operating, and then automatically redials the PAL
Services Center once the location data has been obtained. Using the GPS2000, the
PAL Services Center operators are able to continuously communicate with the
subscriber while simultaneously determining the caller's location. A recent
software improvement corrected a problem that caused undesired levels of battery
drain on the device.

Recently, we have developed two working prototypes of our next generation of the
MobilePAL, the GPS 3000. This device has several improvements over the GPS 2000.
The device is always powered on and it can receive incoming calls. No launch
date has been set for this device, and the device is not yet ready for
commercial distribution.

During the year ended September 30, 2004, we spent $205,341 on research and
development. This compares to $113,428 spent on research and development for the
year ended September 30, 2003.

TrackerPAL

nexAira, Inc. ("nexAira") is developing our TrackerPAL product. nexAira is a
Canadian firm that specializes in hardware and software development in the areas
of GPS, GSM and GPRS. It is the preferred distributor of GPS chip sets
manufactured by Motorola. nexAira is recognized for its rapid development cycles
and expertise in both the cellular and GPS areas.

The Parolee Tracking Device ("PTD") System requires the design and development
of four devices:

         Ankle electronics, a wireless body worn tracking device; PTD-Cuff, a
         single use band used to fasten the ankle electronics to the
           offender;
         Fixture for charging up to 2 batteries at once; and Rechargeable
         battery pack, a custom tooled battery used to power the
           ankle device.

                                        7
<PAGE>

The PTD allows a monitoring center to detect the location of an offender and the
offender's attempts to tamper with the device. When the device is attached to an
offender's ankle and activated, it makes use of a GPS receiver to determine the
offender's position and a cellular wireless link to communicate these
coordinates to the monitoring center. The center can contact an offender
whenever the device has adequate cellular signal, using the integrated cellular
speakerphone. Automatic alerts can be sent to the server when the wearer travels
outside a specified area or attempts to enter an "off limits" area. The PTD will
be water resistant to 3 meters.

The ankle strap or PTD-Cuff is a reinforced band used to secure the device to
the offender. The strap is permanently fixed to the offender and requires the
destruction of the strap for removal. The strap incorporates a metal strip to
ensure the strap does not shrink or stretch as well as electrical and optic
continuity detection circuits/paths for tamper detection. The strap is made to
be inexpensive yet strong while the optical continuity assists in making it very
difficult to circumvent and remove without detection.

Development of PAL Services Network

As we developed the MobilePAL product line, we simultaneously worked to create
the PAL Services Center. In contrast to a typical PERS monitoring center, the
PAL Services Center is equipped with hardware and software that pinpoints the
location of the incoming caller by utilizing GPS technology. This capability is
referred to as telematic. The operator's computer screen can identify the caller
as well as locate the caller's precise location on a detailed map. In addition,
the computer must be able to give directions to various sites from the caller's
location, such as directions to the nearest hospital, police station, or
emergency service and also be able to guide emergency services to the caller's
location.

With the MobilePAL products developed and the PAL Services Center in place, we
have the ability to offer the following services:

         o    24/7 nationwide one-button access to a live Personal Assistant;

         o    Mobile access to immediate dispatch of police, fire or ambulance
              services;

         o    Access and dispatch of roadside assistance such as tow trucks,
              etc.;

         o    Location of nearest hospital and veterinary services;

         o    Auto-accident assistance including direct connection to the
              client's insurance company;

         o    Nurse triage service in case of medical questions or concerns;

         o    Personal calling to any phone number of customer's choosing
              including family, friends, caregivers, etc.;

         o    Mobile directory assistance to any U.S. phone number;

         o    Step-by-step driving instructions to virtually anywhere in the
              United States;

         o    Location services;

         o    Medical Data Link to store customer's critical personal medical
              information and communicate the customer's needs to emergency
              personnel;

         o    Daily monitoring of chronically ill customers with data and
              compliance information forwarded to care providers and loved ones;

         o    Location of lost or injured loved ones;

         o    Ability to immediately notify insurers and care providers during a
              medical emergency;

         o    Ability of monitoring center to initiate a call to the subscriber
              to check the subscriber's condition;

                                        8
<PAGE>

         o    Update immediate caregiver weekly on status of subscriber and any
              calls the operators may have received that week; and

         o    Ability to track device online.

         o    Waterproof.

         o    Active Monitoring.

         o    Enhanced GPS/GSM location.

         o    Web based real-time tracking.

         o    Inclusion and exclusion alarms.

         o    Proximity alarms.

MobilePAL Development

We believe that the next generation of MobilePAL products will revolutionize the
PERS market. This next generation product further miniaturizes the technology,
making MobilePAL a wearable device (such as a watch or pendant). nexAira is in
the process of designing and developing for the Company a watch-type device that
contains a single button and fall detection mechanism that communicates with a
pager-size companion device. Activated manually by pushing a button on the watch
or automatically by sensing a sudden movement such as a fall, the device
immediately transmits a radio frequency ("RF") signal that is picked up by the
companion device that then triggers a call to the monitoring center. From there,
the wearer can talk to the center on the speakerphone while the GPS system
pinpoints his or her location.

While the capabilities of MobilePAL will grow with each development cycle, we
anticipate that all models of future generations of MobilePAL, including the
watch/pendant device, will have the following features:

         o    Wearable watch or pendant with an emergency button for contacting
              the PAL Services Operator regardless of the location of the
              wearer.

         o    GPS engine for locating the subscriber.

         o    Fall detection that will alert the service in the event of a fall.

         o    Communication with small pager size device that talks to the
              customer and the PAL Services Center.

         o    Dual band cellular technology utilizing GSM and AMPS.

         o    Rechargeable units.

         o    Alarm when not in proximity of base unit.

         o    Although no functioning prototypes yet exist for this
              watch/pendant device, the research and development of this next
              generation of MobilePAL is currently underway and is being
              performed by nexAira. Continuation of this research by nexAira on
              behalf of the Company is contingent upon the Company obtaining
              adequate funding. There can be no assurances given that the
              Company will obtain the necessary funding.

WatchPAL Development Program

We are working to combine remote health monitoring services with mobile
communication and security services by launching the WatchPAL line of products.

                                        9
<PAGE>

Each WatchPAL product will be specifically designed to monitor a specific
chronic illness. The first chronic disease we have targeted for the WatchPAL
product is diabetes. This WatchPAL product is designed to monitor diabetic
patients remotely and unobtrusively. The patient wears a watch that will not
only act as a fall detection device, but will also monitor on a preprogrammed
basis the glucose level of the patient. This is done unobtrusively and without
the patient's participation. The information is then transmitted to the
monitoring center. If the monitoring center detects that the glucose reading is
outside of that patient's given parameters, it will immediately contact the
patient or care provider. If there is an emergency, the monitoring center can
locate the user and respond by sending assistance.

The WatchPAL line of products is in the early phases of research and
development. We have not yet developed a working prototype of this product. Our
ability to develop a working line of products in this area is largely contingent
on our ability to obtain the necessary funding for the research and development.
There can be no assurance that we will be able to obtain the funding necessary
to design, develop, and manufacture this line of products.

Intellectual Property

We own seven patents and we have five patents pending and four applications in
process to be filed. The following table contains information regarding our
patents and patent applications; there is no assurances that the applications
will be granted or that they will, if granted, contain all of the claims
currently included.
<TABLE>
<CAPTION>

                                                         Application /Patent
                    Patent Title                               Number            Filing / Issue Dates         Status

<S>                                                         <C>                       <C>                 <C>
Panic Button Phone                                             6,044,257               3/28/2000               Issued

Emergency Phone for Automatically                           6,226,510 B1                5/1/2001               Issued
Summoning Multiple Emergency
Response Services

Combination Emergency Phone and Personal
Audio Device                                                   6,285,867                9/4/2001               Issued

Remotely Controllable Thermostat                               6,260,765               7/17/2001               Issued

Radiotelephone for Emergency Use Only (Design)                D440,954 S               4/24/2001               Issued

Interference Structure for Emergency
Response System Wristwatch                                     6,366,538              04/02/2001               Issued

Emergency Phone with Single-Button Activation                  6,630,732              10/21/2003               Issued

Emergency Phone with Alternate Number
Calling Capability                                            09/684,831              10/10/2000          Awaiting Office
                                                                                                              Action

Emergency Phone with Single-Button                         PCT/US0109871               3/28/2001          Entered National
Activation                                                                                                     phase

                                                       China- 01807350.6              09/27/2002          Examination in
                                                                                                            Progress
                                                         EPC- 01924386.4              09/27/2002          Examination in
                                                                                                            Progress
                                                       Japan-2001-571568              09/25/2002          Examination in
                                                                                                            Progress
</TABLE>

Strategic Relationships

We believe one of the Company's strengths is the high quality of our strategic
alliances. Our primary alliances are described below.


                                       10
<PAGE>

         Matsushita Electric Works, Ltd

MEW grew out of a company founded by Konosuke Matsushita in 1918. This
forerunner of MEW was incorporated as a public company in 1935, as the successor
of the wiring device business initiated by the original firm. MEW shares the
same origin with Matsushita Electric Industrial Co., Ltd. ("MEI"), which also
owns the Panasonic(R) brand name. In January 2004, MEI announced its intent to
increase its ownership of the outstanding shares of MEW from approximately 32%
to more than 51% .According to its published reports filed with the Securities
and Exchange Commission, MEI's revenues in 2004 were approximately $81 billion.
The Matsushita Group of companies is recognized as one of the world's largest
corporate groups.

We entered into an alliance with MEW in April 2002. At that time, MEW invested
$3,000,000 and acquired shares of our Series B preferred stock. In addition, we
entered into a license agreement with MEW at that time under which MEW has the
right to use our patents in consideration of payment of royalties. This license
agreement extends until the expiration of our patents. To date no royalties have
been paid under this agreement, and there can be no assurance that a royalty
revenue stream will develop. The agreement also names MEW as our preferred
manufacturer and RemoteMDx as MEW's preferred service provider worldwide.
"Preferred" means that, subject to competitive pricing and bids, the Company
must use MEW to manufacture its devices, and MEW must use the Company as its
service provider on GPS products in the United States. Under our agreement with
MEW, MEW has the right to appoint a member to our board of directors, which to
date it has declined to exercise. To date, the Company has not performed any
services for MEW.

         nexAira, Inc.

nexAira, Inc., "(nexAira") is a Canadian firm that specializes in hardware and
software development in the areas of GPS, GSM and GPRS. It is the preferred
distributor of GPS chip sets manufactured by Motorola. They are recognized for
their rapid development cycles and expertise in both the cellular and GPS areas.
nexAira performs research and development for the Company on a contractual
basis.

Competition in PERS Industry

We have identified several companies we believe are developing products and
services that in time could affect, or compete in, the same developing areas of
the PERS industry targeted by RemoteMDx. As these products and services take
hold, we expect our competition likely will increase and intensify. We believe
that we can maintain some advantages over our competition due in large part to
our alliance with MEW and other strategic partners. In addition, we believe that
several components in our product family might enjoy significant intellectual
property protection from competition.

We believe our primary competitors are as follows:

         o    Lifeline Systems, Inc., Framingham, MA- We believe that Lifeline
              may be the largest PERS company in the United States, reporting
              over 350,000 subscribers. Lifeline claims that at the touch of a
              button, the customer can be connected to help 24 hours a day from
              their home or yard. Lifeline is a public company that operates its
              own monitoring facility, reportedly handling over 10,000 calls per
              day. Unlike RemoteMDx, however, Lifeline markets solely to the
              non-mobile or homebound customer, limiting its potential customer
              base. In addition, it does not appear that Lifeline has any
              ongoing research and development leading to new products.

         o    Wherify Wireless, Inc., Redwood City, CA- A publicly held
              developer of patented wireless location products and services for
              child safety, parental supervision, personal protection,
              Alzheimer's and memory loss, supervision, law enforcement,
              security, animal identification and property asset tracking. The
              company's proprietary integration of the U.S. government's GPS,
              Wherify patented back-end location service engine, and wireless
              communication technologies will enable customers to obtain
              real-time location information on individuals and property
              directly through the Internet or any phone. The Company is
              investigating if Wherify has violated any of the patents the
              Company owns.

Competition in Parolee/Probation Market

         o    ProTech Monitoring Inc., Odessa, FL- This company has satellite
              tracking software technology that operates in conjunction with
              global positioning system (GPS) and wireless communication
              networks. ProTech's internet based technology enables its
              customers to monitor the exact location of criminal offenders or
              individuals anywhere in the world using its satellite monitoring
              and remote tracking system. The product is not associated with a
              monitoring center and is bulky.


                                       11
<PAGE>

         o    ISecuretrac Inc., Omaha, NE - This company supplies electronic
              monitoring equipment for tracking and monitoring persons on
              pretrial release, probation, parole, or work release. ISecuretrac
              utilizes tracking and monitoring applications via global
              positioning system (GPS) and wireless communication technologies.
              This product does not have a monitoring center associated with it
              and does not have active monitoring.

         o    Sentinel Security and Communications, Inc., Rochester NY- This
              company supplies monitoring and supervision solutions for the
              offender population. Their services include GPS tracking, RF
              monitoring and case management monitoring. This product is bulky
              and requires separate devices for voice communication.

The Company faces intense competition, including competition from entities that
are more established and have greater financial resources than it does, which
may make it difficult for it to establish and maintain a viable market presence.

Our current and expected markets are rapidly changing. Existing products and
services and emerging products and services will compete directly with the
products we are seeking to develop and market. Our technology will compete
directly with other technologies, and, although we believe our technology has or
will have advantages over these competing systems, there can be no assurance
that our technology will have advantages that are significant enough to cause
users to adopt its use. Competition is expected to increase.

Many of the companies currently in the remote medical monitoring and diagnostic
market may have significantly greater financial resources and expertise in
research and development, marketing, manufacturing, pre-clinical and clinical
testing, obtaining regulatory approvals and marketing than those available to
us. Smaller companies may also prove to be significant competitors, particularly
through collaborative arrangements with large third parties. Academic
institutions, governmental agencies, and public and private research
organizations also conduct research, seek patent protection, and establish
collaborative arrangements for product and clinical development and marketing in
the medical diagnostic arena. Many of these competitors have products or
techniques approved or in development and operate large well-funded research and
development programs in the field. Moreover, these companies and institutions
may be in the process of developing technology that could be developed more
quickly or be ultimately more effective than our planned products.

The Company faces competition based on product efficacy, the timing and scope of
regulatory approvals, availability of supply, marketing and sales capability,
reimbursement coverage, price and patent position. There can be no assurance
that its competitors will not develop more effective or more affordable
products, or achieve earlier patent protection or product commercialization.

Dependence on Major Customers

During fiscal year 2004, two customers accounted for more than 10% of sales.
Fisher Scientific accounted for approximately 15% ($163,395) of sales and MDC
accounted for approximately 15% ($170,000). The loss of one or more of these
customers may result in lower revenues and limit the cash available to grow our
business and to achieve profitability. We have no arrangements or contracts with
these customers that would require them to purchase a specific amount of product
from us.

Dependence on Major Suppliers

Under its agreement with MEW, the Company purchases most of its mobile and
cellular device products from MEW. During the fall of 2001, the Company entered
into a cellular switching access agreement under which it purchases
substantially all of its cellular access requirements. That agreement has
expired and the Company has entered into a new cellular agreement with another
national cellular carrier. If any of these significant suppliers were to cease
providing product or services to it, the Company would be required to seek
alternative sources. There is no assurance that alternate sources could be
located or that the delay or additional expense associated with locating
alternative sources for these products or services would not materially and
adversely affect its business and financial condition.


                                       12
<PAGE>

Employees

As of May 2005, the Company had 21 full time employees and 5 part-time
employees. None of the employees are represented by a labor union or subject to
a collective bargaining agreement. The Company has never experienced a work
stoppage and management believes that the relations with employees are good.

Item 2.  Description of Property

Company headquarters are located in leased premises consisting of approximately
11,500 square feet of laboratory and office facilities located at 5095 West 2100
South, West Valley City, Utah. These premises also serve as the manufacturing,
warehouse and shipping facilities for Volu-Sol Reagents Corporation. The lease
expires in November 2005 with monthly base rent of $5,550, subject to annual
adjustments according to changes in the Consumer Price Index. During fiscal year
2003 we closed our offices in Knoxville, Tennessee, which had been the
headquarters of our SecureAlert subsidiary.

The Company has entered into a lease, in March 2005, consisting of approximately
7,500 square feet of office space at 150 West Civic Center Drive, Sandy Utah.
This facility will initially serve as our monitoring center and will eventually
serve as corporate headquarters of SecureAlert, Inc., a wholly-owned subsidiary
of RemoteMDx, Inc. It is anticipated that the Company will move into these
facilities during the fourth quarter.

Management believes the facilities described above are adequate to accommodate
presently expected growth and needs of our operations. As the Company continues
to grow, additional facilities or the expansion of existing facilities likely
will be required.

Item 3.  Legal Proceedings

On November 15, 2002, Oakwood Homes Corporation and certain of its affiliates
(collectively "OHC") commenced a voluntary case under Chapter 11 of Title 11,
United States Code, in the United States Bankruptcy Court for the District of
Delaware, Case No. 02-13396 (the "Bankruptcy Action"). On March 31, 2004, the
Bankruptcy Court entered an order confirming the Second Amended Joint
Consolidated Plan of Reorganization of Oakwood Homes Corporation and its
Affiliated Debtors and Debtors-In-Possession (the "Plan"). The Plan provides for
the creation of a liquidating trust pursuant to a liquidation trust agreement.
On or about April 15, 2004, OHC and the Trustee created the OHC Liquidation
Trust (the "Trust") and vested it with the right to prosecute and settle
avoidance actions on behalf of the holders of the beneficial interests in the
Trust. The Trust has commenced two adversary proceedings in the Bankruptcy
Action that pertain to the Company. One of these adversary actions is against
SecureAlert, Inc., a wholly owned subsidiary of the Company, and the other
adversary action is against a predecessor-in-interest to SecureAlert, Inc.
(collectively "SecureAlert"). In these actions the Trust claims that OHC made
preferential payments totaling approximately six hundred nine thousand dollars
($609,000) during the 90 days preceding the commencement of the Bankruptcy
Action. The Trust seeks a judgment against SecureAlert for recovery and
avoidance of these payments. SecureAlert is vigorously defending against these
claims on the basis, among other defenses, that the payments are protected from
recovery and avoidance under (i) Section 547(c)(2) of the Bankruptcy Code
because such transfers were made in the ordinary course of business, (ii)
Section 547(c)(4) of the Bankruptcy Code because SecureAlert gave new value,
thereby preventing recovery of all or some of such transfers, and (iii) Section
547(c)(1) of the Bankruptcy Code because SecureAlert gave contemporaneous new
value, thereby preventing recovery of all or some of such transfers.

SecureAlert is party to litigation incidental to its distribution business.
However, we do not believe the potential liability, if any, of SecureAlert or
the costs incurred in connection with those matters will be material.

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

None


                                       13
<PAGE>
                                     PART II


Item 5.  Market for Common Equity and Related Stockholder Matters

Market. Even though we have been approved to trade on the OTC Bulletin Board,
there is presently no market for the common stock, and there is no assurance
that a market will ever develop.

Holders. As of June 10, 2005, there were approximately 1,300 holders of record
of the common stock and approximately 33,312,512 shares of common stock
outstanding. We also have 24,960 shares of Series A preferred stock outstanding,
held by 42 shareholders, convertible into a minimum of approximately 8,843,000
shares of common stock, as well as 1,835,824 shares of Series B preferred stock
outstanding held by 46 shareholders, that are convertible into 1,835,824 shares
of common stock. We also have granted options and warrants for the purchase of
approximately 7,822,043 shares of common stock. As discussed elsewhere in this
report, we may be required to issue additional shares of preferred stock to pay
accrued dividends or to comply with anti-dilution adjustments to the conversion
rights of the preferred shareholders.

Dividends. Since incorporation, we have not declared any dividend on our common
stock. We do not anticipate declaring a dividend on the common stock for the
foreseeable future. The Series A Preferred Stock accrues dividends at the rate
of 10% annually, which may be paid in cash or additional shares of preferred or
common stock at our option. To date all such dividends have been paid by
issuance of preferred stock. We are not required to pay and do not pay dividends
with respect to the Series B Preferred Stock.

Dilution. We have a large number of shares of common stock authorized in
comparison to the number of shares issued and outstanding. The board of
directors determines when and under what conditions and at what prices to issue
stock. In addition, a significant number of shares of common stock are reserved
for issuance upon exercise of purchase or conversion rights.

In addition to shares initially issued to Biomune shareholders at the time of a
spin-off transaction in October 1997, we agreed with the NASD to issue
additional shares of common stock in connection the distribution to those
Biomune shareholders of record on February 11, 1998. We believe there is no
further obligation to the former Biomune shareholders. We have issued additional
shares of common stock under this agreement from time to time since February
1998. No shares were issued under this agreement in fiscal years 2003 or 2004.

The issuance of any shares of common stock for any reason will result in
dilution of the equity and voting interests of existing shareholders.

Transfer Agent and Registrar. The transfer agent and registrar for our common
stock is American Stock Transfer & Trust Company, 40 Wall Street, New York City,
NY 10005.

Recent Sales of Unregistered Securities

The following information summarizes certain information for all securities we
have sold during the fiscal year covered by this report without registration
under the Securities Act.

In each of these transactions the securities were issued to individuals or
entities that were "accredited investors" as that term is used in Rule 501 under
Regulation D of the Securities Act or the issuance of the securities was
accomplished without registration under the Securities Act in reliance on the
exemptions from the registration requirements of the Securities Act afforded by
Section 4(2), including Rule 506 of Regulation D under the Securities Act.

Fiscal Year 2004

During the year ended September 30, 2004, we issued 6,514,873 shares of common
stock without registration of the offer and sale of the securities under the
Securities Act of 1933, as amended, as follows:

         o    1,271,573 shares were issued for cash proceeds of $591,638;

         o    22,427 shares were exchanged for debt and accrued interest of
              $33,640;

                                       14
<PAGE>

         o    689,229 shares were issued in connection with the exercise of
              stock options in the amount of $372,184;

         o    740,741 shares were issued upon exercise of options in
              consideration of reduction in related-party debt of $400,000;

         o    $1,106,412 of convertible debentures. These debentures can be
              converted at the election of the debenture holders into
              approximately 1,400,000 shares of common stock (at an assumed
              conversion price of $1.00/share). The conversion price is 80% of
              the per share price of the next qualified offering. A qualified
              offering is an offering exceeding $5,000,000 of net proceeds to
              the Company.

         o    1,157,500 shares were issued for services; and

         o    2,633,403 shares were issued upon the conversion of 7,097 shares
              of Series A Preferred Stock of the Company.

         o    See footnote 17 to the financial statements for a discussion of
              financing activities subsequent to September 30, 2004.

In each of these transactions the securities were issued to individuals or
entities that were "accredited investors" as that term is used in Rule 501 under
Regulation D of the Securities Act, or the issuance of the securities was
accomplished without registration under the Securities Act in reliance on other
exemptions from the registration requirements of the Securities Act afforded by
Section 4(2), including Rule 506 of Regulation D under the Securities Act.

Item 6.  Management's Discussion and Analysis or Plan of Operation

The following discussion should be read in conjunction with our consolidated
financial statements and notes thereto included elsewhere in this Report.

THIS REPORT ON FORM 10-KSB CONTAINS, IN ADDITION TO HISTORICAL INFORMATION,
FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES. ALL
FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE DEEMED BY REMOTE MDX TO BE
COVERED BY AND TO QUALIFY FOR THE SAFE HARBOR PROTECTION PROVIDED BY SECTION 21E
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THE RESULTS ANTICIPATED BY REMOTE MDX AND DISCUSSED IN
THE FORWARD-LOOKING STATEMENTS. WHEN USED IN THIS REPORT, WORDS SUCH AS
"BELIEVES," "EXPECTS," "INTENDS," "PLANS," "ANTICIPATES," "ESTIMATES," AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS,
ALTHOUGH THERE MAY BE CERTAIN FORWARD-LOOKING STATEMENTS NOT ACCOMPANIED BY SUCH
EXPRESSIONS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES ARE
DISCUSSED BELOW IN THE SECTION ENTITLED "INFORMATION CONCERNING FORWARD-LOOKING
STATEMENTS" AND UNDER THE HEADING "CERTAIN SIGNIFICANT RISK FACTORS" BELOW.

The following table summarizes our results of operations for the last two
completed fiscal years.

                     Summary Consolidated Statements of Operations Data

                                                    Year Ended September 30,
                                                     2004              2003
                                              ----------------------------------
Net sales                                      $   1,117,520     $      768,811

Cost of goods sold                                 1,134,535            762,686
                                              ----------------------------------
       Gross profit (loss)                           (17,015)             6,125
Research and development expenses                    205,341            113,428

Impairment of goodwill and inventory               1,351,522          2,248,000
Selling, general, and administrative expenses      4,189,669          4,489,458
                                              ----------------------------------
       Loss from operations                       (5,763,547)        (6,844,761)
                                              ----------------------------------
Other income (expenses):
      Interest and other income                       74,900              1,959
      Interest expense                              (817,579)          (839,531)
                                              ----------------------------------
       Net loss before discontinued operations $  (6,506,226)    $   (7,682,333)

       Income (loss) on discontinued
       operations, net of tax                         99,515           (207,004)
                                              ----------------------------------
       Net loss                                $  (6,406,711)    $   (7,889,337)
                                              ==================================


                                       15
<PAGE>

Discontinued Operations

During the year ended September 30, 2004, management determined to discontinue
its operating activities of consumer electronic distribution. The Company's
activities included wholesale distribution to home manufactures through December
31, 2002. On January 1, 2003, the Company entered into an agreement with
SecureAlert Entertainment, LLC ("SAE"), an unaffiliated company, granting it
exclusive distribution rights to the Company's consumer electronics products to
the manufactured homes marketing channel in North America. In exchange for this
distribution, the Company received a 7% royalty fee in connection with consumer
electronic products sold by SAE under the distribution rights agreement. This
agreement expired on December 31, 2003. Because of the Company's decision to
pursue a business model to sell and service mobile security devices, and the
significant market expansion costs required to continue its consumer electronic
products distribution, the Company has discontinued the consumer electronics
operations. The discontinued operations for the year ended September 30, 2004
and 2003 were as follows:
                                                        Year Ended
                                                       September 30,
                                              ---------------------------------
                                                    2004             2003
                                              ---------------------------------
Net sales and royalties from consumer
  electronics product distribution             $      101,337      $ 3,293,378

Costs associated with consumer electronics
  operations                                            1,822        3,500,382
                                               --------------------------------

Net income (loss) from discontinued
  operations                                   $       99,515     $   (207,004)
                                              =================================

Continued Operations

The Company's focus is on building the mobile emergency and personal security
systems market, rather than the consumer electronics market. The following
discussion and analysis is therefore based only upon the continued operations of
the Company.

Fiscal Year Ended September 30, 2004 Compared to Fiscal Year Ended September 30,
2003

Results of Operations

Net Sales

In the fiscal year ended September 30, 2004, the Company had net sales of
$1,117,520 compared to net sales of $768,811 for the fiscal year ended September
30, 2003, an increase of $348,709. This increase is due primarily from focusing
on the core business model of personal safety and medical monitoring. In
addition, the net sales increased by developing dealer distribution channels.
During the year ended September 30, 2004, SecureAlert provided net sales of
$556,338 compared to net sales of $217,031 for the year ended September 30,
2003. Net sales by Volu-Sol Reagents Corporation ("Reagents") for the fiscal
year ended September 30, 2004 were $561,182 compared to $551,780 in fiscal year
2003, an increase of approximately 2%. As the Company's focus continues to shift
to the monitoring business, the Company anticipates Reagents' sales will
decrease in the future as a percentage of total sales.


                                       16
<PAGE>

Cost of Goods Sold

In the fiscal year ended September 30, 2004, cost of goods sold totaled
$1,134,535, compared to cost of goods sold in fiscal 2003 of $762,686. This
increase is due to primarily to the increase in net sales. SecureAlert's cost of
goods sold totaled $796,565 or 143%, of its net sales in 2004, compared to
$431,651, or 199% for September 30, 2003. Reagents' cost of goods sold totaled
$337,970 in fiscal 2004, compared to $331,035 for the year ended September 30,
2003, an increase of $6,935 or approximately 2% from the prior fiscal year. The
decrease in overall margins of the Company from 1% in fiscal year 2003 to
negative 2% in fiscal year 2004 is attributable primarily to an increase in
cellular costs.

Research and Development Expenses

In the fiscal year ended September 30, 2004, the Company incurred research and
development expenses of $205,341 compared to similar expenses in 2003 totaling
$113,428. This increase is due primarily to expenses associated with the
development of the TrackerPAL device for the parolee market. We anticipate
higher research and development expenses in the future due to ongoing research
and development related to our TrackerPAL, WatchPAL, and MobilePAL 3000
products.

Selling, General and Administrative Expenses

In the fiscal year ended September 30, 2004, the Company's selling, general and
administrative expenses totaled $4,189,669, compared to $4,489,458 for the
fiscal year ended September 30, 2003. This decrease relates primarily to a
decrease in non-cash compensation expense in connection with the grant of
options and issuance of shares in lieu of cash compensation to consultants and
employees, including officers and directors of the Company, based on the
estimated value of between $0.54 to $3.00 per share in fiscal year 2003 compared
to fiscal year 2004 in which estimated stock prices were $0.54 to $3.00 per
share. In fiscal year 2003 these non-cash expense items totaled $2,080,338,
compared to $1,669,198 in fiscal year 2004, a reduction of approximately 35%.
The $4,189,669 of selling, general and administrative expenses for fiscal year
ended September 30, 2004 primarily consists of the following expenses:
advertising ($272,500), consulting ($1,078,000), insurance ($208,000),
investment banking fees ($191,000), legal and professional fees ($443,500),
payroll ($1,028,000), and travel ($260,000) expenses.

Other Income and Expense

In the fiscal year ended September 30, 2004, interest expense was $817,579,
compared to $839,531 in fiscal year 2003. In both fiscal years 2004 and 2003
this amount consisted primarily of expense allocated to interest. The interest
was paid by the issuance of common stock in lieu of cash to pay interest to
third parties. We had interest income of $7,077 and other income of $67,823
during fiscal year 2004, compared to interest income of $1,099 and other income
of $860 during fiscal year 2003. This increase in other income is due to
settling some prior debts at less than the expense incurred and a recovery of
bad debt previously allowed for.

Net Loss

We had a net loss before discontinued operations for the year ended September
30, 2004, totaling $6,506,226, compared to a net loss of $7,682,333 for fiscal
year 2003. This decrease is due primarily to the decrease in selling, general
and administrative expenses described above, and the recognized impairment in
goodwill of $1,321,164 in fiscal year 2004 compared to an impairment of
$2,248,000 in 2003.

Liquidity and Capital Resources

September 30, 2004

The Company has not historically financed operations entirely from cash flows
from operating activities. During the year ended September 30, 2004, the Company
supplemented cash flows with borrowings from a related party and the sale of
equity securities.

At September 30, 2004 the Company had unrestricted cash of $62,103, compared to
cash of $136,894 at September 30, 2003. The Company had a working capital
deficit of $2,269,202, compared to a working capital deficit of $1,826,996 at
September 30, 2003. The increase in working capital deficit is the result of
losses from operations and use of cash in addition to increased borrowings.

                                       17
<PAGE>

During fiscal year 2004, the Company's operating activities used cash of
$2,035,052, compared to $2,371,811 cash used in 2003.

Investing activities for the year ended September 30, 2004, used cash of
$100,005, compared to $2,345 of cash used by investing activities in the year
ended September 30, 2003. Cash used in 2004 was expended primarily for property
and equipment purchases.

Financing activities for the year ended September 30, 2004, provided $2,060,266
of net cash compared to $2,459,660 of net cash provided from those activities in
the year ended September 30, 2003.

The Company had net advances of $313,136 on a related-party line of credit and
related party advances, and borrowed $1,666,788 from the issuance of debentures,
related common shares and short-term notes payable during the year ended
September 30, 2004. The Company also had proceeds from the sale of mandatory
redeemable common stock of $225,000 during fiscal year 2004. Net payments to a
related party line of credit used cash of $704,051 in fiscal year 2003.

In fiscal year 2004, the Company incurred a net loss before discontinued
operations of $6,506,226 and negative cash flows from operating activities of
$2,035,052, compared to a net loss of $7,682,333 and negative cash flow of
$2,371,811 for the year ended September 30, 2003. As of September 30, 2004, the
Company's working capital deficit was $2,269,202 and the Company had a net
tangible stockholders' deficit of $3,478,652 and accumulated deficit of
$69,480,005.

These factors, as well as the risk factors set out elsewhere in this report;
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements included in this report do not include any
adjustments that might result from the outcome of this uncertainty. Our plans
with respect to this uncertainty include the conversion of a significant portion
of our outstanding debt and other obligations into common stock, as well as
raising capital from the sale of our common stock and other debt and equity
securities. There can be no assurance that the debt holders will be willing to
convert the debt obligations to equity securities or that the Company will be
successful in raising additional capital from the sale of equity or debt
securities. If the Company is unable to obtain additional financing, it will be
unable to continue the development of its products and may have to cease
operations.

The Company has 217,185 redeemable common shares outstanding which have been
recorded at a value of $196,000. These shares represent a total future potential
obligation of the Company in the amount of $196,000. The shares outstanding have
all the rights of the Company's common stock and are redeemable as detailed in
the following table:


                                                                Redeemable
                                             Number of       Value (Aggregate
      Description of Obligation               Shares         Redemption Price)

    Common shares redeemable at $0.54        185,185             $100,000
      per share (1)

    Common shares redeemable at $3.00         32,000               96,000
      per share                             --------             --------

   Totals                                    217,185             $196,000
                                            ========             ========

Notes:

         (1) The shares are redeemable after September 30, 2005, if the stock is
not listed on a national exchange and if the shares have not been registered or
otherwise made freely tradable.

The following chart includes principal balances and interest rates applicable to
borrowings except for debentures (see contractual obligations below) as of
September 30, 2003 and 2004. See footnote 17 of the financial statements for a
complete discussion of financing transactions subsequent to September 30, 2004.

                                       18
<PAGE>
<TABLE>
<CAPTION>
                                                                                   Amount Owing at        Amount
     Description of Obligation    Annual Interest Rate        Maturity Date            9/30/03       Owing at 9/30/04
     <S>                             <C>                     <C>                   <C>                <C>
     Advances from ADP
     Management                            5%                 July 31, 2006        $     82,676       $     222,546 (1)

     Bank Line of Credit             Prime plus .25%          April 11, 2006       $    550,786       $     175,000

     Note to Shareholder                   5%                  January 2004        $    134,235       $      84,838

     Note to Shareholder                   5%                  January 2004        $    134,235       $      84,838

     Advance from officer                  12%                    Demand           $          0       $      20,000(2)

     Related Party Note                    12%                June 30, 2005                           $     124,500(2)
                                                                                   $          0

     Promissory Note                       18%              November 15,  2003     $    600,000       $           0

     Promissory Note                       12%              September 30, 2002     $     25,000       $           0

     Promissory Note                       12%                March 30, 2005       $    300,000       $     300,000(3)

     Promissory Note                       12%                Month to Month       $    175,000       $     175,000(4)

     Promissory Note                       20%                March 22, 2004       $     45,759                   0

     Totals                                N/A                     N/A             $  2,047,691       $   1,186,722
                                                                                   ============       =============


</TABLE>


         (1)  By agreement dated April 2, 2003, ADP Management Corporation ("ADP
              Management"), an entity owned and controlled by Derrick and
              Dalton, converted all amounts owing under this obligation as of
              June 30, 2003 into common stock. An additional $622,546 was loaned
              to the Company and $400,000 of that amount was converted into
              common stock during 2004. See Item 12 for a further discussion of
              related party transactions with ADP Management.

         (2)  Subsequent to the year ended September 30, 2004, these loans were
              paid in full.

         (3)  Subsequent to the year ended September 30, 2004, this loan was
              assumed by ADP Management and settled by ADP Management by issuing
              470,000 shares of common stock owned by ADP Management.

         (4)  Subsequent to the year ended September 30, 2004, this loan was
              settled by issuing 175,000 shares of SecureAlert, Inc. Series A
              preferred stock.

Contractual Obligations

The following table summarizes the Company's outstanding borrowings and
long-term contractual obligations at September 30, 2004, and the periods in
which these obligations are scheduled to be paid in cash:

<TABLE>
<CAPTION>


                                                                      Payments Due By Period
                                             ----------------------------------------------------------------------

          Contractual Obligations                              Less Than       1-3           3-5        More than
                                                 Total          1 Year        Years         Years        5 Years
-------------------------------------------------------------------------------------------------------------------

<S>                                          <C>             <C>          <C>              <C>                 <C>
Notes from schedule above                      1,186,722       789,176        397,546             -              -
Convertible debentures, net of discount        1,106,412             -      1,106,412             -              -
Operating leases                                       -        55,872        416,976        24,202              -

                                            -----------------------------------------------------------------------
Total                                        $ 2,293,134     $ 845,048    $ 1,920,934      $ 24,202            $ -
                                            =======================================================================


</TABLE>


                                       19
<PAGE>

Inflation

The Company does not believe inflation has had a material adverse impact on its
business or operating results during the periods presented nor is it expected to
in the next year.

Critical Accounting Policies

In Note 1 to the audited financial statements for the fiscal year ended
September 30, 2004 included in this Form 10-KSB, the Company discusses those
accounting policies that are considered to be significant in determining the
results of operations and its financial position. The Company believes the
accounting principles utilized by it conform to generally accepted accounting
principles in the United States of America.

The preparation of consolidated financial statements requires management to make
significant estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses. By their nature, these judgments are subject
to an inherent degree of uncertainty. On an on-going basis, we evaluate our
estimates, including those related to bad debts, inventories, intangible assets,
warranty obligations, product liability, revenue, and income taxes. We base our
estimates on historical experience and other facts and circumstances that are
believed to be reasonable, and the results form the basis for making judgments
about the carrying value of assets and liabilities. The actual results may
differ from these estimates under different assumptions or conditions.

With respect to inventory reserves, revenue recognition, impairment of
long-lived assets, and accounting for stock-based compensation, the Company
applies the following critical accounting policies in the preparation of its
financial statements:

Inventory Reserves

The nature of the Company's business requires maintenance of sufficient
inventory on hand at all times to meet the requirements of its customers. The
Company records finished goods inventory at the lower of standard cost, which
approximates actual costs (first-in, first-out) or market. Raw materials are
stated at the lower of cost (first-in, first-out), or market. General inventory
reserves are maintained for the possible impairment of the inventory. Impairment
may be a result of slow moving or excess inventory, product obsolescence or
changes in the valuation of the inventory. In determining the adequacy of
reserves, management analyzes the following, among other things:

         o    Current inventory quantities on hand;

         o    Product acceptance in the marketplace;

         o    Customer demand;

         o    Historical sales;

         o    Forecast sales;

         o    Product obsolescence; and

         o    Technological innovations.

Any modifications to these estimates of reserves are reflected in the cost of
goods sold within the statement of operations during the period in which such
modifications are determined necessary by management.

Revenue Recognition

The Company derives revenue primarily from the sale of its mobile medical
emergency products with service contracts, and reagent stains. Under applicable
accounting principles, revenue, less reserves for returns, is recognized upon
shipment to the customer. For the two fiscal years ended September 30, 2004 and
2003 the provision for sales returns was not material. Revenue from products
sold with long-term service contracts are recognized ratably over the life of
the expected life of the contract. Amounts received in advance of shipment are
recorded as deferred revenue. Shipping and handling fees are included as part of
net sales. The related freight costs and supplies directly associated with
shipping products to customers are included as a component of cost of goods
sold.


                                       20
<PAGE>

Impairment of Long-lived Assets

Under applicable accounting principles, the Company does not amortize goodwill.
Goodwill is subject to an impairment test, which is performed at least annually.
Our goodwill is related to the acquisition of SecureAlert in July 2001. During
the year ended September 30, 2004 management tested goodwill for impairment by
comparing the carrying value of the assets of our wholly owned subsidiary
SecureAlert, to the estimated fair value of those assets. The fair value was
determined using an income approach of estimated future cash flows. The
estimated future cash flows include those primarily related from mobile medical
alert devices. The carrying amount including goodwill was determined to exceed
the estimated fair value. Therefore the Company recognized an impairment of
the remaining goodwill in 2004.

The Company reviews its long-lived assets, other than goodwill, for impairment
when events or changes in circumstances indicate the book value of an asset may
not be recoverable. An evaluation is made at each balance sheet date, to
determine whether events and circumstances have occurred which indicate possible
impairment. An estimate is made of future undiscounted net cash flows of the
related asset or group of assets over the estimated remaining life of in
measuring whether the assets are recoverable.

Accounting for Stock-based Compensation

The Company accounts for stock-based compensation issued to employees and
directors under Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees," and related interpretations. Under APB No. 25,
compensation related to stock options, if any, is recorded if an option's
exercise price on the measurement date is below the fair value of the Company's
common stock and amortized to expense over the vesting period. Compensation
expense for stock awards or purchases, if any, is recognized if the award or
purchase price on the measurement date is below the fair value of the common
stock and is recognized on the date of award or purchase. Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock Based
Compensation," requires pro forma information regarding net loss and net loss
per common share as if the Company had accounted for its stock options granted
under the fair value method. This pro forma disclosure is presented in Note 11
to the audited financial statements.

The Company accounts for stock-based compensation issued to persons other than
employees using the fair value method in accordance with SFAS No. 123 and
related interpretations. Under SFAS No. 123, stock-based compensation is
determined as either the fair value of the consideration received or the fair
value of the equity instruments issued, whichever is more reliably measurable.
The measurement date for these issuances is the earlier of either the date at
which a commitment for performance by the recipient to earn the equity
instruments is reached or the date at which the recipient's performance is
complete.

Allowance for Doubtful Accounts

The Company must make estimates of the collectibility of accounts receivables.
In doing so, we analyze accounts receivable and historical bad debts, customer
credit-worthiness, current economic trends and changes in customer payment
patterns when evaluating the adequacy of the allowance for doubtful accounts.

Recent Accounting Pronouncements

In December 2004, the FASB issued FASB Statement No. 123 (revised 2004),
"Shared-Based Payment." Statement 123(R) addresses the accounting for
share-based payment transactions in which an enterprise receives employee
services in exchange for (a) equity instruments of the enterprise of (b)
liabilities that are based on the fair value of the enterprise's equity
instruments or that may be settled by the issuance of such equity instruments.
Statement 123(R) requires an entity to recognize the grant-date fair value of
stock options and other equity-based compensation issued to employees in the
income statement. The revised Statement generally requires that an entity
account for those transactions using the fair-value-based method, and eliminates
the intrinsic value method of accounting in APB Opinion No. 25, "Accounting for
Stock Issued to Employee", which was permitted under Statement 123, as
originally issued.

The revised Statement requires entities to disclose information about the nature
of the share-based payment transactions and the effects of those transactions on
the financial statements.

                                       21
<PAGE>

Statement 123(R) is effective as of the beginning of the first annual reporting
period that begins after December 15, 2005 (i.e., October 1, 2006 for the
Company). All public companies must use either the modified prospective or the
modified retrospective transition method. Early adoption of this Statement for
interim or annual periods for which financial statements or interim reports have
not been issued is encouraged. The Company has not yet evaluated the impact of
adoption of this pronouncement, but believes it may have a material impact on
the consolidated financial statements.

In November 2004, the FASB issued Statement No. 151, "Inventory Costs", to amend
the guidance in Chapter 4, "Inventory Pricing", of FASB Accounting Research
Bulletin No. 43, "Restatement and Revision of Accounting Research Bulletins."
Statement No. 151 clarifies the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material (spoilage). The Statement
requires that those items be recognized as current-period charges. Additionally,
Statement 151 requires that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the production
facilities. Statement No. 151 is effective for fiscal years beginning after June
15, 2005. The Company is currently evaluating the impact of the adoption of this
Statement which is required to be adopted in the fiscal year 2006.

As part of its short-term international convergence project with the IASB, on
December 16, 2004, the FASB issued Statement 153 to address the accounting for
non-monetary exchanges of productive assets. Statement 153 amends APB No. 29,
"Accounting for Non-Monetary Exchanges", which established a narrow exception
for non-monetary exchanges of similar productive assets from fair value
measurement. This Statement eliminates that exception and replaces it with an
exception for exchanges that do not have commercial substance. Under Statement
153 non-monetary exchanges are required to be accounted for at fair value,
recognizing any gains or losses, if their fair value is determinable within
reasonable limits and the transaction has commercial substance.

The Statement specifies that a non-monetary exchange has commercial substance if
future cash flows of the entity are expected to change significantly as a result
of the exchange. An entity should apply the provisions of Statement 153
prospectively for non-monetary asset exchange transactions in fiscal periods
beginning after June 15, 2005. The Company will adopt this Statement in fiscal
year 2005 and adoption is not expected to have a material impact on the
financial position or results of operations.

Risk Factors

Caution Regarding Forward-looking Statements

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements made by or on behalf of the Company. The Company may
from time to time make written or oral statements that are forward-looking,
including statements contained in this report and other filings with the
Securities and Exchange Commission and in reports to our shareholders. Such
statements may, for example, express expectations or projections about future
actions that we may take including restructuring or strategic initiatives or
about developments beyond our control. The terms "anticipate", "believe",
"estimate", "expect", "objective", "plan", "might," "should," "may," "project,"
and similar expressions are intended to identify forward-looking statements.
These forward-looking statements are subject to inherent risks and uncertainties
that may cause actual results or events to differ materially from those
contemplated by the forward-looking statements. These statements are made on the
basis of management's views and assumptions as of the time the statements are
made and we undertake no obligation to update these statements. There can be no
assurance however that our expectations will necessarily come to pass. The
factors that could materially affect future developments and performance include
those set forth below.

The financial statements contained in our annual report on Form 10-KSB for the
years ended September 30, 2004 have been prepared on the basis that the Company
will continue as a going concern, notwithstanding the fact that its financial
performance and condition during the past few years raise substantial doubt as
to our ability to do so. There is no assurance the Company will ever be
profitable.

In fiscal year 2004, the Company incurred a net loss of $6,406,711, negative
cash flow from operating activities of $2,035,052, and an accumulated deficit of
$69,480,005.

These factors, as well as the risk factors set out below raise substantial doubt
about our ability to continue as a going concern. The financial statements and
the report of our independent registered public accounting firm included in this
report do not include any adjustments that might result from the outcome of this
uncertainty. Our plans with respect to this uncertainty include the conversion


                                       22
<PAGE>

of a significant portion of our outstanding debt and other obligations, to
common stock as well as raising capital from the sale of our securities. There
can be no assurance that the debt holders will be willing to convert the debt
obligations to equity securities or that the Company will be successful in
raising additional capital from the sale of equity or debt securities. If the
Company is unable to obtain additional financing, it will be unable to continue
the development of its products and may have to cease operations.

As a result of our increased focus on a new business market our business is
subject to many of the risks of a new or start-up venture.

The change in our business goals and strategy subjects us to the risks and
uncertainties usually associated with start-ups. Our business plan involves
risks, uncertainties and difficulties frequently encountered by companies in
their early stages of development. If the Company is to be successful in this
new business direction, it must accomplish the following, among other things:

         o    Develop and introduce functional and attractive product and
              service offerings;

         o    Increase awareness of our brand and develop consumer loyalty;

         o    Respond to competitive and technological developments;

         o    Build an operational structure to support our business; and

         o    Attract, retain and motivate qualified personnel.

If the Company fails to achieve these goals, that failure would have a material
adverse effect on its business, prospects, financial condition and operating
results. Because the market for its new product and service offerings is new and
evolving, it is difficult to predict with any certainty the size of this market
and its growth rate, if any. There is no assurance that a market for these
products or services will ever develop or that demand for our products and
services will emerge or be sustainable. If the market fails to develop, develops
more slowly than expected or becomes saturated with competitors, our business,
financial condition and operating results would be materially adversely
affected.

Our management group owns or controls a significant number of our outstanding
shares.

Certain of our directors, executives and principal shareholders or persons
associated with them beneficially own approximately 22.8% of our outstanding
common stock. In addition, these individuals are the beneficial owners of
preferred stock convertible into a significant number of shares of common stock.
As a result, these persons have the ability, acting as a group, to effectively
control our affairs and business, including the election of our directors and,
subject to certain limitations, approval or preclusion of fundamental corporate
transactions. This concentration of ownership may also have the effect of
delaying or preventing a change of control or making other transactions more
difficult or impossible without their support. See Item 9 "Directors, Executive
Officers, Promoters and Control Persons; Compliance with Section 16(a) of the
Exchange Act," and Item 11 "Security Ownership of Certain Beneficial Owners and
Management."

There is no certainty that the market will accept our new products and services.

Our targeted markets may never accept our new products or services. Insurance
companies, physicians, nurses, patients and consumers may not use our products
unless they determine, based on experience, clinical data, advertising or other
factors, that those products are a preferable alternative to currently available
methods of diagnosis. In addition, decisions to adopt new medical devices can be
influenced by government administrators, regulatory factors, and other factors
largely outside our control. No assurance can be given that key decision-makers
or third party payors will accept our new products, which could have a material
adverse effect on our business, financial condition and results of operations.

Our relationship with our majority shareholders presents potential conflicts of
interest, which may result in decisions that favor them over our other
shareholders.

Our principal beneficial owners, David Derrick and James J. Dalton, provide
management and financial services and assistance to the Company. Substantially
all of our financing over the past twelve months has been loaned from entities
affiliated with these two shareholders and directors, who also serve as
executive officers of the Company. When their personal investment interests
diverge from our interests, they and their affiliates may exercise their
influence in their own best interests. Some decisions concerning our operations
or finances may present conflicts of interest between us and these shareholders
and their affiliated entities.

                                       23
<PAGE>

During the two most recent fiscal years the Company has been dependent upon
certain major customers, the loss of which would adversely affect its results of
operations and business condition. Certain of these customers now purchase
product from distributors owned and controlled by our former executives and
consultants, which will reduce our revenues from consumer electronics in future
operating periods.

During fiscal year 2004, two customers accounted for more than 10% of sales.
Fisher Scientific accounted for approximately 13% ($163,395) of sales MDC
accounted for approximately 14% ($170,000). The loss of one or more of these
customers would result in lower revenues and limit the cash available to grow
our business and to achieve profitability. We have no arrangements or contracts
with these customers that would require them to purchase a specific amount of
product from us.

The Company purchases a significant amount of inventory of consumer electronics
products annually from a single supplier under an agreement that expires next
year. The Company also relies on significant suppliers for other key products
and cellular access. If the Company does not renew these agreements when they
expire it may not continue to have access to these suppliers' products or
services at favorable prices or in volumes as it has in the past, which would
reduce revenues and could adversely affect results of operations or financial
condition.

Under our agreement with Matsushita Electric Works, Ltd. ("MEW"), the Company
purchases most of its mobile and cellular device products from MEW. During the
fall of 2001, the Company entered into a cellular switching access agreement
under which it purchases substantially all of its cellular access requirements.
That agreement expired in 2004. However the Company has entered into an
agreement with a national cellular access company for these services. If any of
these significant suppliers were to cease providing product or services to us,
we would be required to seek alternative sources. There is no assurance that
alternate sources could be located or that the delay or additional expense
associated with locating alternative sources for these products or services
would not materially and adversely affect our business and financial condition.

Our proposed business plan subjects our research, development and ultimate
marketing activities to current and possibly to future government regulation.
The cost of compliance or the failure to comply with this regulation could
adversely affect our business, results of operations and financial condition.

The products we currently distribute and sell are not subject to specific
approvals from any governmental agency, although our products using cellular and
GPS products must be manufactured in compliance with applicable rules and
regulations of the Federal Communications Commission. Under our new business
plan we are developing and intend to market medical devices that are or that may
become regulated by a number of governmental agencies, including the United
States Food and Drug Administration ("FDA"). The FDA requires governmental
clearance of all medical devices and drugs before they can be marketed in the
United States. Similar approvals are required from other regulatory agencies in
most foreign countries. The regulatory processes established by these government
agencies are lengthy, expensive, and uncertain and may require extensive and
expensive clinical trials. There can be no assurance that any future products
developed by us that are subject to the FDA's authority will prove to be safe
and effective and meet all of the applicable regulatory requirements necessary
to be marketed. The results of testing activities could be susceptible to varied
interpretations that could delay, limit or prevent required regulatory
approvals. In addition, we may encounter delays or denials of approval based on
a number of factors, including future legislation, administrative action or
changes in FDA policy made during the period of product development and FDA
regulatory review. We may encounter similar delays in foreign countries.
Furthermore, approval may entail ongoing requirements for, among other things,
post-marketing studies. Even if we obtain regulatory approval of a marketed
product, our manufacturer and its manufacturing facility are subject to on-going
regulation and inspections. Discovery of previously unknown problems with a
product, manufacturer or facility could result in FDA sanctions, restrictions on
a product or manufacturer, or an order to withdraw and/or recall a specific
product from the market. There can also be no assurance that changes in the
legal or regulatory framework or other subsequent developments will not result
in limitation, suspension or revocation of regulatory approvals granted to us.
Any such events, were they to occur, could have a material adverse effect on our
business, financial condition and results of operations.

                                       24
<PAGE>

We may also be required to comply with FDA regulations for manufacturing
practices, which mandate procedures for extensive control and documentation of
product design, control and validation of the manufacturing process and overall
product quality. Foreign regulatory agencies have similar manufacturing
standards. Any third parties manufacturing our products or supplying materials
or components for such products may also be subject to these manufacturing
practices and mandatory procedures. If we, our management or our third party
manufacturers fail to comply with applicable regulations regarding these
manufacturing practices, we could be subject to a number of sanctions, including
fines, injunctions, civil penalties, delays, suspensions or withdrawals of
market approval, seizures or recalls of product, operating restrictions and, in
some cases, criminal prosecutions.

Our products and related manufacturing operations may also be subject to
regulation, inspection and licensing by other governmental agencies, including
the Occupational Health and Safety Administration.

The Company faces intense competition, including competition from entities that
are more established and have greater financial resources than it does, which
may make it difficult for it to establish and maintain a viable market presence.

Our current and expected markets are rapidly changing. Existing products and
services and emerging products and services will compete directly with the
products we are seeking to develop and market. Our technology will compete
directly with other technology, and, although we believe our technology has or
will have advantages over these competing systems, there can be no assurance
that our technology will have advantages that are significant enough to cause
users to adopt its use. Competition is expected to increase.

Many of the companies currently in the remote medical monitoring and diagnostic
market may have significantly greater financial resources and expertise in
research and development, marketing, manufacturing, pre-clinical and clinical
testing, obtaining regulatory approvals, and marketing than those available to
us. Smaller companies may also prove to be significant competitors, particularly
through collaborative arrangements with large third parties. Academic
institutions, governmental agencies, and public and private research
organizations also conduct research, seek patent protection, and establish
collaborative arrangements for product and clinical development and marketing in
the medical diagnostic arena. Many of these competitors have products or
techniques approved or in development and operate large, well-funded research
and development programs in the field. Moreover, these companies and
institutions may be in the process of developing technology that could be
developed more quickly or be ultimately more effective than our planned
products.

We face competition based on product efficacy, the timing and scope of
regulatory approvals, availability of supply, marketing and sales capability,
reimbursement coverage, price and patent position. There can be no assurance
that our competitors will not develop more effective or more affordable
products, or achieve earlier patent protection or product commercialization.

Our business plan is subject to the risks of technological uncertainty, which
may result in our products failing to be competitive or readily accepted by our
target markets.

We may not realize revenues from the sale of any of our new products or services
for several years, if at all. Some of the products we are currently evaluating
likely will require further research and development efforts before they can be
commercialized. There can be no assurance that our research and development
efforts will be successful or that we will be successful in developing any
commercially successful products. In addition, the technology which we integrate
or that we may expect to integrate with our product and service offerings is
rapidly changing and developing. We face risks associated with the possibility
that our technology may not function as intended and the possible obsolescence
of our technology and the risks of delay in the further development of our own
technologies. Cellular coverage is not uniform throughout our current and
targeted markets and GPS technology depends upon "line-of-sight" access to
satellite signals used to locate the user. This limits the effectiveness of GPS
if the user is in the lower floors of a tall building, underground or otherwise
located where the signals have difficulty penetrating. Other difficulties and
uncertainties normally associated with new industries or the application of new
technologies in new or existing industries also threaten our business, including
the possible lack of consumer acceptance, difficulty in obtaining financing for
untested technologies, increasing competition from larger well-funded
competitors, advances in competing or other technologies, and changes in laws
and regulations affecting the development, marketing or use of our new products
and related services.

The Company is dependent upon its strategic alliances, the loss of which would
limit its success.

Our strategy for the identification, development, testing, manufacture,
marketing and commercialization of our products and services includes, entering
into various collaborations through corporate alliances. We have entered into

                                       25
<PAGE>

collaborative relationships with a significant engineering and product
commercialization firm and a multi-national manufacturing corporation, and we
believe that these relationships provide us with strong strategic alliances for
the design and engineering of our products. MEW, our manufacturing partner, is a
large Japanese multinational with significant operations and holdings in several
industries, including electronics. There can be no assurance, however, that
these relationships will succeed or that we will be able to negotiate strategic
alliances with other parties on acceptable terms, if at all, or that any of
these collaborative arrangements will be successful. To the extent we choose or
are unable to establish or continue such arrangements we could experience
increased capital requirements as a result of undertaking such activities. In
addition, we may encounter significant delays in introducing products currently
under development into the marketplace or find that the development, manufacture
or sale of our proposed products is adversely affected by the absence of
successful collaborative agreements.

The Company has a history of losses and anticipates significant future losses
and may be unable to project its revenues and expenses accurately.

The Company expects to incur net operating losses and negative cash flows for
the foreseeable future. It will incur significant expenses associated with the
development and deployment of our new products and promoting our brand. It
intends to enter into additional arrangements through current and future
strategic alliances that may require it to pay consideration in various forms
and in amounts that may significantly exceed current estimates and expectations.
The Company may also be required to offer promotional packages of hardware and
software to end-users at subsidized prices in order to promote its brand,
products and services. These guaranteed payments, promotions and other
arrangements would result in significant expense. If it does achieve
profitability, it cannot be certain that it will be able to sustain or increase
profitability in the future. In addition, because of its limited operating
history in its newly targeted markets, the Company may be unable to project
revenues or expenses with any degree of certainty. Management expects expenses
to increase significantly in the future as the Company continues to incur
significant sales and marketing, product development and administrative
expenses. The Company cannot guarantee that it will be able to generate
sufficient revenues to offset operating expenses or the costs of the promotional
packages or subsidies described above, or that it will be able to achieve or
maintain profitability. If revenues fall short of projections, our business,
financial condition and operating results would be materially adversely
affected.

Our business plan anticipates significant growth through sales and acquisitions;
to manage the expected growth the Company will require capital and there is no
assurance it will be successful in obtaining necessary additional funding.

If we are successful in implementing our business plan, we may be required to
raise additional capital to manage anticipated growth. Our actual capital
requirements will depend on many factors, including but not limited to, the
costs and timing of our ongoing development activities, the number and type of
clinical or other tests we may be required to conduct in seeking government or
agency approval of these products, the success of our development efforts, the
cost and timing of establishing or expanding our sales, marketing and
manufacturing activities, the extent to which our products gain market
acceptance, our ability to establish and maintain collaborative relationships,
competing technological and market developments, the progress of our
commercialization efforts and the commercialization efforts of our marketing
alliances, the costs involved in preparing, filing, prosecuting, maintaining and
enforcing and defending patent claims and other intellectual property rights,
developments related to regulatory issues, and other factors, including many
that are outside our control. To satisfy our capital requirements, we may seek
to raise funds through public or private financings, collaborative relationships
or other arrangements. Any arrangement that includes the issuance of equity
securities or securities convertible into our equity securities may be dilutive
to shareholders (including the purchasers of the shares), and debt financing, if
available, may involve significant restrictive covenants that limit our ability
to raise capital in other transactions. Collaborative arrangements, if necessary
to raise additional funds, may require that we relinquish or encumber our rights
to certain of our technologies, products or marketing territories. Any inability
or failure to raise capital when needed could also have a material adverse
effect on our business, financial condition and results of operations. There can
be no assurance that any such financing, if required, will be available on terms
satisfactory to us, if at all.

The Company currently lacks experienced sales and marketing capability for all
of its product and service lines.

We currently have limited staff with experience in sales, marketing or
distribution in our intended markets. We will be required to develop a marketing
and sales force with technical expertise and with supporting distribution
capability. Alternatively, we may obtain the assistance of other companies with
established distribution and sales forces, in which case we would be required to
enter into agreements regarding the use and maintenance of these distribution

                                       26
<PAGE>

systems and sales forces. There can be no assurance that we will be able to
establish in-house sales and distribution capabilities, or that we will be
successful in gaining market acceptance for our products through the use of
third parties. There can be no assurance that we will be able to recruit, train
and maintain successfully the necessary sales and marketing personnel, or that
the efforts of such personnel will be successful.

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
have applied for several patents and those applications are awaiting action by
the 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. Our inability to obtain or to maintain patents on our key products could
adversely affect our business. We own five patents and have filed and intend to
file additional patent applications in the United States and in key foreign
jurisdictions relating to our technologies, improvements to those technologies
and for specific products we may develop. There can be no assurance that patents
will issue on any of these applications or that, if issued, any patents will not
be challenged, invalidated or circumvented. The prosecution of patent
applications and the enforcement of patent rights are expensive, and the expense
may adversely affect our profitability and the results of our operations. In
addition, there can be no assurance that the rights afforded by any patents will
guarantee proprietary protection or competitive advantage.

Our success will also depend, in part, on our ability to avoid infringing the
patent rights of others. We must also avoid any material breach of technology
licenses we may enter into with respect to our new products and services.
Existing patent and license rights may require us to alter the designs of our
products or processes, obtain licenses or cease certain activities. In addition,
if patents have been issued to others that contain competitive or conflicting
claims and such claims are ultimately determined to be valid and superior to our
own, we may be required to obtain licenses to those patents or to develop or
obtain alternative technology. If any licenses are required, there can be no
assurance that we will be able to obtain any necessary licenses on commercially
favorable terms, if at all. Any breach of an existing license or failure to
obtain a license to any technology that may be necessary in order to
commercialize our products may have a material adverse impact on our business,
results of operations and financial condition. Litigation that could result in
substantial costs may also be necessary to enforce patents licensed or issued to
us or to determine the scope or validity of third party proprietary rights. If
our competitors prepare and file patent applications in the United States that
claim technology also claimed by us, we may have to participate in proceedings
declared by the U.S. Patent and Trademark Office to determine priority of
invention, which could result in substantial costs, even if we eventually
prevail. An adverse outcome could subject us to significant liabilities to third
parties, require disputed rights to be licensed from third parties or require
that we cease using such technology.

We 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.

The existence of certain anti-dilution rights applicable to our Series B
Preferred Stock might result in increased dilution if the Company we were to
offer and sell shares of common stock at prices below the conversion rate of
$3.00 per common share unless those rights are waived.


                                       27
<PAGE>

The investors in our Series B preferred stock and MEW have the right to an
automatic adjustment of the conversion price of the Series B preferred shares
held by them in the event we were to sell shares of common stock at a price
below the original conversion price of $3.00 per share. We have issued shares
and options to purchase shares to certain creditors to convert debt to equity at
prices that are below the $3.00 conversion price. Certain holders of the Series
B preferred stock, including MEW, have waived their right to receive the
adjustment for such issuances through December 11, 2003, but there is no
assurance that any holder of Series B preferred stock will waive those rights as
to subsequent to December 11, 2003 issuances. MEW's right expired in April 2004.
Any increase in the number of shares of common stock issued upon conversion of
Series B preferred shares would compound the risks of dilution to existing
shareholders.

The obligation to issue shares of common stock upon the exercise of outstanding
options and warrants or upon conversion of outstanding shares of preferred stock
increases the potential for short sales.

Downward pressure on the market price of our common stock that likely would
result from sales of common stock issued on conversion of the preferred stock or
the exercise of options and warrants could encourage short sales of common stock
by the holders of the preferred stock or others. A significant amount of short
selling could place further downward pressure on the market price of the common
stock, reducing the market value of the securities held by our shareholders.

Payment of dividends in additional shares of Series A preferred stock will
result in further dilution.

Under the terms of the Series A preferred stock, our board of directors may
elect to pay dividends by issuing additional shares of Series A preferred stock.
Dividends accrue from the date of the issuance of the preferred stock, subject
to any intervening payments in cash. Each share of Series A preferred stock is
convertible into 370 shares of common stock. The issuance of additional shares
of Series A preferred stock as dividends could result in a substantial increase
in the number of shares issued and outstanding and could result in a decrease of
the relative voting control of the holders of the common stock issued and
outstanding prior to such payment of dividends and interest.

The Company has and will continue to have significant future capital needs and
there is no assurance it will be successful in obtaining necessary additional
funding.

We will be required to raise additional capital to fully implement our business
plan. Our actual capital requirements will depend on many factors, including but
not limited to, the costs and timing of our ongoing development activities, the
number and type of clinical or other tests we may be required to conduct in
seeking government or agency approval of these products, the success of our
development efforts, the cost and timing of establishing or expanding our sales,
marketing and manufacturing activities, the extent to which our products gain
market acceptance, our ability to establish and maintain collaborative
relationships, competing technological and market developments, the progress of
our commercialization efforts and the commercialization efforts of our marketing
alliances, the costs involved in preparing, filing, prosecuting, maintaining and
enforcing and defending patent claims and other intellectual property rights,
developments related to regulatory issues, and other factors, including many
that are outside our control. To satisfy our capital requirements, we may seek
to raise funds through public or private financings, collaborative relationships
or other arrangements. Any arrangement that includes the issuance of equity
securities or securities convertible into our equity securities may be dilutive
to shareholders (including the purchasers of the shares), and debt financing, if
available, may involve significant restrictive covenants that limit our ability
to raise capital in other transactions. Collaborative arrangements, if necessary
to raise additional funds, may require that we relinquish or encumber our rights
to certain of our technologies, products or marketing territories. Any inability
or failure to raise capital when needed could also have a material adverse
effect on our business, financial condition and results of operations. There can
be no assurance that any such financing, if required, will be available on terms
satisfactory to us, if at all.

The Company relies on third parties to manufacture our products. Therefore, it
does not have direct control over the quality or other aspects of the
manufacturing process, which could result in a loss of customer acceptance of
our products and increased expense related to warranty claims or defective
product returns.

We do not directly control the manufacturing facilities where our products are
made and we must depend on third parties to make our products according to our
standards for quality and reliability. We do not own any manufacturing
facilities or equipment and do not employ any manufacturing personnel. We use
third parties to manufacture our products on a contract basis. There is no
assurance that we will be able to obtain qualified contract manufacturing
services on reasonable terms. In addition, the manufacture of our products
involves complex and precise processes. Changes in manufacturing processes by
our contract manufacturer or our suppliers, or the use of defective components
or materials, could significantly reduce our manufacturing yields and product

                                       28
<PAGE>

reliability. For example, during the year ended September 30, 2003, we
voluntarily recalled approximately 200 GPS devices that contained a defect
causing the battery to drain power at an unacceptable rate. The problem was
quickly resolved and the units replaced at the expense of our manufacturer.
There is no assurance, however, that similar problems will not arise in the
future with these other products.

Penny stock regulations may impose certain restrictions on marketability of the
Company's securities.

The Securities and Exchange Commission (the "Commission") has adopted
regulations which generally define a "penny stock" to be any equity security
that has a market price (as defined) of less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to certain exceptions. As a result,
the common stock is subject to rules that impose additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally those with assets in
excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together
with their spouse). For transactions covered by these rules, the broker-dealer
must make a special suitability determination for the purchase of such
securities and have received the purchaser's written consent to the transaction
prior to the purchase. Additionally, for any transaction involving a penny
stock, unless exempt, the rules require the delivery, prior to the transaction,
of a risk disclosure document mandated by the Commission relating to the penny
stock market. The broker-dealer must also disclose the commission payable to
both the broker-dealer and the registered representative, current quotations for
the securities and, if the broker-dealer is the sole market maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Finally, monthly statements must be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell the Company's securities and may
affect the ability of investors to sell the Company's securities in the
secondary market and the price at which such purchasers can sell any such
securities.

Investors should be aware that, according to the Commission, the market for
penny stocks has suffered in recent years from patterns of fraud and abuse. Such
patterns include:

         o    Control of the market for the security by one or a few
              broker-dealers that are often related to the promoter or issuer;

         o    Manipulation of prices through prearranged matching of purchases
              and sales and false and misleading press releases;

         o    "Boiler room" practices involving high pressure sales tactics and
              unrealistic price projections by inexperienced sales persons;

         o    Excessive and undisclosed bid-ask differentials and markups by
              selling broker-dealers; and

         o    The wholesale dumping of the same securities by promoters and
              broker-dealers after prices have been manipulated to a desired
              level, along with the inevitable collapse of those prices with
              consequent investor losses.

The Company's management is aware of the abuses that have occurred historically
in the penny stock market.

The holders of our Series B preferred stock have voting rights that are the same
as the voting rights of holders of our common stock, which effectively dilutes
the voting power of the holders of the common stock.

Holders of shares of Series B preferred stock are entitled to one vote per share
of Series B preferred stock on all matters upon which holders of the common
stock of the Company are entitled to vote. Therefore, without converting the
shares of Series B preferred stock, the holders thereof enjoy the same voting
rights as if they held an equal number of shares of common stock, as well as the
liquidation preference described above. In addition, without the approval of
holders of a majority of the outstanding shares of Series B preferred stock
voting as a class, we are prohibited from (i) authorizing, creating or issuing
any shares of any class or series ranking senior to the Series B preferred stock
as to liquidation rights; (ii) amending, altering or repealing our Articles of
Incorporation if the powers, preferences or special rights of the Series B
preferred stock would be materially adversely affected; or (iii) becoming
subject to any restriction on the Series B preferred stock other than
restrictions arising solely under the Utah Act or existing under our Articles of
Incorporation as in effect on June 1, 2001.

                                       29
<PAGE>

Item 7.  Financial Statements

Our audited financial statements and associated notes are included and set forth
on pages F-1 through F-43 of this report.

RemoteMDx, Inc.
Consolidated Financial Statements
September 2004 and 2003


<PAGE>


                                                                 RemoteMDx, Inc.
                                      Index to Consolidated Financial Statements

--------------------------------------------------------------------------------




                                                                          Page
                                                                          ----

Report of Independent Registered Public Accounting Firm                    F-2


Consolidated Balance Sheet                                                 F-3


Consolidated Statements of Operations                                      F-5


Consolidated Statements of Stockholders' Deficit                           F-6


Consolidated Statements of Cash Flows                                      F-8


Notes to Consolidated Financial Statements                                 F-11



<PAGE>

                                         REPORT OF INDEPENDENT REGISTERED PUBLIC
                                                                 ACCOUNTING FIRM



To the Board of Directors and
Stockholders of RemoteMDx, Inc.


We have audited the accompanying  consolidated balance sheet as of September 30,
2004  and the  related  consolidated  statements  of  operations,  stockholders'
deficit and cash flows of RemoteMDx,  Inc.,  (the Company),  for the years ended
September 30, 2004 and 2003.  These  consolidated  financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
RemoteMDx,  Inc. as of September 30, 2004 and the consolidated  results of their
operations  and cash flows for the years  ended  September  30, 2004 and 2003 in
conformity with U.S. generally accepted accounting principles.

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



/s/Tanner LC

Salt Lake City, Utah
June 7, 2005


                                                                             F-2
<PAGE>


                                                                 RemoteMDx, Inc.
                                                      Consolidated Balance Sheet
                                                              September 30, 2004

--------------------------------------------------------------------------------





            Assets
            ------

Current Assets:
Cash                                                                $    62,103
Accounts receivable, net of allowance for doubtful
  accounts of  $28,000                                                  260,475
Inventories, net of reserve of $168,409                                  78,286
Prepaid and other assets                                                 13,432
                                                                    ------------

        Total current assets                                            414,296

Restricted cash                                                         176,361
Property and equipment, net of accumulated depreciation
  and amortization of $463,981                                          114,074
Other assets                                                              4,073
                                                                    ------------

                                                                    $   708,804
                                                                    ------------


--------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.                 F-3


<PAGE>


                                                                 RemoteMDx, Inc.
                                                      Consolidated Balance Sheet

                                                              September 30, 2004
--------------------------------------------------------------------------------



        Liabilities and Stockholders' Deficit

Current liabilities:
 Accounts payable                                                   $   706,008
 Accrued expenses                                                       453,080
 Deferred revenues                                                       13,434
 Dividend payable                                                       525,800
 Manditorily redeemable common stock  (note 7)                          196,000
 Notes payable                                                          789,176
                                                                    -----------

        Total current liabilities                                     2,683,498

 Long-term liabilities:
 Related party line of credit                                           222,546
 Convertible debentures, net of debt discount
   $164,173                                                           1,106,412
 Bank line of credit                                                    175,000
                                                                    -----------

        Total liabilities                                             4,187,456

Commitments and contingencies (note 15)

Stockholders' deficit:
Series A convertible preferred stock; 10%
   dividend, non-voting, non-participating;
    $.0001 par value, $200 stated value; 40,000
   shares designated; 23,349 shares issued and
   outstanding (aggregate liquidation preference
   of $68,302)                                                                2
Series B convertible preferred stock; $.0001 par
   value; 2,000,000 shares designated; 1,835,824
   shares issued and outstanding (aggregate
   liquidation preference of $6,058,219)                                    184
Common stock, $.0001 par value, 100,000,000
   shares authorized; 31,395,238 shares issued
   and outstanding                                                        3,140
Additional paid-in capital                                           66,329,339
Deferred compensation                                                  (331,312)
Accumulated deficit                                                 (69,480,005)
                                                                    -----------

        Total stockholders' deficit                                  (3,478,652)
                                                                    -----------

                                                                    $   708,804
                                                                    -----------



--------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.                 F-4


<PAGE>

<TABLE>
<CAPTION>
                                                                                            RemoteMDx, Inc.
                                                                      Consolidated Statements of Operations

                                                                                  Years Ended September 30,
------------------------------------------------------------------------------------------------------------

                                                                                2004              2003
                                                                       -------------------------------------
<S>                                                                        <C>                <C>
Sales, net                                                                 $    1,117,520     $     768,811
Cost of goods sold                                                              1,134,535           762,686
                                                                       -------------------------------------

Gross profit (loss)                                                               (17,015)            6,125
                                                                       -------------------------------------

Operating expenses:
  Research and development                                                        205,341           113,428
  Selling, general and administrative (including $1,553,940
   and $2,080,338 of compensation expense paid in stock
   or stock option / warrants, respectively)                                    4,189,669         4,489,458
  Impairment of inventory                                                          30,358                 -
  Impairment of goodwill                                                        1,321,164         2,248,000
                                                                       -------------------------------------

Loss from operations                                                           (5,763,547)       (6,844,761)
                                                                       -------------------------------------

Other income (expense):
  Interest income                                                                   7,077             1,099
  Interest expense (including $611,759 and $591,243
   paid in stock and warrants, respectively)                                     (817,579)         (839,531)
  Other income                                                                     67,823               860
                                                                       -------------------------------------

Loss before income taxes and discontinued operations                           (6,506,226)       (7,682,333)
Income tax benefit                                                                      -                 -
                                                                       -------------------------------------

Loss before discontinued operations                                            (6,506,226)       (7,682,333)
Income (loss) from discontinued operations, net of tax                             99,515          (207,004)
                                                                       -------------------------------------

Net loss                                                                       (6,406,711)       (7,889,337)

Series A preferred stock dividends                                               (525,800)       (1,282,556)
Beneficial conversion feature on Series A preferred stock                               -        (1,090,254)
                                                                       -------------------------------------

Net loss applicable to common shareholders                                 $   (6,932,511)    $ (10,262,147)
                                                                       -------------------------------------

Net loss per common share from continuing operations
   - basic and diluted                                                     $        (0.25)    $       (0.57)
                                                                       -------------------------------------

Net income (loss) per common share from
   discontinued operations - basic and diluted                             $            -     $       (0.01)
                                                                       -------------------------------------

Net loss per common share - basic and diluted                              $        (0.25)    $       (0.58)
                                                                       -------------------------------------

Weighted average shares - basic and diluted                                    28,217,000        17,817,000
                                                                       -------------------------------------



------------------------------------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.                                            F-5
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                                                                                                     RemoteMDx, Inc.
                                                                                    Consolidated Statements of Stockholders' Deficit

                                                                                             Years Ended September 30, 2004 and 2003
------------------------------------------------------------------------------------------------------------------------------------


                                       Preferred Stock
                         ------------------------------------                                      Deferred    Preferred
                              Series A             Series B        Common Stock     Additional   Financing    Stock       Accumu-
                         ---------------------------------------------------------   Paid-in       and     Subscription    lated
                          Shares    Amount     Shares   Amount     Shares   Amount   Capital    Consulting  Receivable    Deficit
                         -----------------------------------------------------------------------------------------------------------
<S>                         <C>       <C>   <C>         <C>     <C>         <C>     <C>          <C>        <C>        <C>
Balance at October 1,
  2002                      26,130    $ 3   1,835,824   $ 184   12,616,895  $1,262  $54,445,083  $(355,000) $ (338,300)$(55,183,957)

Issuance of redeemable
    common stock for:
 - Financing services            -      -           -       -            -       -           -    (45,000)           -            -
 - Conversion of common
    stock                        -      -           -       -      (58,333)     (6)          -          -            -            -

Issuance of common
  stock for:
 - Cash                          -      -           -       -    2,038,446     204   1,258,496          -            -            -
 - Exercise of stock
     options; options
     were exercised
     through reduction
     of related party
     line of credit              -      -           -       -      135,701      14      73,265          -            -            -
 - Debt and accrued
    interest                     -      -           -       -      302,668      30     442,720          -            -            -
 - Services                      -      -           -       -      517,256      52     679,881   (165,000)           -            -
 - Conversion of Series
    A preferred stock       (2,097)     -           -       -      652,352      65         (65)         -            -            -

Conversion of related
  party line of credit
  and other notes
  payable and rescission
  of warrants resulting
  in additional
  compensation
  expense of $845,628            -      -           -       -    8,113,999     811   4,380,478          -     (361,700)           -

Amortization of deferred
  consulting and
  financing fees                 -      -           -       -            -       -           -    445,000            -            -

Preferred stock dividend
accrued                          -      -           -       -            -       -    (803,784)         -            -            -

Stock option compensation
for consulting services          -      -           -       -            -       -     274,777          -            -            -

Preferred stock dividend
 paid with Series A
  preferred stock            6,413      -           -       -            -       -   1,282,556          -            -            -

Shares received and
  retired from
  distribution of
  subsidiary                     -      -           -       -     (401,952)    (40)     94,759          -            -            -

Net loss                         -      -           -       -            -       -           -          -            -   (7,889,337)
                         -----------------------------------------------------------------------------------------------------------

Balance at September 30,
  2003                      30,446      3   1,835,824     184   23,917,032   2,392  62,128,166   (120,000)    (700,000) (63,073,294)


------------------------------------------------------------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.                                                                     F-6
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                                                                                                                     RemoteMDx, Inc.
                                                                                    Consolidated Statements of Stockholders' Deficit
                                                                                                                           Continued

                                                                                             Years Ended September 30, 2004 and 2003
------------------------------------------------------------------------------------------------------------------------------------




                                       Preferred Stock
                         ------------------------------------                                      Deferred    Preferred
                              Series A             Series B        Common Stock     Additional   Financing    Stock       Accumu-
                         ---------------------------------------------------------   Paid-in       and     Subscription    lated
                          Shares    Amount     Shares   Amount     Shares   Amount   Capital    Consulting  Receivable    Deficit
                         -----------------------------------------------------------------------------------------------------------

<S>                         <C>       <C>   <C>         <C>     <C>         <C>     <C>          <C>        <C>        <C>
Issuance of common stock
upon expiration of put
options on manditorily
redeemable common stock
(reclassified from
liabilities)                     -      -           -       -      963,333      96   2,048,570          -            -            -

Issuance of common stock
  for:
 - Cash                          -      -           -       -    1,066,043     106     480,546          -            -            -
 - Offering costs for
     convertible
     debentures (recorded
     as debt discount)           -      -           -       -      205,530      21     110,965          -            -            -
 - Conversion of debt and
     interest                    -      -           -       -       22,427       2      33,638          -            -            -
 - Conversion of related
     party line of credit        -      -           -       -      740,741      74     399,926          -            -            -
 - Exercise of stock
     options; options
     were exercised
     through reduction of
     related party line
     of credit                   -      -           -       -      689,229      69     372,115          -            -            -
 - Conversion of Series A
     preferred stock        (7,097)    (1)          -       -    2,633,403     264        (263)         -            -            -
 - Services                      -      -           -       -    1,157,500     116     600,334   (461,700)

Stock options issued for
  consulting services            -      -           -       -            -       -     681,142          -            -            -

Amortization of deferred
  consulting services            -      -           -       -            -       -           -    250,388            -            -

Subscription receivable
  reduction                      -      -           -       -            -       -           -          -      700,000            -

Preferred stock dividend         -      -           -       -            -       -    (525,800)         -            -            -

Net loss                         -      -           -       -            -       -           -          -            -   (6,406,711)
                         -----------------------------------------------------------------------------------------------------------

Balance at September 30,
  2004                      23,349    $ 2   1,835,824   $ 184   31,395,238  $3,140 $66,329,339  $(331,312)   $       - $(69,480,005)
                         -----------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.                                                                     F-7

</TABLE>


<PAGE>

<TABLE>
<CAPTION>
                                                                                                 RemoteMDx, Inc.
                                                                           Consolidated Statements of Cash Flows

                                                                               For the Years Ended September 30,
----------------------------------------------------------------------------------------------------------------


                                                                                        2004              2003
                                                                                   -----------------------------
<S>                                                                                <C>             <C>
Cash flows from operating activities:
  Net loss                                                                         $ (6,406,711)   $  (7,889,337)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
      Interest income on restricted cash                                                 (2,016)               -
      Depreciation and amortization                                                     156,604          225,460
      Related party line of credit increased for consulting services                          -           60,000
      Loss on disposal of property charged to cost of sales                                   -           86,515
      Amortization of debt discount                                                      52,752            5,825
      Amortization of deferred financing and consulting services                        250,388          445,000
      Amortization of interest expense related to redeemable common
        stock payable                                                                   483,659                -
      Common stock issued for services                                                  138,750        1,360,561
      Stock options issued for services                                                 498,832                -
      Stock options issued to related parties for services                              182,310          274,777
      Impairment of goodwill                                                          1,321,164        2,248,000
      Increase in related party line of credit for services                             598,918                -
      Changes in operating assets and liabilities:
        Accounts receivable                                                            (175,559)         535,230
        Inventories                                                                     286,151          476,220
        Prepaid expenses and other assets                                                13,021           (1,464)
        Accounts payable                                                                427,645         (296,532)
        Accrued liabilities                                                             140,048          164,922
        Deferred revenues                                                                (1,008)         (66,988)
                                                                                   -----------------------------

             Net cash used in operating activities                                   (2,035,052)      (2,371,811)
                                                                                   -----------------------------

Cash flows from investing activities:
  Purchase of property and equipment                                                   (102,740)          (2,345)
  Proceeds from the disposal of fixed assets                                              2,735                -
                                                                                   -----------------------------

             Net cash used in investing activities                                     (100,005)          (2,345)
                                                                                   -----------------------------


----------------------------------------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.                                                 F-8
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                                                                                 RemoteMDx, Inc.
                                                                           Consolidated Statements of Cash Flows
                                                                                                       Continued

                                                                               For the Years Ended September 30,
----------------------------------------------------------------------------------------------------------------



                                                                                       2004              2003
                                                                                   -----------------------------
<S>                                                                                <C>             <C>
Cash flows from financing activities:
  Net borrowings (payments) under a related party line of credit                        313,136         (704,051)
  Net (payments) advances on a bank line of credit                                         (105)         254,173
  Borrowings under notes payable                                                        144,500        1,580,101
  Payment on notes payable                                                              (45,759)        (258,540)
  Proceeds from issuance of manditorily redeemable common stock                         225,000          250,000
  Payments on related party convertible notes payable                                   (98,794)        (231,530)
  Payments on related party short-term notes payable                                          -          (25,000)
  Proceeds from related party short-term notes payable                                        -          335,807
  Proceeds from sale of common stock                                                    480,546        1,258,700
  Proceeds from sale of convertible debentures                                        1,041,742                -
                                                                                   -----------------------------

             Net cash provided by financing activities                                2,060,266        2,459,660
                                                                                   -----------------------------

Net (decrease) increase in cash                                                         (74,791)          85,504

Cash, beginning of year                                                                 136,894           51,390
                                                                                   -----------------------------

Cash, end of year                                                                  $     62,103    $     136,894
                                                                                   -----------------------------



Supplemental Cash Flow Information:
                                                                                      2004              2003
                                                                                   -----------------------------

Cash paid for interest and taxes:
Cash paid for income taxes                                                         $          -    $           -
Cash paid for interest                                                             $     38,774    $     195,035


----------------------------------------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.                                                 F-9
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                                                                                 RemoteMDx, Inc.
                                                                           Consolidated Statements of Cash Flows
                                                                                                       Continued

                                                                               For the Years Ended September 30,
----------------------------------------------------------------------------------------------------------------



                                                                                       2004              2003
                                                                                   -----------------------------
<S>                                                                                <C>             <C>
Supplemental schedule of non-cash investing and
  financing activities:
Issuance of 2,633,403 and 652,352 common shares, respectively,
  in exchange for 7,127 and 1,763 shares of Series A preferred
  stock, respectively                                                                       264               65
Issuance of 1,157,500 and 115,000 common shares, respectively,
  for deferred consulting and financing services                                        461,700          165,000
Issuance of 205,530 common shares for offering costs                                    110,986                -
Utilization of borrowings under a related-party line of credit as
  payment for exercise of common stock options                                          372,184           73,279
Preferred Series A stock dividends accrued                                              525,800          803,784
Conversion of related party line of credit into 740,741 common shares                   400,000                -
Conversion of debt and interest into 22,427 common shares                                33,640                -
Subscription receivable reduction for $600,000 reduction of notes
  payable and $100,000 reduction of accrued liabilities                                 700,000                -
Conversion of 968,333 redeemable common shares into 968,333
  common shares                                                                               -                -
Conversion of 58,333 common shares into 58,333 redeemable
  common shares                                                                               -                6
Notes payable including accrued interest of $42,750 converted into
  302,668 shares of common stock                                                              -          442,750
Debt exchanged for 483,333 shares of redeemable common stock                                  -          725,000
Issuance of 0 and 6,413 shares of Series A preferred stock,
  respectively, for accrued dividends and preferential dividends
  in lieu of cash dividends                                                                   -        1,282,556
Series A preferred stock beneficial conversion features                                       -        2,276,615
Deferred financing costs paid for by issuance of 0 and 15,000 shares
  of redeemable common stock, respectively                                                    -           45,000
Disposal of $149,015 of capitalized tooling costs with its corresponding
  liability of $149,015                                                                       -          149,015
Related party line of credit increased in exchange for related party
  consulting services of $60,000, assumption of Company note payable
  of $71,496, assumption of accrued interest of $2,147 and payment
  of dividends of $9,019                                                                      -          142,662

Refinancing of short-term debt:
Restricted cash                                                                        (375,681)        (550,000)
Bank line-of-credit                                                                    (375,681)        (503,387)
Short-term notes payable                                                                      -       (1,086,628)
Related party line-of-credit                                                                  -        2,140,015

                                                                                       2004              2003
                                                                                   -----------------------------

Distribution of net assets for stock repurchase:
Accounts payable and accrued liabilities                                                      -         (488,410)
Bank line-of-credit                                                                           -         (300,000)
Obligation to SecureAlert                                                                     -         (400,000)
Accounts receivable                                                                           -          370,501
Inventory                                                                                     -          539,706
Property and equipment, net of $80,331 accumulated depreciation                               -          183,484

Common stock repurchased (401,952 shares)                                                     -           94,759

Assumption of debt and liabilities by related party for
  issuance of 8,113,999 common shares:
Short-term notes payable                                                                      -         (800,000)
Subscriptions receivable                                                                      -         (361,700)
Related party line-of-credit                                                                  -       (2,373,961)
Common stock                                                                                  -        4,381,289
Consulting expense recognized                                                                 -         (845,628)


----------------------------------------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.                                                F-10
</TABLE>

<PAGE>

                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements

                                                     September 30, 2004 and 2003
--------------------------------------------------------------------------------


1.   Organization       RemoteMDx,  Inc. was originally  incorporated in Utah in
     and Nature         July 1995 under the name Volu-Sol, Inc. ("Volu-Sol"), as
     of Operations      a wholly  owned  subsidiary  of  Biomune  Systems,  Inc.
                        ("Biomune").  Biomune spun off Volu-Sol by  distributing
                        shares of Volu-Sol's common stock as a stock dividend to
                        the  holders  of  the  common   stock  of  Biomune  (the
                        "Distribution").  As a consequence of the  Distribution,
                        Volu-Sol commenced operations as a separate, independent
                        company  in  October  1997.  Effective  July  27,  2001,
                        Volu-Sol changed its name to RemoteMDx,  Inc. RemoteMDx,
                        Inc. and its subsidiaries  are collectively  referred to
                        as the "Company".

                        Historically,  the Company's  strategy was to capitalize
                        on the global medical  diagnostic  industry by providing
                        "building  block"  stains  and  reagents.  Although  the
                        Company  continues  to conduct  its  medical  stains and
                        solutions business,  over the past two years, management
                        has begun to pursue a more expanded role engaging in the
                        business of manufacturing and marketing mobile emergency
                        and personal security systems,  and focusing on criminal
                        justice.  The  Company's  revenues  for the  year  ended
                        September 30, 2004,  were  generated  primarily from the
                        sale of  personal  security  products  and from  medical
                        stains and reagents.

                        Going Concern
                        The Company  incurred a net loss and has  negative  cash
                        flows  from  operating  activities  for the  year  ended
                        September  30,  2004.  As of  September  30,  2004,  the
                        Company has a working capital  deficit,  a stockholders'
                        deficit and an accumulated deficit.  These factors raise
                        substantial   doubt  about  the  Company's   ability  to
                        continue as a going concern. The financial statements do
                        not include any  adjustments  that might result from the
                        outcome of this uncertainty.

                        In order for the  Company  to remove  substantial  doubt
                        about its ability to continue  as a going  concern,  the
                        Company   must   generate   positive   cash  flows  from
                        operations,  obtain positive working capital, and obtain
                        the  necessary  funding  to meet its  projected  capital
                        investment requirements.




--------------------------------------------------------------------------------
                                                                            F-11
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------


1.   Organization       Going Concern - Continued
     and Nature         Management's  plans  with  respect  to this  uncertainty
     of Operations      include  converting debt obligations to equity,  raising
     Continued          additional  capital  from the sale of equity  securities
                        and  expanding  its  market  for  its  mobile  emergency
                        products.  There can be no  assurance  that the  Company
                        will be able to  raise  sufficient  capital  to meet its
                        working  capital  needs.  In  addition,  there can be no
                        assurance  that the  operations  will generate  positive
                        cash  flows and that the  Company  will be  economically
                        successful   from   increasing   selling  and  marketing
                        efforts.  Further, the Company may be unable to complete
                        the development and successful  commercialization of any
                        new remote health monitoring products.

                        Principles of Consolidation
                        The  accompanying   consolidated   financial  statements
                        include the  accounts  of  RemoteMDx,  Inc.,  its wholly
                        owned   subsidiaries,   Volu-Sol   Reagents,   Inc.  and
                        SecureAlert,   Inc.   All   intercompany   balances  and
                        transactions have been eliminated upon consolidation.

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

                        Fair Value of Financial Statements
                        The  carrying   amounts  reported  in  the  accompanying
                        consolidated  financial  statements  for cash,  accounts
                        receivable,   notes   payable   and   accounts   payable
                        approximate  fair  values  because of the  immediate  or
                        short-term  maturities of these  financial  instruments.
                        The carrying  amounts of the Company's debt  obligations
                        approximate fair value.


--------------------------------------------------------------------------------
                                                                            F-12
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------


2.   Summary of         Concentration of Credit Risk
     Significant        The Company has cash in bank that, at times,  may exceed
     Accounting         federally   insured   limits.   The   Company   has  not
     Policies           experienced  any losses in such  accounts.  The  Company
     Continued          believes  it is not  exposed to any  significant  credit
                        risk on cash and short-term investments.

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

                        The Company had sales to entities  which  represent more
                        than 10% as follows for the years ended September 30:

                                                2004              2003
                                         ------------------------------------

                        Company A         $        170,000  $              -
                        Company B         $        163,395  $              -
                        Company C         $              -  $      1,459,000
                        Company D         $              -  $        559,000

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

                        Accounts Receivable
                        Accounts  receivable  are  carried at  original  invoice
                        amount less an estimate  made for  doubtful  receivables
                        based  on a  review  of  all  outstanding  amounts  on a
                        monthly  basis.   Specific  reserves  are  estimated  by
                        management  based on certain  assumptions and variables,
                        including the customer's financial condition, age of the
                        customer's receivables and changes in payment histories.
                        Trade   receivables   are   written   off  when   deemed
                        uncollectible.    Recoveries   of   trade    receivables
                        previously written off are recorded when received.

                        A trade  receivable  is considered to be past due if any
                        portion of the receivable  balance has not been received
                        by the contractual pay date.  Interest is not charged on
                        trade receivables that are past due.


--------------------------------------------------------------------------------
                                                                            F-13
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------


2.   Summary of         Inventories
     Significant        Inventories are recorded at the lower of cost or market,
     Accounting         cost being determined on a first-in,  first-out ("FIFO")
     Policies           method.  Substantially  all items  included in inventory
     Continued          are finished goods and consist of the following:

                        Mobile security                       $         209,257
                        Reagent stains raw materials                     28,582
                        Reagents stains finished goods                    8,856
                        Reserve                                        (168,409)
                                                              ------------------

                                                              $          78,286
                                                              ------------------

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

                        Concentration of Purchases
                        For the years ended  September  30,  2004 and 2003,  the
                        Company  maintained a license agreement as a distributor
                        for  Royal  Philips  Electronics  ("Philips")  in  which
                        purchases  related to the  Company's  sales of  consumer
                        electronics  were  purchased  through  manufacturers  of
                        Philips'  products (see Note 15).  Further,  the Company
                        currently has a single  supplier for cellular  switching
                        access for the  Company's  MobilePal  network  (see Note
                        15).   Management   believes  the  Company's   products,
                        components and services could be obtained from different
                        suppliers.   However,   should  the  Company's   current
                        suppliers  cease to provide the Company with products or
                        services,   the  Company's  ability  to  find  products,
                        components   or  services  at  similar   prices  may  be
                        materially impaired.

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


--------------------------------------------------------------------------------
                                                                            F-14
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------


2.   Summary of         Property and equipment  consisted of the following as of
     Significant        September 30, 2004:
     Accounting
     Policies
     Continued          Equipment                              $        268,349
                        Leasehold improvements                          261,496
                        Furniture and fixtures                           48,210
                                                             ------------------
                                                                        578,055

                        Accumulated depreciation                       (463,981)
                                                             ------------------

                                                               $        114,074
                                                             ------------------

                        Impairment of Long-Lived Assets and Goodwill
                        Goodwill  is  not   amortized   but  is  subject  to  an
                        impairment  test,  which is performed at least annually.
                        Goodwill was related to the  acquisition  of SecureAlert
                        in July 2001 and was  initially  determined to be valued
                        at  $7,776,209  based upon SFAS 141 and 142.  During the
                        years  ended  September  30,  2004 and 2003 the  Company
                        tested goodwill for impairment by comparing the carrying
                        value  of its  component  unit  to  which  goodwill  was
                        assigned,   namely  the  assets  of  its  wholly   owned
                        subsidiary   SecureAlert,   Inc.  (referred  to  as  the
                        component  unit  for  purposes  of  this  note),  to the
                        estimated  fair value of the  component  unit.  The fair
                        value  of the  component  unit was  determined  using an
                        income  approach of  estimated  future  cash flows.  The
                        estimated future cash flows include those primarily from
                        mobile medical alert devices of the component  unit. The
                        carrying amount of the component unit including goodwill
                        was  determined  to exceed the  estimated  fair value by
                        approximately  $1,321,000  and  $2,248,000 for the years
                        ended   September  30,  2004  and  2003,   respectively.
                        Accordingly,  during the years ended  September 30, 2004
                        and  2003,  the  Company  recognized  an  impairment  of
                        approximately  $1,321,000 and $2,248,000,  respectively,
                        of its goodwill.  As of September 30, 2004, the net book
                        value of goodwill was $0.


--------------------------------------------------------------------------------
                                                                            F-15
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------



2.   Summary of         Impairment of Long-Lived Assets and Goodwill - Continued
     Significant        The Company  reviews its long-lived  assets,  other than
     Accounting         goodwill,  for  impairment  when  events or  changes  in
     Policies           circumstances  indicate  that the book value of an asset
     Continued          may not be recoverable.  The Company evaluates,  at each
                        balance  sheet date,  whether  events and  circumstances
                        have occurred which indicate  possible  impairment.  The
                        Company uses an estimate of future undiscounted net cash
                        flows of the  related  asset or group of assets over the
                        estimated remaining life in measuring whether the assets
                        are  recoverable.  If the  carrying  amount  of an asset
                        exceeds its estimated  future cash flows,  an impairment
                        charge  is  recognized  for  the  amount  by  which  the
                        carrying  amount exceeds the estimated fair value of the
                        asset.  Impairment of  long-lived  assets is assessed at
                        the lowest levels for which there are identifiable  cash
                        flows that are  independent  of other  groups of assets.
                        Assets to be  disposed  of are  reported at the lower of
                        the carrying  amount or fair value,  less the  estimated
                        costs to sell.  In addition,  depreciation  of the asset
                        ceases.  During the years ended  September  30, 2004 and
                        2003, no impairment  of  long-lived  assets,  other than
                        goodwill as discussed above, was recorded.

                        Revenue Recognition
                        The Company derives its revenue  primarily from the sale
                        of mobile  emergency and personal  security  systems and
                        reagent stains.

                        The  sale of  mobile  emergency  and  personal  security
                        systems  may include the  security  devise,  such as the
                        MobilePal phone, and the related monitoring  service. If
                        the sale  includes  both the devise  and the  monitoring
                        service, revenue from the sale of the devise is deferred
                        and  recognized  ratably over the life of the monitoring
                        service  contract.  Revenue from the monitoring  service
                        contract is  recognized  monthly as earned in accordance
                        with the monitoring service contract. If the sale is for
                        the  devise  only and does not  include  the  monitoring
                        services,   revenue,   less  reserves  for  returns,  is
                        recognized  upon shipment to the  customer.  The Company
                        records  reserves  for  estimated  returns of  defective
                        product.  Amounts  received in advance of  shipment  are
                        recorded as deferred revenue. Shipping and handling fees
                        are included as part of net sales.  The related  freight
                        costs and supplies  directly  associated  with  shipping
                        products to  customers  are  included as a component  of
                        cost of goods sold.


--------------------------------------------------------------------------------
                                                                            F-16
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------


2.   Summary of         Revenue Recognition - Continued
     Significant        The  sale  of  reagent  stains  is  recognized  when  an
     Accounting         agreement  with the buyer exists,  the price is fixed or
     Policies           determinable,   the  product  has  been   shipped,   and
     Continued          collection is reasonably assured.

                        Research and Development Costs
                        All   expenditures  for  research  and  development  are
                        charged to expense as incurred.  These expenditures were
                        for the development of SecureAlert's  TrackerPAL  device
                        and associated services.

                        Stock-Based Compensation
                        The Company  accounts for its  stock-based  compensation
                        issued  to  employees  and  directors  under  Accounting
                        Principles Board Opinion ("APB") No. 25, "Accounting for
                        Stock Issued to Employees," and related interpretations.
                        Under APB No. 25, compensation related to stock options,
                        if any, is recorded if an option's exercise price on the
                        measurement   date  is  below  the  fair  value  of  the
                        Company's common stock and amortized to expense over the
                        vesting period.

                        An alternative  method to the intrinsic  value method of
                        accounting  for  stock-based  compensation  is the  fair
                        value based method  prescribed by Statement of Financial
                        Accounting  Standards  (SFAS) No. 123,  "Accounting  for
                        Stock-Based  Compensation,"  as amended by SFAS No. 148,
                        "Accounting  for  Stock-Based  Compensation - Transition
                        and  Disclosure."  If the  Company  used the fair  value
                        based  method,  the Company  would be required to record
                        deferred  compensation  based on the  fair  value of the
                        stock  option at the date of grant as computed  using an
                        option-pricing  model, such as the Black-Scholes  option
                        pricing  model.  The  deferred  compensation  calculated
                        under  the  fair  value  based   method  would  then  be
                        amortized over the vesting period of the stock option.



--------------------------------------------------------------------------------
                                                                            F-17
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------



2.   Summary of         Stock-Based Compensation - Continued
     Significant        The following  table  illustrates the effect on net loss
     Accounting         and net loss per share as if the  Company had elected to
     Policies           use the fair  value  based  method  to  account  for its
     Continued          employee stock-based compensation.

                                                 Years Ended September 30,
                                               -------------------------------
                                                    2004           2003
                                               -------------------------------

Net loss applicable to common
  shareholders - as reported                    $  (6,932,511) $ (10,262,147)

Deduct:  total stock based employee
compensation expense determined under fair
value based method for all awards, net of
related tax effects                                  (112,647)       (68,310)
                                               -------------------------------

Net loss - pro forma                            $  (7,045,158) $ (10,330,457)
                                               -------------------------------

Basic and diluted loss per share - as reported  $        (.25) $        (.58)
                                               -------------------------------

Basic and diluted loss per share - pro forma    $        (.25) $        (.58)
                                               -------------------------------

                        The  fair  value  of each  option  or  warrant  grant is
                        estimated  on the date of grant using the  Black-Scholes
                        option pricing model with the following assumptions:

                                                    Years Ended
                                                   September 30,
                                         ----------------------------------
                                               2004            2003
                                         ----------------------------------

 Expected dividend yield                                -                -
 Expected stock price volatility                      95%             128%
 Risk-free interest rate                            3.87%            4.75%
 Expected life of options                         5 years          5 years

                        The weighted  average fair value of options and warrants
                        granted  during the years ended  September  30, 2004 and
                        2003, were $ 0.38 and $1.35, respectively.



--------------------------------------------------------------------------------
                                                                            F-18
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------



2.   Summary of         Stock-Based Compensation - Continued
     Significant        The Company  accounts for its  stock-based  compensation
     Accounting         issued  to  non-employees,  other  than  members  of the
     Policies           Company's  Board of  Directors,  using  the  fair  value
     Continued          method  in  accordance  with  SFAS No.  123 and  related
                        interpretations.   Under  SFAS  No.   123,   stock-based
                        compensation  is  determined as either the fair value of
                        the  consideration  received  or the  fair  value of the
                        equity  instruments  issued,  whichever is more reliably
                        measurable.  Deferred  compensation  is  expensed  on  a
                        straight-line  basis  over  the  vesting  period  of the
                        related stock-based instrument.

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

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

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

                        Common share equivalents consist of shares issuable upon
                        the exercise of common stock options and  warrants,  and
                        shares issuable upon  conversion of preferred  stock. As
                        of September 30, 2004 and 2003, there were approximately
                        18,296,997  and  26,078,750   outstanding  common  share
                        equivalents, respectively, that were not included in the
                        computation  of  diluted  net loss per  common  share as
                        their effect would be anti-dilutive.


--------------------------------------------------------------------------------
                                                                            F-19
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------



2.   Summary of         Recent Accounting Pronouncements
     Significant        In December 2004, the FASB issued FASB Statement No. 123
     Accounting         (revised 2004), "Shared-Based Payment." Statement 123(R)
     Policies           addresses  the   accounting  for   share-based   payment
     Continued          transactions  in which an enterprise  receives  employee
                        services in exchange for (a) equity  instruments  of the
                        enterprise of (b) liabilities that are based on the fair
                        value of the enterprise's equity instruments or that may
                        by settled by the  issuance of such equity  instruments.
                        Statement  123(R)  requires an entity to  recognize  the
                        grant-date   fair  value  of  stock  options  and  other
                        equity-based  compensation  issued to  employees  in the
                        income  statement.   The  revised  Statement   generally
                        requires that an entity  account for those  transactions
                        using the  fair-value-based  method,  and eliminates the
                        intrinsic  value method of accounting in APB Opinion No.
                        25, "Accounting for Stock Issued to Employee", which was
                        permitted under Statement 123, as originally issued.

                        The  revised  Statement  requires  entities  to disclose
                        information about the nature of the share-based  payment
                        transactions  and the effects of those  transactions  on
                        the financial statements.

                        Statement 123(R) is effective as of the beginning of the
                        first annual reporting period that begins after June 15,
                        2006 (i.e., October 1, 2006 for the Company). All public
                        companies  must use either the modified  prospective  or
                        the  modified  retrospective  transition  method.  Early
                        adoption of this Statement for interim or annual periods
                        for which  financial  statements or interim reports have
                        not been issued is  encouraged.  The Company has not yet
                        evaluated the impact of adoption of this  pronouncement,
                        but  believes  it may  have  a  material  impact  on the
                        consolidated financial statements.



--------------------------------------------------------------------------------
                                                                            F-20
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------


2.   Summary of         Recent Accounting Pronouncements - Continued
     Significant        In November  2004,  the FASB issued  Statement  No. 151,
     Accounting         "Inventory  Costs",  to amend the guidance in Chapter 4,
     Policies           "Inventory   Pricing",   of  FASB  Accounting   Research
     Continued          Bulletin No. 43, "Restatement and Revision of Accounting
                        Research  Bulletins."  Statement  No. 151  clarifies the
                        accounting   for  abnormal   amounts  of  idle  facility
                        expense,  freight,  handling costs,  and wasted material
                        (spoilage).  The Statement  requires that those items be
                        recognized  as  current-period  charges.   Additionally,
                        Statement   151  requires   that   allocation  of  fixed
                        production overheads to the costs of conversion be based
                        on the normal  capacity  of the  production  facilities.
                        Statement   No.  151  is  effective   for  fiscal  years
                        beginning  after June 15, 2005. The Company is currently
                        evaluating  the impact of the adoption of this Statement
                        which is required to be adopted in the fiscal year 2006.

                        As  part  of its  short-term  international  convergence
                        project with the IASB,  on December  16, 2004,  the FASB
                        issued  Statement  153 to  address  the  accounting  for
                        non-monetary  exchanges of productive assets.  Statement
                        15  amends  APB No.  29,  "Accounting  for  Non-monetary
                        Exchanges",  which  established  a narrow  exception for
                        non-monetary exchanges of similar productive assets from
                        fair value measurement.  This Statement  eliminates that
                        exception   and  replaces  it  with  an  exception   for
                        exchanges that do not have commercial  substance.  Under
                        Statement 153 non-monetary  exchanges are required to be
                        accounted  for at fair value,  recognizing  any gains or
                        losses,  if  their  fair  value is  determinable  within
                        reasonable  limits and the  transaction  has  commercial
                        substance.

                        The Statement specifies that a non-monetary exchange has
                        commercial  substance if future cash flows of the entity
                        are expected to change  significantly as a result of the
                        exchange.  An  entity  should  apply the  provisions  of
                        Statement  153  prospectively  for  non-monetary   asset
                        exchange  transactions in fiscal periods beginning after
                        June 15, 2005.  The Company will adopt this Statement in
                        fiscal  2005  and  adoption  is not  expected  to have a
                        material impact on the financial  position or results of
                        operations.

                        Reclassifications
                        Certain  reclassifications  have  been made in the prior
                        year's consolidated financial statements to conform with
                        the current year presentation.

--------------------------------------------------------------------------------
                                                                            F-21
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------


3.   Accrued            Accrued expenses consisted of the following at September
     Expenses           30, 2004:

                        Accrued tooling                        $        231,610
                        Accrued interest                                108,042
                        Accrued compensation and payroll taxes           47,897
                        Accrued vacation                                 27,482
                        Accrued property taxes                           16,800
                        Other                                            21,249
                                                               ----------------

                                                               $        453,080
                                                               ----------------

4.   Bank Line of       As of  September  30,  2004,  the Company  had  $175,000
     Credit             outstanding  under a line of  credit  with  Zions  First
                        National  Bank. The line of credit bears interest at 5%,
                        matures on March 11, 2005,  is limited to $175,000  plus
                        fees,  and is secured by  certificates  of deposit which
                        the  Company  holds  as  restricted  cash  of  $176,361.
                        Subsequent  to year end this line of credit was extended
                        until April 2006.

5.   Related            The Company has an ongoing line of credit agreement with
     Party Line of      ADP  Management,  an entity  controlled by David Derrick
     Credit             and James Dalton,  the Company's Chief Executive Officer
                        and President, respectively. Derrick and Dalton are also
                        the  Chairman   and  Vice   Chairman  of  the  Board  of
                        Directors,  respectively.  The essence of that agreement
                        is that as the Company needs funds,  ADP Management will
                        loan the Company money.  During the year ended September
                        30, 2004 and 2003,  the net increase  (decrease)  in the
                        related   party   line  of  credit  was   $139,870   and
                        $(868,614),  respectively.  The net increase of $139,870
                        consisted  of net cash  borrowings  during  the years of
                        $313,136  and net  increases  of  $598,918  related to a
                        monthly  management  fee  owed  to  ADP  Management  and
                        expenses   incurred   by   ADP   Management   that   are
                        reimbursable by the Company. If the Company is unable to
                        pay the management fee and the reimbursable  expenses in
                        cash,  the related party line of credit is increased for
                        the amount owed to ADP Management.


--------------------------------------------------------------------------------
                                                                            F-22
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------


5.   Related            During the years ended  September 30, 2004 and 2003, the
     Party Line of      Company converted $400,000 and $1,258,700, respectively,
     Credit             of  amounts  owed to ADP  Management  under  the line of
     Continued          credit  agreement  into 740,741 and 2,038,446  shares of
                        common stock at a  conversion  price of $0.54 per share.
                        The Company  anticipates that the amount  outstanding at
                        September  30, 2004 of $222,546,  as well as any amounts
                        loaned  subsequent to September  30, 2004,  will also be
                        converted to common  stock.  Subsequent to September 30,
                        2004, ADP Management has received net cash repayments of
                        approximately $367,000 and net increase of approximately
                        $516,000 related to a monthly management fee owed to ADP
                        Management and expenses incurred by ADP Management.  The
                        Company anticipates that these amounts may  be converted
                        into common stock at $0.54 per share.

                        During  the year ended  September  30,  2003,  the Audit
                        Committee   of  the  board  of   directors   approved  a
                        debt-restructuring  package  (the "Debt  Restructuring")
                        proposed by ADP Management,  Mr. Derrick and Mr. Dalton.
                        ADP  Management  is  controlled  by Messrs.  Derrick and
                        Dalton.  By agreement  dated April 2, 2003,  the Company
                        and ADP Management, Mr. Derrick and Mr. Dalton agreed to
                        the following primary terms:

                          o   Mr.  Derrick and Mr.  Dalton  agreed to  negotiate
                              with  significant  creditors  of  the  Company  to
                              restructure outstanding Company debt.

                          o   The Company  agreed to issue a total of  8,113,999
                              shares  of  common   stock   (the   "Restructuring
                              Shares") in the name of ADP Management for use and
                              potential  resale or transfer of the shares by ADP
                              for the purpose of  restructuring  debt under this
                              package.  The Restructuring  Shares were issued to
                              ADP  Management,  Mr.  Derrick  and Mr.  Dalton in
                              consideration  of their assumption of Company debt
                              and the  release of the  Company of all  liability
                              for such debt by the creditors.

                          o   The  preferred  method of  restructuring  the debt
                              would be the  conversion  of the debt  directly by
                              the Company into shares of Common Stock, at prices
                              negotiated on behalf of the Company by Mr. Derrick
                              and Mr. Dalton.  Pursuant to that arrangement,  in
                              October 2003 the Company  issued 786,001 shares of
                              Common Stock to certain  creditors in exchange for
                              cancellation of Company debt.

--------------------------------------------------------------------------------
                                                                            F-23
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------


5.   Related              o   ADP  Management  would also  convert  into  Common
     Party Line of            Stock  all  amounts  owing by the  Company  to it,
     Credit                   after all other creditors have either converted or
     Continued                consented to the assigned of their notes to ADP as
                              described  above,  for  any  Restructuring  Shares
                              remaining, if any.

                          o   By issuing the  Restructuring  Shares to ADP,  the
                              Company would be compensating  Mr. Derrick and Mr.
                              Dalton for personal  guarantees and assumptions of
                              corporate debt and obligations.

                          o   Mr. Derrick would assign  certificates  of deposit
                              to the  Company  securing  a line of  credit  with
                              Zions Bank.

                        As a result of the Debt  Restructuring  and in  exchange
                        for receipt of the Restructuring  Shares, ADP Management
                        converted  its  line of  credit  with  the  Company  and
                        assumed Company obligations.  ADP, in turn,  transferred
                        and sold 8,113,999 of the Restructuring  Shares to third
                        parties.  In exchange for the Restructuring  Shares, ADP
                        Management:

                          o   Converted $2,373,961 of the ADP Management line of
                              credit owed by the Company,  including  $27,346 of
                              accrued  interest on Company  notes assumed by ADP
                              Management.

                          o   Took  assignment of a  subscription  receivable of
                              $338,300 due from MK Financial to the Company.

                          o   Assumed a $600,000  note payable by the Company to
                              Lintel,  Inc.,  together with accrued  interest of
                              approximately $100,000. The Note and interest have
                              since been paid in full.

                        As part of this conversion and exchange, during the year
                        ended  September  30,  2003,  the Company  recognized  a
                        non-cash  expense of $845,628 based on the excess of the
                        value of the stock  issued  over the debt  relieved  and
                        subscription receivable recorded.

                        The total  debt  relief  provided  to the  Company  as a
                        result   of   Debt   Restructuring    transactions   was
                        approximately $3,873,961.



--------------------------------------------------------------------------------
                                                                            F-24
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------


6. Notes Payable        Notes  payable  consisted of the  following at September
                        30, 2004:

Note payable to an individual with interest at 12% due
monthly.  The principal on the note is due at the earlier
of the Company obtaining equity funding of $2,000,000 or
March 31, 2005. The note is unsecured. Subsequent to
year-end this note was assumed by ADP Management.
ADP Management has settled this obligation by issuing
470,000 shares of common stock it owns.                          $      300,000

Convertible note payable to an individual with interest
at 12% due monthly.  The principal on the note is due at
the earlier of the Company obtaining equity funding of
$2,000,000 or March 30, 2004.  The note is convertible at
$1.50 per share which may be adjusted to reflect any
dividend, split or consolidation affect on the Company's
stock.  This note is unsecured. Subsequent to year-end
this note was converted into 175,000 shares of
SecureAlert preferred stock.                                            175,000

Notes payable to former SecureAlert shareholders, with
interest at 5%, payable in installments of $80,000 per
month until paid in full.  These notes are currently in
default.                                                                169,676

Note payable to a corporation with interest at 12% At
September 30,2004 the note had accrued interest of
$2,711.  The note is due June 30, 2005.  Subsequent to
year-end this note was paid in full.                                    124,500

Note payable to a related party with interest at 12%,
maturing on December 31, 2004 and unsecured. Subsequent
to year end this note has been paid In full.                             20,000
                                                             ------------------

                                                             $          789,176


--------------------------------------------------------------------------------
                                                                            F-25
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------


7.   Redeemable         The Company has 217,185 common shares  outstanding  that
     Common             are  redeemable  at  the  option  of the  holder  with a
     Stock              redeemable value of $196,000. ADP Management has assumed
                        $96,000 of this  liability but as of yet the Company has
                        not been  released.  In  accordance  with SFAS No.  150,
                        Accounting  for  Certain   Financial   Instruments  with
                        Characteristics  of both  Liabilities  and  Equity,  the
                        redemption  value  of the  redeemable  shares  has  been
                        recorded as a liability.

8.   Convertible        During the year ended  September  30, 2004,  the Company
     Debentures         completed  an  offering  of  Series  B  10%  Convertible
                        Debentures and Series C 10% Convertible  Debentures.  In
                        connection  with this offering,  the Company also issued
                        980,406  shares of common  stock at $.54 per  share.  In
                        addition,  in connection with the offering,  the Company
                        issued  291,168  shares of common  stock as  origination
                        shares,  or as incentive to the investors.  Net proceeds
                        received  from the offering,  after paying  commissions,
                        legal   fees,   and   other   accrued    expenses   were
                        approximately  $1,522,000.   The  gross  amount  of  the
                        offering  of  $1,800,000   was  allocated   between  the
                        debentures   and  common   shares   issued  as  follows:
                        $1,270,584  allocated  to the  debentures  and  $529,416
                        allocated  to the  common  shares  issued.  The  291,168
                        origination  shares were valued at $157,231 based on the
                        fair market value of the common stock of $.54 per share.
                        Of the  $157,231  total  value of the  incentive  shares
                        issued,  $110,986,  or 205,530 shares,  was allocated to
                        the  debentures  and  recorded  as a  discount  and  the
                        remaining  $46,245,  or 85,638 shares,  was allocated to
                        the common shares  issued and netted  against the amount
                        recorded  for  the  issuance.   These  allocations  were
                        determined  based on the  percentage  of gross  proceeds
                        allocated  to the  debentures  (70.59%) and common stock
                        issued  (29.41%).  The total  discount  recorded  on the
                        debentures at issuance consisted of the incentive shares
                        noted above of $110,986 and additional offering costs of
                        $105,939  for  a  total  discount  of  $216,925.  As  of
                        September 30, 2004, the balance of the debt discount was
                        $137,173, thus resulting in a net balance of convertible
                        debentures of $1,133,412 at September 30, 2004.


--------------------------------------------------------------------------------
                                                                            F-26
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------


8.   Convertible        The Debentures are convertible automatically into Common
     Debentures         Stock upon the closing of an equity or debt  offering by
     Continued          the Company with gross  proceeds of at least  $5,000,000
                        Qualified Offering at a conversion price equal to 80% of
                        the pre-money  valuation of the Common Stock immediately
                        prior  to  the  closing  of  the   qualified   Offering;
                        provided,   however,  that  the  gross  proceeds  raised
                        pursuant to this Offering may be counted toward,  at the
                        sole discretion of the Company,  such Qualified Offering
                        amount,  solely for the  purposes  of  determining  such
                        Qualified  Offering amount. The Debentures bear interest
                        at an annual rate of 10%,  not  including  any  original
                        issue  discount,  with  interest  during  the  first six
                        months capitalized and due in February 2007; thereafter,
                        interest  payments  will be made  monthly in cash or, at
                        the sole  option  of the  Company,  in  shares of Common
                        Stock at a price  of $0.54  per  share.  The  Debentures
                        mature  and are  payable  two years  from each  Closing,
                        subject to the conversion as indicated above.

9.   Preferred          The  Company  is  authorized  to issue up to  10,000,000
     Stock              shares of preferred  stock,$0.0001  par value per share.
                        The  Company's  Board of Directors  has the authority to
                        amend the Company's  Articles of Incorporation,  without
                        further   stockholder   approval,   to   designate   and
                        determine,   in  whole  or  in  part,  the  preferences,
                        limitations  and relative  rights of the preferred stock
                        before any issuance of the preferred stock and to create
                        one or more series of preferred stock.

                        Series A 10 % Convertible Non-Voting Preferred Stock
                        The Company has  designated  40,000  shares of preferred
                        stock as Series A 10% Convertible  Non-Voting  Preferred
                        Stock ("Series A Preferred Stock").  As of September 30,
                        2004,  there were  23,349  shares of Series A  Preferred
                        Stock outstanding.

--------------------------------------------------------------------------------
                                                                            F-27
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------


9.   Preferred          Dividends
     Stock              The  holders of the Series A  Preferred  Stock,  some of
     Continued          which are  controlled  by officer's and directors of the
                        Company,  are  entitled to  dividends  at the rate of 10
                        percent  per year on the  stated  value of the  Series A
                        Preferred  Stock (or $200 per  share),  payable in cash,
                        additional shares of Series A Preferred Stock, or common
                        shares  at the  discretion  of the  Board of  Directors.
                        Dividends are fully  cumulative and accrue from the date
                        of original issuance to holders of record as recorded on
                        the books of the  Company at the record  date or date of
                        declaration  if no record date is set.  During the years
                        ended September 30, 2004 and 2003, the Company  recorded
                        $  525,800  and  $1,282,556  in  dividends  on  Series A
                        Preferred Stock.

                        Convertibility
                        Series A Preferred Stock is convertible at 370 shares of
                        common stock for each share of Series A Preferred Stock.
                        During the years ended  September 30, 2004 and 2003, the
                        Company   recorded  a  total  of  approximately  $0  and
                        $1,090,000  respectively,   related  to  the  beneficial
                        conversion  feature of the Series A Preferred Stock. The
                        beneficial  conversion  is  recorded  as an  off-set  to
                        additional  paid-in-capital  because of the  accumulated
                        deficit and therefore has a net effect of $0 in equity.

                        During the year ended  September 30, 2004,  7,097 shares
                        of  Series  A  Preferred   Stock  were   converted  into
                        2,633,403 shares of common stock.  During the year ended
                        September  30, 2003,  2,097 shares of Series A Preferred
                        Stock  were  converted  into  652,352  shares  of common
                        stock.

                        Voting Rights and Liquidation Preference
                        The holders of Series A  Preferred  Stock have no voting
                        rights and are entitled to a  liquidation  preference of
                        $2.00 per share plus unpaid dividends  multiplied by 133
                        percent.


--------------------------------------------------------------------------------
                                                                            F-28
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------


9.   Preferred          Optional Redemption
     Stock              The Company may, at its option,  redeem up to two-thirds
     Continued          of the total  number  of  shares  of Series A  Preferred
                        Stock. As of September 30, 2004, the redemption price is
                        133  percent  of  the  conversion   price  of  Series  A
                        Preferred  Stock;  however,  the Company may designate a
                        different and lower  conversion  price for all shares of
                        Series A Preferred  Stock called for  redemption  by the
                        Company. Through September 30, 2004, the Company has not
                        exercised  its  option  to  redeem  shares  of  Series A
                        Preferred Stock.

                        Issuances of Series A Preferred Stock
                        During the year ended  September  30, 2004,  the Company
                        had recorded but not yet issued 2,629 shares of Series A
                        Preferred   Stock  for   payment  of  Series  A  accrued
                        dividends.  The Company converted 7,097 shares of Series
                        A Preferred Stock into 2,633,403 shares of common stock.

                        During the year ended  September  30, 2003,  the Company
                        issued  6,413  shares  of  Series A  Preferred  Stock as
                        payment  of  Series  A  preferred  stock  dividends  and
                        converted  2,097 shares of Series A Preferred Stock into
                        652,352 shares of common stock.

                        Series B Convertible Preferred Stock
                        On June 7, 2001,  the holders of the Company's  Series A
                        Preferred  Stock  approved the  designation of 2,000,000
                        shares of a new series of preferred  stock, the Series B
                        Convertible Preferred Stock ("Series B Preferred Stock")
                        previously approved by the Board of Directors.

                        Dividends
                        The  Company  will  not pay  dividends  on the  Series B
                        Preferred  Stock  unless  dividends  are declared by the
                        Board of Directors, in which case the Series B Preferred
                        Stock would be paid dividends prior and in preference to
                        any declaration or payment of any dividend on the common
                        stock,  and subject to the preferences of the holders of
                        the Series A Preferred Stock.



--------------------------------------------------------------------------------
                                                                            F-29
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------


9.   Preferred          Convertibility
     Stock              Each share of Series B Preferred Stock is convertible at
     Continued          any time into shares of common  stock at an initial rate
                        of $3.00 per share of common stock. Each share of Series
                        B Preferred Stock will automatically convert into shares
                        of common stock at the then effective conversion rate on
                        the  closing of a firm  commitment  underwritten  public
                        offering with an aggregate  public offering price of not
                        less  than   $20,000,000.   If,  with  certain   limited
                        exceptions,  the  Company  issues  any  shares of common
                        stock  or  securities   convertible  into  common  stock
                        without  consideration or for a consideration  per share
                        less  than the  conversion  rate in  effect  immediately
                        prior to the issuance of those  shares,  the  conversion
                        rate will  automatically be adjusted to a price equal to
                        the aggregate  consideration received by the Company for
                        that issuance  divided by the number of shares of common
                        stock so issued.

                        Antidilution Provision
                        The  investors  in our Series B preferred  stock and MEW
                        have  the  right  to  an  automatic  adjustment  of  the
                        conversion  price of the Series B preferred  shares held
                        by them in the event the Company  were to sell shares of
                        common  stock at a price below the  original  conversion
                        price of $3.00 per share.  The Company has issued shares
                        and options to purchase  shares to certain  creditors to
                        convert  debt to  equity  at  prices  that are below the
                        $3.00 conversion price.  Certain holders of the Series B
                        preferred stock,  including MEW, have waived their right
                        to receive the  adjustment  for such  issuances  through
                        December  11, 2003,  but there is no assurance  that any
                        holder of Series B  preferred  stock  will  waive  those
                        rights as to  transactions  subsequent  to December  11,
                        2003. MEW's right expired in April 2004.

                        Voting Rights and Liquidation Preference
                        Holders  of  shares  of  Series B  Preferred  Stock  are
                        entitled  to one vote per  share of  Series B  Preferred
                        Stock on all  matters  upon which  holders of the common
                        stock of the Company are entitled to vote. Generally the
                        holders of Series B  Preferred  Stock are  entitled to a
                        liquidation  preference  of $3.30  per  share,  plus all
                        accrued  and  unpaid  dividends.  For  purposes  of this
                        liquidation  preference,  the Series A  Preferred  Stock
                        ranks on a parity with the Series B Preferred Stock.



--------------------------------------------------------------------------------
                                                                            F-30
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------


9.   Preferred          Optional Redemption
     Stock              The Company  may redeem the Series B Preferred  Stock at
     Continued          its option at any time. The  redemption  price will be a
                        minimum of 110  percent of the  conversion  price at the
                        date of redemption.

10.  Common             Authorized Shares
     Stock              The  Company is  authorized  to issue up to  100,000,000
                        shares of common stock.

                        Common Stock Issuances
                        During the year ended  September  30, 2004,  the Company
                        issued  7,478,206  shares  of  common  stock.  Of  these
                        shares,  689,229 were issued  related to the exercise of
                        stock  options  whereby  the  exercise  price  was  paid
                        through the  extinguishment  of  $372,184 in  borrowings
                        under the line of  credit  with ADP (see Note 5). Of the
                        remaining 6,788,977 shares issued, 1,157,500 shares were
                        issued for services,  2,633,403  shares were issued upon
                        the  conversion  of 7,097  shares of Series A  Preferred
                        Stock,  1,271,573  issued for cash and offering costs of
                        $591,638  22,427 shares were issued for debt and accrued
                        interest  of $33,640,  and the  remaining  740,741  were
                        issued to ADP to reduce ADP line of credit (See Note 5).

                        During the year ended  September  30, 2003,  the Company
                        issued  11,760,422  shares  of  common  stock.  Of these
                        shares,  135,701 were issued  related to the exercise of
                        stock  options  whereby  the  exercise  price  was  paid
                        through the  extinguishment  of  $135,701 in  borrowings
                        under the line of  credit  with ADP (see Note 5). Of the
                        remaining 11,624,721 shares issued,  517,256 shares were
                        issued for services, 652,352 shares were issued upon the
                        conversion of 2,097 shares of Series A Preferred  Stock,
                        2,038,446 issued for cash of $1,258,700,  302,668 shares
                        were issued for debt and accrued  interest of  $442,750,
                        and the remaining 8,113,999 were issued to ADP (see Note
                        5).



--------------------------------------------------------------------------------
                                                                            F-31
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------


11.  Options and        Stock Incentive Plan
     Warrants           The Company has adopted the 1997  Volu-Sol,  Inc.  Stock
                        Incentive  Plan  (the  "1997  Plan").  The 1997 Plan was
                        approved by action of Biomune,  the original stockholder
                        of the Company, in August 1997. Under the 1997 Plan, the
                        Company  may issue  stock  options,  stock  appreciation
                        rights, restricted stock awards, and other incentives to
                        employees,  officers  and  directors  of the Company and
                        award  nonqualified  stock  options and other  awards to
                        employees and certain  non-employees  who have important
                        relationships  with the  Company.  A total of  5,000,000
                        shares were initially available for grant under the 1997
                        Plan.  As of September 30, 2004,  1,465,000  shares have
                        been granted under the 1997 Plan.

                        On February 17, 2004 the Board of Directors approved the
                        2004 RemoteMDx, Inc. Stock incentive Plan ("2004 Plan").
                        The  shareholders  approved  this plan on May 19,  2004.
                        Under  the  2004  Plan,  the  Company  may  issue  stock
                        options,  stock  appreciation  rights,  restricted stock
                        awards and other  incentives to employees,  officers and
                        directors.  The 2004 Plan also provides for the award of
                        nonqualified stock options,  stock appreciation  rights,
                        bonus rights,  and other  incentive  grants to employees
                        and   certain    non-employees    who   have   important
                        relationships  with the  Company.  A total of  6,000,000
                        shares are  authorized  for issuance  pursuant to awards
                        granted under the 2004 Plan.  During fiscal year 2004 no
                        grants,  awards or  incentives  were awarded  under this
                        plan.

                        A  summary  of  stock   option  and  warrant   activity,
                        including stock options and warrants  granted inside and
                        outside the plans discussed  above,  for the years ended
                        September 30, 2004 and 2003 is as follows:

                                           Number of
                                          Options and       Price Per
                                           Warrants           Share
                                        -----------------------------------

Outstanding at October 1, 2002                7,035,544   $    .54 to 7.00
    Granted                                     307,500        .54 to 3.00
    Expired or cancelled                              -                  -
    Exercised                                  (140,701)       .54 to 1.00
                                        -----------------------------------

Outstanding at September 30, 2003             7,202,343        .54 to 7.00
    Granted                                   2,085,000        .54 to 1.00
    Expired                                           -                  -
    Exercised                                (1,465,300)       .54 to 1.00
                                        -----------------------------------

Outstanding at September 30, 2004             7,822,043   $    .54 to 7.00
                                        -----------------------------------


--------------------------------------------------------------------------------
                                                                            F-32
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------


11.  Options and        Stock Incentive Plan - Continued
     Warrants           The Company has adopted the  disclosure-only  provisions
     Continued          of Statement of Financial  Accounting  Standards  (SFAS)
                        No.  123,   Accounting  for  Stock-Based   Compensation.
                        Accordingly, no compensation cost has been recognized in
                        the financial statements for employees,  except when the
                        exercise price is below the market price of the stock on
                        the date of grant.

                        The following table summarizes  information  about stock
                        options and warrants outstanding at September 30, 2004:

                       Options and Warrants             Options and Warrants
                            Outstanding                     Exercisable
              ------------------------------------------------------------------
                             Weighted
                              Average
                             Remaining    Weighted                  Weighted
   Range of                 Contractual    Average                   Average
   Exercise      Number        Life       Exercise      Number      Exercise
    Prices     Outstanding    (Years)       Price     Exercisable     Price
--------------------------------------------------------------------------------

$   .54 - 1.00    2,733,099    3.33      $        .65    2,733,099 $        .65
          3.00    3,988,944    3.07              3.00    3,988,944         3.00
   5.00 - 7.00    1,100,000    1.63              6.00    1,100,000         6.00
--------------------------------------------------------------------------------

$   .54 - 7.00    7,822,043    2.93      $       2.77    7,822,043 $       2.77
--------------------------------------------------------------------------------

                        As of September 30, 2004,  all  outstanding  options and
                        warrants are exercisable.

                        During the year ended  September  30, 2004,  the Company
                        issued   2,085,000  common  stock  options  as  follows:
                        225,000 to employees, 300,000 to consultants,  60,000 to
                        the Board of  Directors,  1,000,000  to related  parties
                        (ADP),   and  500,000  to  related  parties  (ADP).  The
                        exercise price was $0.54,  $1.00, $0.54, $0.54 and $0.75
                        respectively.

                        During the year ended  September  30,  2003 the  Company
                        issued 307,500 options to purchase the Company's  common
                        stock as follows:  25,000 to  employees  with an average
                        exercise  price of $1.00 and 282,500 to consultants at a
                        weighted  average exercise price of $1.73 per share. The
                        Company recognized  approximately  $2,236,072 of expense
                        related to these issuances.


--------------------------------------------------------------------------------
                                                                            F-33
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------


12.  Distribution       On  December  31,  2002  the  Company  entered  into  an
     of Net Asset       agreement in which the Company  modified its approach to
     for Stock          its consumer electronics  business component.  Under its
     Repurchase         modified   approach,   the  Company   sold  a  right  of
                        distribution  of consumer  electronic  products it holds
                        under an agreement  with Philips and MemCorp and certain
                        related assets to SecureAlert Entertainment,  LLC, (SAE)
                        an  entity  controlled  by the  former  shareholders  of
                        SecureAlert, Inc. In exchange for this right and assets,
                        SAE assumed the following  liabilities  and  surrendered
                        401,952 shares of the Company's common stock as follows:

Accounts payable and accrued liabilities assumed by SAE          $    488,410
Bank line-of-credit assumed by SAE                                    300,000
Purchase obligation to former SecureAlert shareholders assumed
  by SAE                                                              400,000
Common stock (401,952 shares) surrendered by SAE shareholders              40
Accounts receivable purchased by SAE                                 (370,501)
Inventory purchased by SAE                                           (539,706)
Property and equipment, net of $80,331 accumulated depreciation
  purchased by SAE                                                   (183,484)
                                                                --------------

                                                                 $     94,759
                                                                --------------

                        The value of the net liabilities relieved of $94,759 was
                        recognized  as a gain on the  repurchase of the stock as
                        an increase to additional paid in capital.

                        As part  of this  transaction,  the  Company  acts as an
                        agent in selling  products to SAE but has recognized all
                        sales relating to consumer electronic products beginning
                        January 1, 2003,  on a net basis as the Company does not
                        act as a principal in the purchase transactions with the
                        suppliers of consumer electronic products. The agreement
                        with SAE expired on December 31, 2003.

13.  Related            The Company has entered into certain  transactions  with
     Party              related parties.  These  transactions  consist mainly of
     Transactions       financing transactions and consulting arrangements.

                        Related Party Advances Payable
                        As of September  30, 2004 the Company  owed  $222,546 on
                        the ADP line of credit (see Note 5). Outstanding amounts
                        on the  line  of  credit  accrue  at 5% and  are  due on
                        demand.


--------------------------------------------------------------------------------
                                                                            F-34
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------


13.  Related            Financing Transactions
     Party              During the year ended  September  30, 2003,  the Company
     Transactions       restructured  a substantial  portion of its debt through
     Continued          the ADP line of credit.  This  transaction  included ADP
                        assuming and converting  various debt  instruments  (See
                        Note 5).

                        During the year ended  September 30, 2004, ADP converted
                        $400,000  of its debt  into  740,741  shares  of  common
                        stock.  This is a  conversion  rate of $0.54 per  share.
                        Also, during the year ADP was granted 1,000,000 warrants
                        to purchase  common stock at $0.54 per share and 500,000
                        warrants to purchase common stock at $0.75 per share.

                        Consulting Arrangements
                        In March 2000, the Company agreed to pay consulting fees
                        to ADP for  assisting  the  Company to  develop  its new
                        business  direction  and  business  plan and to  provide
                        introductions  to  strategic   technical  and  financial
                        partners.  Under  the terms of this  agreement,  ADP was
                        paid a  consulting  fee of  $10,000  per  month  and the
                        Company agreed to reimburse the expenses incurred by ADP
                        in  the  course  of   performing   services   under  the
                        consulting arrangement.  The ADP agreement also requires
                        ADP to pay  the  salaries  of  David  Derrick  as  Chief
                        Executive Officer and Chairman of the Board of Directors
                        of  the  Company  and  James  Dalton  as  president  and
                        Vice-Chairman  of the Board of Directors of the Company.
                        The  Board  of  Directors,  which  at the  time  did not
                        include  either of these  individuals,  approved both of
                        these arrangements.

                        During the year ended September 30, 2004 and 2003, under
                        the consulting and line-of-credit arrangements described
                        above,  the Company  recorded  compensation  expenses of
                        $817,583 and $2,181,822 respectively.

                        Personal Guarantees
                        As of September  30, 2003,  the Company has entered into
                        approximately  $745,759  of  promissory  notes which are
                        personally  guaranteed  by Derrick and Dalton and are in
                        some  cases  collateralized  by shares of the  Company's
                        common stock held by them (see Note 8).


--------------------------------------------------------------------------------
                                                                            F-35
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------


13.  Related Party      License Agreement
     Transactions       During the year ended  September  30, 2003,  the Company
     Continued          entered  into  a  License   Agreement  with   Matsushita
                        Electric Works,  Ltd., a Japanese  corporation  ("MEW").
                        Under the License  Agreement,  the Company granted MEW a
                        nontransferable,   worldwide,  exclusive  license  under
                        certain of the  Company's  patents to use,  manufacture,
                        have  manufactured,  market,  distribute  and  sell  the
                        Company's   one-button   emergency   wireless  telephone
                        device,  with and without global  positioning  satellite
                        technology, under the terms of the License Agreement. In
                        connection  with the new strategic  alliance  created by
                        the execution of the License Agreement, MEW also made an
                        equity   investment   in  the  Company.   MEW  purchased
                        1,000,000  shares of Series B Preferred Stock at a price
                        of $3.00 per share. In conjunction  with the sale of the
                        Series B Preferred  Stock,  and as an  indication of the
                        parties'  mutual  interest in a long-term  relationship,
                        the  Company  also  granted  MEW a warrant  to  purchase
                        1,000,000 shares of common stock at a price of $3.00 per
                        share.  During the fiscal year ended  September 30, 2004
                        and 2003, the Company paid MEW $292,796 and $384,625 for
                        GPS products and related services.

14.  Income             For the years ended  September  30,  2004 and 2003,  the
     Taxes              Company incurred net operating losses of approximately $
                        5,051,000 and  $5,524,000  for income tax purposes.  The
                        amount of and ultimate  realization of the benefits from
                        the net operating losses is dependent, in part, upon the
                        tax laws in effect,  the Company's future earnings,  and
                        other  future  events,  the  effects of which  cannot be
                        determined.  The  Company  has  established  a valuation
                        allowance for all deferred  income tax assets not offset
                        by   deferred   income  tax   liabilities   due  to  the
                        uncertainty of their realization.  Accordingly, there is
                        no  benefit  for  income   taxes  in  the   accompanying
                        consolidated statements of operations.



--------------------------------------------------------------------------------
                                                                            F-36
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------

14.  Income             At  September  30, 2004,  the Company has net  operating
     Taxes              loss  carryforwards  available to offset future  taxable
     Continued          income of approximately  $11,000,000 which will begin to
                        expire in 2018.  The  utilization  of the net  operating
                        loss  carryforwards  is  dependent  upon the tax laws in
                        effect at the time the net operating loss  carryforwards
                        can be  utilized.  The Internal  Revenue  Code  contains
                        provisions   that  likely  could  reduce  or  limit  the
                        availability and utilization of these net operating loss
                        carryforwards.  For example,  limitations are imposed on
                        the utilization of net operating loss  carryforwards  if
                        certain  ownership changes have taken place or will take
                        place.  Due  to the  frequency  of  equity  transactions
                        within the Company,  the use of net operating loss carry
                        forwards  will be limited.  The Company  will perform an
                        analysis to determine  whether any such limitations have
                        occurred as the net operating losses are utilized.

                        Deferred  income  taxes  are  determined  based  on  the
                        estimated  future  effects of  differences  between  the
                        financial  statement and income tax  reporting  bases of
                        assets and liabilities given the provisions of currently
                        enacted  tax laws and the tax  rates  expected  to be in
                        place. The deferred income tax assets  (liabilities) are
                        comprised of the following at September 30, 2004:


Net operating loss carryforwards                          $       3,999,000
Depreciation and reserves                                         3,178,000
Deferred consulting from stock options                            6,607,000
Accruals and reserves                                                20,000
Valuation allowance                                             (13,804,000)
                                                          ------------------

                                                          $               -
                                                          ------------------




--------------------------------------------------------------------------------
                                                                            F-37
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------


14.  Income             Reconciliations  between the benefit for income taxes at
     Taxes              the federal  statutory income tax rate and the Company's
     Continued          benefit for income  taxes for the years ended  September
                        30, 2004 and 2003 are as follows:

                                                  2004             2003
                                            ----------------------------------

Federal income tax benefit at
  statutory rate                             $      2,180,000  $    2,670,000
State income tax benefit, net of
  federal income tax effect                           321,000         259,000
Beneficial conversion features and
  preferred stock warrants
  associated with borrowings under
  a related-party line of credit                            -               -
Conversion inducement for Series A
  convertible debenture                                     -               -
Stock valuation for services
Stock warrants and options for
  services                                                  -               -
Other                                                  30,000          30,000
Change in valuation allowance                      (2,531,000)     (2,959,000)
                                            ----------------------------------

Benefit for income taxes                     $              -  $            -
                                            ----------------------------------

15.  Commitment         Legal  Matters  On  November  15,  2002,  Oakwood  Homes
     and                Corporation and certain of its affiliates  (collectively
     Contingencies      "OHC")  commenced a voluntary  case under  Chapter 11 of
                        Title 11,  United  States  Code,  in the  United  States
                        Bankruptcy Court for the District of Delaware,  Case No.
                        02-13396 (the  "Bankruptcy  Action").  On March 3, 2004,
                        the  Bankruptcy  Court entered an order  confirming  the
                        Second Amended Joint Consolidated Plan of Reorganization
                        of Oakwood Homes Corporation and its Affiliated  Debtors
                        and  Debtors-In   Possession  ("the  Plan").   The  Plan
                        provides  for  the  creation  of  a  liquidating   trust
                        pursuant to a liquidation  trust agreement.  On or about
                        April 15,  2004,  OHC and the  Trustee  created  the OHC
                        Liquidation  Trust (the  "Trust") and vested it with the
                        right to  prosecute  and  settle  avoidance  actions  on
                        behalf of the holders of the beneficial interests in the
                        Trust. The Trust has commenced two adversary proceedings
                        in the Bankruptcy Action that pertain to the Company.



--------------------------------------------------------------------------------
                                                                            F-38
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------


15.  Commitment         Legal Matters - Continued
     and                One of these adversary  actions is against  SecureAlert,
     Contingencies      Inc., a wholly-owed  subsidiary of the Company,  and the
     Continued          other     adversary      action     is     against     a
                        predecessor-in-interest     to     SecureAlert,     Inc.
                        (collectively "SecureAlert"). In these actions the Trust
                        claims  that OHC  made  preferential  payments  totaling
                        approximately  $609,000 during the 90 days preceding the
                        commencement of the Bankruptcy Action. The Trust seeks a
                        judgment against  SecureAlert for recovery and avoidance
                        of these payments.  SecureAlert is vigorously  defending
                        against these claims on the basis, among other defenses,
                        that  the  payments  are  protected  from  recovery  and
                        avoidance under (i) Section  547(c)(2) of the Bankruptcy
                        Code  because such  transfers  were made in the ordinary
                        course  of  business,  (ii)  Section  547(c)(4)  of  the
                        Bankruptcy  Code  because  SecureAlert  gave new  value,
                        thereby  preventing  recovery  of all or  some  of  such
                        transfers, and (iii) Section 547(c)(1) of the Bankruptcy
                        Code because SecureAlert gave contemporaneous new value,
                        thereby  preventing  recovery  of all or  some  of  such
                        transfers.

                        SecureAlert  is party to  litigation  incidental  to its
                        distribution  business.  However,  we do not believe the
                        potential liability, if any, of SecureAlert or the costs
                        incurred  in  connection  with  those  matters  will  be
                        material.

                        Lease Obligations
                        The  Company  leases a facility  under a  noncancellable
                        operating  lease that expires in November  2005.  Future
                        minimum  rental   payments   under  the   non-cancelable
                        operating   lease   as  of   September   30,   2004  are
                        approximately as follows:


                        Year Ending September 30:              Amount
                        -------------------------         ------------------

                               2004                       $          66,000
                               2005                                  88,700
                                                          ------------------

                                                          $         154,700
                                                          ------------------

                        Rent expense  related to this  non-cancelable  operating
                        lease was  approximately  $75,000  and  $69,000  for the
                        years ended September 30, 2004 and 2003, respectively.



--------------------------------------------------------------------------------
                                                                            F-39
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------



15.  Commitment         Lease Obligations - Continued
     and                Subsequent to September 30, 2004,  the Company  signed a
     Contingencies      lease to expand its operations. The lease is $11,100 per
     Continued          month. The lease expires November 2008.

                        Indemnification Agreements
                        In  November  2001,  the  Company's  Board of  Directors
                        agreed that the Company  would  indemnify  officers  and
                        directors  of the  Company  against  personal  liability
                        incurred by them in the conduct of their  duties for the
                        Company.  In the  event  that  any of  the  officers  or
                        directors  of the  Company are sued or claims or actions
                        are  brought   against  them  in  connection   with  the
                        performance  of  their  duties  and  the  individual  is
                        required to pay an amount,  the Company will immediately
                        repay the obligation  together with interest  thereon at
                        the greater of 10 percent per year or the interest  rate
                        of any funds borrowed by the individual to satisfy their
                        liability.

                        Cellular Access Agreement
                        In October 2001,  the Company  entered into an agreement
                        with a vendor for cellular  switching access.  Under the
                        agreement,  the vendor will provide a software interface
                        and a  dedicated  circuit  for the  Company's  MobilePal
                        network.  The cost to the Company during the years ended
                        September 30, 2004 and 2003 was  approximately  $140,200
                        and  $115,000   respectively.   During  the  year  ended
                        September 30, 2004, the Company  cancelled its agreement
                        with the prior cellular organization and entered into an
                        agreement  with a new  cellular  company  that  requires
                        minimum monthly lease payments of $3,750. This agreement
                        expires October 14, 2007.



--------------------------------------------------------------------------------
                                                                            F-40
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------


15.  Commitment         Purchase and Royalty Agreement
     and                On July 1, 2001,  the Company  entered into an agreement
     Contingencies      with Philips,  a manufacturer  of consumer  electronics.
     Continued          Under the  agreement,  the  Company has  committed  to a
                        minimum amount of purchases.  This agreement  expires on
                        June  30,  2006,  provided  however,  that  Philips  can
                        terminate the agreement if the Company fails to maintain
                        cumulative  purchase  volumes of $5,750,000,  $8,250,000
                        and  $11,250,000 in years ending June 2004 through 2006,
                        respectively. If purchase volumes are not maintained the
                        distribution  right of the  Company  may be  terminated.
                        During the year ended  September  30,  2004 the  Company
                        believes the purchase  obligation was fulfilled  through
                        SecureAlert  Entertainment  (SAE),  a  Company  owned by
                        former officers of SecureAlert,  Inc. SAE is maintaining
                        the  purchase  volume  and  a  4.5  percent  royalty  to
                        Phillips on certain products sold.

16.  Segment            The  Company is  organized  into two  business  segments
     Information        based primarily on the nature of the Company's products.
                        The  Company's   Reagents  segment  is  engaged  in  the
                        business  of   manufacturing   and   marketing   medical
                        diagnostic  stains,  solutions and related  equipment to
                        hospitals  and  medical   testing  labs.  The  Company's
                        SecureAlert  segment  is  engaged  in  the  business  of
                        developing,  distributing and marketing mobile emergency
                        and  personal   security  systems  to  distributors  and
                        consumers,   and   distributing   consumer   electronics
                        products  to  the   manufactured   home  market.   Other
                        (unallocated) loss consists of research and development,
                        selling,  general and administrative expenses related to
                        the Company's  corporate  activities,  including  remote
                        health  monitoring  and market and business  development
                        activities.

                        The accounting policies of the business segments are the
                        same as those  described  in the summary of  significant
                        accounting policies (see Note 2).



--------------------------------------------------------------------------------
                                                                            F-41
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------


16.  Segment            The   following   table   reflects   certain   financial
     Information        information relating to each reportable segment for each
     Continued          of the years ended September 30, 2004 and 2003.

                                                    2004             2003
                                            ----------------------------------
 Net sales:
     SecureAlert
        Mobile emergency and personal
          security systems                   $        556,338  $      217,031

     Reagents                                         561,182         551,780
                                            ----------------------------------

                                             $      1,117,520  $      768,811
                                            ----------------------------------

Operating income (loss):
     SecureAlert                             $     (2,812,314) $   (3,860,321)
     Reagents                                          84,893          50,084
     Other (unallocated)                           (3,778,805)     (3,872,096)
                                            ----------------------------------

                                             $     (6,506,226) $   (7,682,333)
                                            ----------------------------------
Depreciation and amortization:
     SecureAlert                             $        140,000  $      214,405
     Reagents                                           1,149           2,767
     Other (unallocated)                               15,454           8,288
                                            ----------------------------------

                                             $        156,603  $      225,460
                                            ----------------------------------

Capital expenditures:
     SecureAlert                             $          2,229  $            -
     Reagents                                         100,511               -
     Other (unallocated)                                                2,345
                                            ----------------------------------

                                             $        102,740  $        2,345
                                            ----------------------------------

Interest income:
     SecureAlert                             $              -  $            -
     Reagents                                                              22
     Other (unallocated)                                7,077           1,077
                                            ----------------------------------

                                             $          7,077  $        1,099
                                            ----------------------------------





--------------------------------------------------------------------------------
                                                                            F-42
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------


16.  Segment
     Information
     Continued                                       2004            2003
                                            ----------------------------------
Interest expense:
     SecureAlert                             $          8,077  $       65,088
     Reagents                                               -             621
     Other (unallocated)                              809,502         773,822
                                            ----------------------------------

                                             $        817,579  $      839,531
                                            ----------------------------------
Identifiable assets:
     SecureAlert                             $        309,587
     Reagents                                         134,198
     Other (unallocated)                              265,019
                                            ----------------------------------

                                             $        708,804
                                            ----------------------------------

17.  Subsequent         SecureAlert,   Inc.   Preferred  Shares   Subsequent  to
     Events             September  30,  2004,  and pursuant to Board of Director
                        approval,   the   Company   amended   the   articles  of
                        incorporation    of   its    wholly-owned    subsidiary,
                        SecureAlert,  Inc.,  to  establish  3,500,000  shares of
                        preferred  stock  designated  as  Series  A  Convertible
                        Redeemable  Non-Voting  Preferred  Stock. The holders of
                        shares of Series A Preferred  Stock shall be entitled to
                        receive quarterly  dividends out of any of SecureAlert's
                        assets  legally  available   therefore,   prior  and  in
                        preference to any declaration or payment of any dividend
                        on the  common  stock of  SecureAlert's,  at the rate of
                        $1.50  per  day  times  the  number  of  the   Company's
                        TrackerPAL  contracts  calculated  in  days  during  the
                        quarter.  For example, if there was an average of 10,000
                        TrackerPAL contracts outstanding during the quarter, the
                        total  dividend  would be $1,350,000  ($1.50 X 90 days X
                        10,000  contracts) or $.385/Series A Preferred Stock. In
                        no case will a dividend be paid if the gross revenue per
                        contract  per day to  SecureAlert's  averages  less than
                        $4.50.  Dividends  will be paid  in cash to  holders  of
                        record of shares  of  Series A  Preferred  Stock as they
                        appear on the  records  of the  Company  on such  record
                        dates not less  than ten (10)  days nor more than  sixty
                        (60) days preceding the payment dates thereof, as may be
                        fixed by the Board of Directors of  SecureAlert's.  As a
                        group,  all Series A Preferred Stock may be converted at
                        the holder's option at any time into an aggregate of 20%
                        ownership  of the  common  shares of  SecureAlert,  Inc.
                        Subsequent  to September  30, 2004,  SecureAlert's  sold
                        2,705,000 of these shares for $2,705,000.


--------------------------------------------------------------------------------
                                                                            F-43
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------


17.  Subsequent         Subsequent  to  September  30,  2004,  the  Company  has
     Events             entered into several debt obligations:
     Continued
                          a)    The Board of Directors authorized the Company to
                                raise $1.5 million in debt financing.  The terms
                                under  this  financing  are  18%  interest  on a
                                three-year note with the Company  pre-paying the
                                interest  with  common   stock.   Subsequent  to
                                September  30,  2004,  the  Company  has  raised
                                $500,000, under these terms.

                          b)    The  Company  borrowed  $245,000  from an entity
                                controlled  by an  employee  of the  Company  in
                                April 2005.  The terms are 17% interest,  a loan
                                origination fee of $10,000, and the loan will be
                                paid back over 7 months.  The first four  months
                                is  interest  only and the last three  months is
                                interest and principal.  This loan is secured by
                                the stock and  assets of  Volu-Sol  Reagents,  a
                                wholly-owned subsidiary of RemoteMDx, Inc.

                          c)    The  Company  borrowed  $250,000  from a company
                                with an 8% interest rate payable by February 25,
                                2005. As additional  consideration,  the Company
                                agreed to re-price  571,428  options  from $3.00
                                per share to $1.00 per share with an  expiration
                                date  of  December  10,  2009.   Subsequent   to
                                September 30, 2004, this note was converted into
                                600,000 shares of common stock.

                          d)    The  Company  has  borrowed  $100,000  from  two
                                individuals.  The interest  associated with this
                                loan  includes  an expense  for the  issuance of
                                200,000   warrants  to  each  lender  for  total
                                interest  expense of  $133,399.  This amount was
                                assumed  by ADP  Management  and has since  been
                                settled by ADP  Management for 111,600 shares of
                                common shares to each lender.  The warrants have
                                an exercise  price of $1.00 per share and expire
                                5 years from the date of issuance.


--------------------------------------------------------------------------------
                                                                            F-44
<PAGE>


                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------



17.  Subsequent           e)    The  Company  has   borrowed   $50,000  from  an
     Events                     individual  at an  interest  rate  of 6% with an
     Continued                  option to convert the loan into common shares at
                                a price  equal to $0.54 per  share.  The note is
                                due April 25,  2005.  In  addition,  the Company
                                agreed to  repurchase  250,000 of common  shares
                                already owned by the lender for $100,000 between
                                April 15, 2005 and April 25, 2005. Subsequently,
                                ADP Management has assumed this  liability,  but
                                as  of  yet  the  Company  has  not  been  fully
                                released

                          f)    The  Company  has  borrowed   $100,000  from  an
                                individual  at an  interest  rate  of 6% with an
                                option to convert the loan into common shares at
                                a price  equal to $0.54 per  share.  The note is
                                due April 25, 2005. Subsequently, ADP Management
                                has assumed  this  liability,  but as of yet the
                                Company has not been fully released.




--------------------------------------------------------------------------------
                                                                            F-45




<PAGE>


Item 8.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None

Item 8A.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures. We maintain disclosure
controls and procedures designed to ensure that information required to be
disclosed in our reports filed under the Securities Exchange Act of 1934, as
amended (the Exchange Act), is recorded, processed, summarized, and reported
within the required time periods, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow for timely decisions regarding
disclosure.

As required by Rule 13a-15(b) under the Exchange Act, we conducted an
evaluation, under the supervision of our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of our disclosure controls and
procedures as of September 30, 2004. In our evaluation we identified
deficiencies that existed in the design or operation of our internal control
over financial reporting that we and our independent registered public
accounting firm considered to be "material weaknesses." A material weakness is a
significant deficiency or combination of significant deficiencies that results
in more than a remote likelihood that a material misstatement of the annual or
interim financial information will not be prevented or detected.

The deficiencies in our internal control over financial reporting related to the
failure to properly disclose equity and debt transactions. The deficiencies were
detected in the evaluation process and the transactions have been appropriately
recorded and disclosed in this Form 10-KSB. In addition, we have not created a
"Disclosure Controls Committee" to monitor and follow up on our processes to
assure disclosures are complete and accurate; however, we intend to have such a
committee in place by October 1, 2005. We are in the process of improving our
internal control over financial reporting in an effort to resolve these
deficiencies through improved supervision and training of our accounting staff,
but additional effort is needed to fully remedy these deficiencies. Our
management, audit committee, and directors will continue to work with our
auditors and outside advisors to ensure that our controls and procedures are
adequate and effective.

Based on the matters identified above, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were not
effective. These deficiencies have been disclosed to our Audit Committee.

Changes in Internal Control over Financial Reporting. There were no changes in
our internal control over financial reporting identified in connection with the
evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that
occurred during our last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.

Section 404 Assessment. Section 404 of the Sarbanes-Oxley Act of 2002 requires
management's annual review and evaluation of our internal controls, and an
attestation of the effectiveness of these controls by our independent registered
public accounting firm beginning with our Form 10-KSB for the fiscal year ending
on September 30, 2006. We will dedicate a significant amount of our resources,
including management time and effort, in connection with our Section 404
assessment. We are currently documenting and testing our internal controls and
considering whether any improvements are necessary for maintaining an effective
control environment at our company. The evaluation of our internal controls is
being conducted under the direction of our senior management. In addition, our
management is regularly discussing the results of our testing and any proposed
improvements to our control environment with our Audit Committee. We will
continue to work to improve our controls and procedures, and to educate and
train our employees on our existing controls and procedures in connection with
our efforts to maintain an effective controls infrastructure at our Company.

Limitations on Effectiveness of Controls. A system of controls, however well
designed and operated, can provide only reasonable, and not absolute, assurance
that the system will meet its objectives. The design of a control system is
based, in part, upon the benefits of the control system relative to its costs.
Control systems can be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the control. In
addition, over time, controls may become inadequate because of changes in
conditions, or the degree of compliance with the policies or procedures may
deteriorate. In addition, the design of any control system is based in part upon
assumptions about the likelihood of future events.


                                       30
<PAGE>

Item 8B.  Other Information

None
                                    PART III


Item 9. Directors,  Executive Officers,  Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act

The following table sets forth information concerning our executive officers and
directors and their ages as at September 30, 2004:

      Name              Age         Position

David G. Derrick        52      Chief Executive Officer and Chairman (Director)
James J. Dalton         61      President and Vice Chairman (Director)
Michael G. Acton        41      Chief Financial Officer, Secretary-Treasurer
Peter McCall            47      Director
Robert E. Childers      60      Director

David Derrick - CEO and Chairman

Mr. Derrick has been our CEO and Chairman since February 2001. Previously he
served as CEO and Chairman of the Board of Directors of Biomune Systems Inc.
between 1989 and 1998. Biomune was a biotechnology company and was the former
parent corporation of RemoteMDx, Inc. From 1996 to 1999, Derrick was Chairman of
the Board of Directors of Purizer Corporation; during 2000 he served as a
director of Purizer Corporation. From 1979 to 1982, Derrick was a faculty member
at the University of Utah College of Business. Mr. Derrick graduated from the
University of Utah with a Bachelor of Arts degree in Economics in 1975 and a
Masters in Business Administration degree with an emphasis in Finance in 1976.
Mr. Derrick has been a principal financier and driving force in many new
businesses. During the early 1980's he helped create the community of Deer
Valley, an exclusive ski resort outside of Park City, Utah. In 1985 he founded
and funded a company that pioneered the Smart Home concept - the computerized
home. The company is known as Vantage Systems and is today a leader in this
field.

James Dalton - President and Vice Chairman

Mr. Dalton joined us as a director in 2001. He was named President of the
Company in August 2003. From 1987 to 1997, Dalton was the owner and President of
Dalton Development, a real estate development company. He served as the
President and coordinated the development of The Pinnacle, an 86-unit
condominium project located at Deer Valley Resort in Park City, Utah. Mr. Dalton
also served as the President and equity owner of Club Rio Mar in Puerto Rico, a
680-acre beach front property that includes 500 condominiums, beach club,
numerous restaurants, pools and a Fazio-designed golf course. He was also a
founder and owner of the Deer Valley Club, where he oversaw the development of a
high-end, world-class ski project that includes 25 condominiums with a "ski-in
and ski-out" feature. From 1996 to 2000, Dalton served as an officer and
director of Biomune Systems, Inc. Prior to joining us and following his
resignation from Biomune Systems, Dalton managed his personal investments.

Michael Acton - Secretary, Treasurer and Chief Financial Officer

Mr. Acton joined us as Secretary-Treasurer in March 1999. He has also served as
our CFO since March 2001. From June 1998 until November 2000, Mr. Acton was
Chief Executive Officer of Biomune Systems, Inc., where he also served as
Principal Accounting Officer and Controller from 1994 to 1997. From 1989 through
1994, Mr. Acton was employed by Arthur Andersen, LLP in Salt Lake City, Utah,
where he performed various tax, audit, and business advisory services. He is a
Certified Public Accountant in the State of Utah.

                                       31
<PAGE>

Bruce G. Derrick - Chief Technology Officer

Mr. Derrick has extensive experience in management of custom solutions
development and customer management in the wireless telcom marketplace. From
2001 to 2004 was a senior product development manager for WatchMark Corporation.
WatchMark collects cellular network performance data for quality assurance and
capacity planning. From 1997 to 2001 Mr. Derrick was responsible for forming and
managing the Professional Services team for Marconi's MSI division. From 1996 to
1997 Mr. Derrick provided technical project management of application
scalability testing and quality control at Boeing and Western Wireless. From
1989 to 1996 Mr. Derrick built and managed the Corporate Computer and Network
Operations department for Avaya's Mosaix division. From 1983 to 1989 he served
as Senior Programmer in applied research at the University of Utah's Department
of Medical Informatics where he developed and implemented medical informatics
and physiological monitoring services for ICU care. He also participated in
development of IEEE standards for automated physiological monitoring for Nasa's
Space Station program. Mr. Derrick holds a Bachelor's Degree in Computer Science
from the University of Utah. Bruce Derrick is the brother of David Derrick, the
Chairman and CEO of the Company.

Peter McCall - Director

Mr. McCall joined our board of directors in July 2001. Mr. McCall began his
career in the mortgage finance business in 1982. As a Vice President of GE
Mortgage Securities he oversaw the first mortgage securities transactions
between GE Capital Corporation and Salomon Brothers. For fifteen years Mr.
McCall structured and sold both mortgage and asset backed security transactions.
In 1997 Mr. McCall founded McCall Partners LLC. McCall Partners is an investment
vehicle for listed and non-listed equity securities. Mr. McCall is also a member
of the Board of Directors of Premium Power Corporation of North Andover, MA. Mr.
McCall is a member of the Audit Committee and the Compensation Committee of the
board of directors.

Robert Childers - Director

Mr. Childers joined our board in July 2001. Since 1977, he has served as the
Chief Executive Officer of Structures Resources Inc., a firm which he founded in
1972, and has more than 30 years of business experience in construction and real
estate development. Mr. Childers has served or is currently serving as General
Partner in 16 Public Limited Partnerships in the Middle Atlantic States.
Partners include First Union Bank and Fannie Mae. Structures Resources has
successfully completed over 300 projects (offices, hotels, apartments, and
shopping centers) from New York to North Carolina. Recently Mr. Childers has
been a partner for various projects in Baltimore and Philadelphia. He is a
co-founder of Life Science Group, a boutique biotech investment-banking firm.
Mr. Childers was also the founding President of Associated Building Contractors
for the State of West Virginia and served as a director of The Twentieth Street
Bank until its merger with City Holding Bank. He is a former naval officer
serving in Atlantic fleet submarines. Mr. Childers is a member of the Audit
Committee and Compensation Committee of the board of directors.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our officers,
directors and persons who beneficially own more than 10% of a registered class
of our equity securities to file reports of ownership and changes in ownership
with the Securities and Exchange Commission. Officers, directors and greater
than 10% shareholders are required by regulation of the Securities and Exchange
Commission to furnish us with copies of all Section 16(a) forms they file.

Based solely upon its review of the copies of such forms furnished to it, and
representations made by certain persons subject to this obligation that such
filings were not required to be made, RemoteMDx believes that all reports
required to be filed by these individuals and persons under Section 16(a) were
timely filed.

The Board of Directors

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

Meetings and Committees

The board of directors met three times during fiscal year 2004. No director
attended fewer than 75% of the meetings during the fiscal year. The board also
acted four times during fiscal year 2004 by unanimous written consent in lieu of
a meeting, as permitted by Utah law and our bylaws. The board has no formal

                                       32
<PAGE>

Nominating Committee. The board has an Audit Committee, currently comprised of
Mr. McCall and Mr. Childers. The Audit Committee held no separate meetings in
fiscal year 2004.

The functions of the Audit Committee are (1) to review and approve the selection
of, and all services performed by, our independent auditors, (2) to review our
internal controls, and (3) to review and report to the board of directors with
respect to the scope of our audit procedures, accounting practices and internal
accounting and financial controls. Mr. Childers and Mr. McCall are independent
directors within the meaning of that term under applicable Securities and
Exchange Commission rules.

Audit Committee Financial Expert

Peter McCall, a director of the Company, is the financial expert serving on the
Audit Committee of the Board of Directors within the meaning of that term under
applicable rules promulgated by the Securities and Exchange Commission.

Compensation Committee

Bob Childers, a director of the Company, is serving as the head of the Company's
compensation committee.

Remuneration

Non-employee directors are entitled to receive $1,500 per month and receive a
grant of an option to acquire 30,000 shares of common stock for each completed
year of service on the board. We also reimburse the reasonable travel expenses
of members for their attendance at the meetings of the board and meetings of the
shareholders. No options have been granted or compensation paid under this
arrangement for director services in fiscal year 2004 as of the date of this
report. Effective October 1, 2004, the outside directors of the Company are
entitled to receive $5,000 per month as compensation for services rendered.

Item 10.  Executive Compensation

The following table sets forth the compensation paid in each of the past three
fiscal years to all individuals serving as our chief executive officer during
the year ended September 30, 2004 as well as our four most highly compensated
executive officers other than the CEO who were serving as executive officers at
the end of the year ended September 30, 2004, whose total annual salary and
bonus for the year then ended exceeded $100,000 (the "Named Executive
Officers").
<TABLE>
<CAPTION>

                           Summary Compensation Table

                                                                        Annual Compensation                Long Term
                                                                                                         Compensation
                                                                                                            Awards

                                                                                                        Securities
                                                                                                        Underlying       All other
                    Name and                       Fiscal                            Other Annual      Options/SARs    compensation
               Principal Position                   Year    Salary ($)  Bonus ($)  Compensation ($)        (#)             ($)
-------------------------------------------------- -------- ----------- ---------- ----------------- ----------------- -------------

   <S>                                               <C>        <C>         <C>        <C>             <C>               <C>
   David G. Derrick, Chief Executive Officer         2002       $120,000    $     0    $180,000        292,500/0         $   0
      Chairman of the Board of Directors (1)         2003       $120,000    $     0    $ 53,910        845,628/0         $   0
                                                     2004       $120,000    $     0    $      0           0/0            $   0

   James J. Dalton                                   2002       $120,000    $     0    $      0        292,500/0         $   0
      President and Vice Chairman (2)                2003       $120,000    $     0    $      0           0/0            $   0
                                                     2004                   $     0    $      0           0/0            $   0


   Michael G. Acton, Chief Financial Officer (3)     2002       $ 62,180    $28,750    $      0        46,000/0          $   0
                                                     2003       $100,000    $25,000    $  4,092           0/0            $   0
                                                     2004       $100,000    $25,000    $      0           0/0            $   0

</TABLE>

                                       33
<PAGE>

         (1)  Mr. Derrick became Chief Executive Officer in February 2001.
              Amounts reported in the table do not include amounts recorded by
              the Company under applicable accounting principles for non-cash
              compensation paid to ADP Management, a company controlled by Mr.
              Derrick, in connection with financing transactions that were
              entered into by the Company and ADP Management during the years
              2002, 2003 or 2004. Salary was accrued and included in amounts
              owed to ADP Management under various financing agreements.
              Outstanding amounts owed ADP Management under all such agreements
              were converted to common stock in June 2003. Mr. Derrick is the
              principal owner and control person of ADP Management. See "Certain
              Relationships and Related Party Transactions."

         (2)  During 2002, 2003 and 2004, Mr. Dalton was paid $120,000 a year
              under a consulting agreement. Mr. Dalton's annual salary as
              President is $120,000. The consulting fees and salary owed to
              Dalton have historically been accrued as part of the ADP
              Management financing arrangements. Outstanding amounts were
              converted to common stock as of June 2003. Other amounts have been
              paid or accrued during 2004. See "Certain Relationships and
              Related Transactions."

         (3)  Mr. Acton has served as an executive officer since March 2001.

Employment Agreements

We have no employment agreements with any executive officers at this time.

Stock Option Grants in Fiscal Year 2004

During fiscal year 2004, the Company granted 500,000 warrants to ADP Management
at $0.75 per share and 1,000,000 warrants at $0.54 per share. The Company also
granted to Mr. Acton 100,000 warrants at $0.54 per share. All of these warrants
are five-year warrants and expire in 2009.

Stock Options Outstanding and Options Exercised in Fiscal Year 2004

The following table sets forth certain information, including the fiscal
year-end value of unexercised stock options held by the Named Executive
Officers, as of September 30, 2004. We have not granted any stock appreciation
rights ("SAR's").
<TABLE>
<CAPTION>

                                                                   Number of Securities      Value of Unexercised In-
                                                                        Underlying               the-Money Options/
                                                                   Unexercisable Options At    SARs At 9/30/2004 ($)
                         Shares Acquired       Value Realized      9/30/2004 Exercisable/          Exercisable/
      Name               on Exercise                ($)              Unexercisable (1)             Unexercisable
--------------------    --------------------------------------    ----------------------------------------------------
<S>                              <C>                   <C>             <C>                                  <C>
David G. Derrick (2)             -                                     1,636,155/00                         -
Michael G. Acton                 -                     -                 246,894/00                         -
James J. Dalton                  -                     -               1,636,155/00


</TABLE>


         (1)  Value is based on the fair market value of our common stock on
              September 30, 2004, estimated to be $0.54 per share. Values
              indicated reflect the difference between the exercise price of the
              unexercised options and the market value of shares of common stock
              on September 30, 2004.

         (2)  Options granted to ADP Management in connection with a financing
              arrangement. The exercise price of 1,136,155 options is $.54 per
              share. The exercise price of 500,000 options is $0.75 per share.
              See "Certain Relationships and Related Transactions."


                                       34
<PAGE>

Stock Plans

The 1997 Volu-Sol, Inc. Stock Incentive Plan

Immediately prior to the spin-off in August 1997, the Company adopted the 1997
Volu-Sol, Inc. Stock Incentive Plan ("1997 Plan"). The 1997 Plan was approved by
our board of directors and by action of Biomune, then our sole shareholder.
Under the 1997 Plan, we may issue stock options, stock appreciation rights,
restricted stock awards, and other incentives to our employees, officers and
directors.

The 1997 Plan provides for the award of incentive stock options to our key
employees and directors and the award of nonqualified stock options, stock
appreciation rights, bonus rights, and other incentive grants to employees and
certain non-employees who have important relationships with us or our
subsidiaries. A total of 5,000,000 shares are authorized for issuance pursuant
to awards granted under the 1997 Plan. During fiscal year 2004, 25,000 options
were granted to purchase common stock under the 1997 Plan and no options were
exercised. As of September 30, 2004, options for the purchase of 1,465,000
shares of common stock were outstanding and exercisable under the 1997 Plan.

The 2004 RemoteMDx, Inc. Stock Incentive Plan

On February 17, 2004 the Board of Directors approved the 2004 RemoteMDx, Inc
Stock Incentive Plan ("2004 Plan"). The shareholders approved this plan on May
19, 2004. Under the 2004 Plan, the Company may issue stock options, stock
appreciation right, restricted stock awards and other incentives to our
employees, officers and directors. The 2004 Plan provides for the award of
incentive stock options to our key employees and directors and the award of
nonqualified stock options, stock appreciation rights, bonus rights, and other
incentive grants to employees and certain non-employees who have important
relationships with us or our subsidiaries. A total of 6,000,000 shares are
authorized for issuance pursuant to awards granted under the 2004 Plan. During
fiscal year 2004 no grants, awards or incentives were awarded under this plan.

Item 11.    Security Ownership of Certain Beneficial Owners and Management

This Item 11 sets forth information known to us with respect to the beneficial
ownership of our common stock as of May 1, 2005. We have determined beneficial
ownership in accordance with the rules of the Securities and Exchange
Commission. In computing the number of shares beneficially owned by a person and
the percentage ownership of that person, we include shares of common stock
subject to options, warrants, or convertible securities held by that person that
are currently exercisable or will become exercisable within 60 days after May 1,
2005, while those shares are not included for purposes of computing percentage
ownership of any other person. Unless otherwise indicated, the persons and
entities named in the table have sole voting and investment power with respect
to all shares beneficially owned, subject to community property laws where
applicable.

Security Ownership of Certain Beneficial Owners

The following table sets forth information for any person (including any
"group") who is known to us to be the beneficial owner of more than 5% of our
common stock.
<TABLE>
<CAPTION>

  Title of Class           Name and Address of Beneficial Owner (1)              Amount Owned       Percent of Class

      <S>                           <C>                                           <C>                    <C>
      Common                         David G. Derrick (2)                         7,547,902              17.3%

      Common                           James Dalton (3)                           7,130,294              16.4%

      Common                          J. Lee Barton (4)
                                      196 No. Forest Ave.
                                      Hartwell, GA 30643                          2,392,981               5.7%

      Common                        ADP Management Corp.(5)                       6,428,177              14.8%
</TABLE>

------------------

                                       35
<PAGE>

         (1)  Unless otherwise indicated, the business address of the
              shareholder is the address of the Company, 5095 W. 2100 S., Salt
              Lake City, Utah 84120.

         (2)  Includes shares owned of record as follows: 3,783,772 shares held
              of record by ADP Management, 665,672 shares owned of record by Mr.
              Derrick, 1,008,250 shares issuable upon conversion of Series A
              preferred stock owned of record by ADP Management, 20,720 shares
              issuable upon conversion of Series A preferred stock owned of
              record by MK Financial, 33,333 shares issuable upon conversion of
              Series B preferred stock owned of record by Mr. Derrick. Also
              includes 400,000 shares owned by Purizer Corporation of which Mr.
              Derrick owns approximately 90%. Mr. Derrick is the secretary and
              treasurer of ADP Management and the managing member of MK
              Financial. Also includes 1,636,155 shares issuable upon exercise
              of stock options held by ADP Management.

         (3)  Includes shares owned of record as follows: 3,783,772 shares held
              of record by ADP Management (by agreement with Mr. Derrick, Mr.
              Dalton shares control and beneficial ownership of the shares owned
              of record by ADP Management), 460,137 shares owned of record by
              Mr. Dalton, 241,980 shares issuable upon conversion of Series A
              preferred stock owned of record by Mr. Dalton, 1,008,250 shares
              issuable upon conversion of Series A preferred stock owned of
              record by ADP Management, and 1,636,155 shares issuable upon
              exercise of stock options held by ADP Management.

         (4)  Includes 1,420,667 shares owned directly by Mr. Barton, 772,313
              shares owned of record by Lintel, Inc., an entity owned and
              controlled by Mr. Barton, and 200,001 shares issuable upon
              conversion of 200,001 shares of Series B preferred stock owned of
              record by Lintel, Inc.

         (5)  Includes 3,783,772 shares owned of record and 1,008,250 shares
              issuable upon conversion of Series A preferred stock. Includes
              1,636,155 options.

Security Ownership of Management

We have two classes of voting equity securities, the common stock and the Series
B preferred stock. In addition, we have a class of nonvoting preferred stock
that is convertible into common stock. The following table sets forth
information as of May 1, 2005, as to the voting securities beneficially owned by
all directors and nominees named therein, each of the named executive officers,
and directors and executive officers as a group.
<TABLE>
<CAPTION>

                                           Name and
  Title of Class                  Address of Beneficial Owner                    Amount Owned       Percent of Class

<S>                <C>                                                           <C>                     <C>
Common             David G. Derrick (1)                                           7,547,902              17.3%
                   James Dalton (2)                                               7,130,294              16.4%
                   Michael G. Acton (4)                                             337,401                 *
                   Peter McCall (5)                                                 939,980               2.2%
                   Robert Childers (6)                                              555,294               1.3%
                   Officers and Directors as a Group (6 persons) (7)             10,082,694              22.8%

</TABLE>
----------------

         (1)  Derrick's beneficial ownership of these shares is summarized in
              note (2) above.

         (2)  Dalton's beneficial ownership of these shares is summarized in
              note (3) above.

         (3)  ADP's beneficial ownership of these shares is summarized in note
              (5) above.

         (4)  Mr. Acton is the Chief Financial Officer of the Company. Includes
              246,894 shares issuable under options granted to Mr. Acton, 45,507
              shares owned of record by Mr. Acton, and 45,000 shares issuable
              upon conversion of Series B preferred stock owned by Mr. Acton.

         (5)  Mr. McCall is a director. Includes (a) 250,000 shares of common
              stock owned of record by Mr. McCall, 300,000 shares issuable upon
              exercise of stock options held by Mr. McCall, and 389,980 shares
              issuable upon conversion of shares of Series A preferred stock
              owned by Mr. McCall.

         (6)  Mr. Childers is a director. Includes (a) 50,000 shares of common
              stock owned of record by the Robert E. Childers Living Trust, (b)
              130,000 shares issuable upon exercise of stock options held by Mr.
              Childers, (c) 219,780 shares issuable upon conversion of Series A
              preferred stock, and (d) 155,514 shares held directly by Mr.
              Childers.

                                       36
<PAGE>

         (7)  Duplicate entries eliminated.

                  *Less than 1% ownership percentage.

Securities Authorized for Issuance under Equity Compensation Plans

The following table sets forth information as of the September 30, 2004, our
most recently completed fiscal year, with respect to compensation plans
(including individual compensation arrangements) under which equity securities
are authorized for issuance, aggregated as follows:

         o    All compensation plans previously approved by security holders;
              and

         o    All compensation plans not previously approved by security
              holders.

Equity Compensation Plan Information
<TABLE>
<CAPTION>

                                          Number of securities to       Weighted average
                                          be issued upon exercise      exercise price of        Number of securities
                                          of outstanding options,     outstanding options,    remaining available for
             Plan category                  warrants and rights       warrants and rights         future issuance
<S>                                              <C>                         <C>                     <C>
Equity compensation plans approved by
security holders                                 1,465,000                   $2.81                   3,535,000

Equity compensation plans not approved
by security holders                              6,357,043                   $2.42                      N/A

Total                                            7,822,043                   $2.48                  3,535,000

</TABLE>

Item 12.  Certain Relationships and Related Transactions

The following discussion summarizes transactions during the last two fiscal
years between the Company and related parties.

Debt Restructuring Agreement

During the year ended September 30, 2003, the board of directors of the Company
approved a debt-restructuring package (the "Debt Restructuring") proposed by ADP
Management, Mr. Derrick and Mr. Dalton. ADP Management is controlled by Messrs.
Derrick and Dalton, both of whom are directors and executive officers of the
Company. By agreement dated April 2, 2003, the Company and ADP Management, Mr.
Derrick and Mr. Dalton agreed to the following primary terms:

         o    Mr. Derrick and Mr. Dalton agreed to negotiate with significant
              creditors of the Company to restructure outstanding Company debt.

         o    In October of 2003 the Company issued a total of 8,113,999 shares
              of common stock (the "Restructuring Shares") in the name of ADP
              Management for use and potential resale or transfer of the shares
              by ADP for the purpose of restructuring Company debt. The
              Restructuring Shares were issued to ADP Management, in
              consideration of the assumption by ADP, Mr. Derrick, and Mr.
              Dalton of Company debt and the eventual release of the Company of
              all liability for such debt by the creditors.

         o    Certain Company debt would be converted directly by the Company
              into shares of Common Stock, at prices negotiated on behalf of the
              Company by Mr. Derrick and Mr. Dalton. Pursuant to that
              arrangement, in October 2003 the Company issued 786,001 shares of
              Common Stock to certain creditors in exchange for cancellation of
              Company debt.

                                       37
<PAGE>

         o    ADP Management would also convert all amounts owing by the Company
              to it (after all other Company creditors have either converted or
              consented to the assignment of their notes to ADP as described
              above) into whatever number of the Restructuring Shares were not
              resold or transferred by ADP.

         o    By issuing the Restructuring Shares to ADP, we would be
              compensating Mr. Derrick and Mr. Dalton for personal guarantees
              and assumptions of corporate debt and obligations.

         o    Mr. Derrick would assign certificates of deposit to the Company to
              secure a Company line of credit with Zions Bank.

Under the Debt Restructuring program, the following steps have been taken during
the two years prior to the date of filing this Report:

         o    ADP Management assumed or converted to Company Common Stock an
              aggregate of $4,331,621 of Company liabilities. The Company was
              fully released from these obligations.

         o    ADP Management assumed $736,000 of contingent liabilities of the
              Company, agreeing to discharge any Company obligations to redeem
              certain outstanding shares of redeemable Company Common Stock. The
              Company was fully released from these obligations.

         o    ADP Management assumed an additional $700,000 of Company
              obligations for which the creditor, at the time, would not release
              the Company. However, during the year ended September 30, 2004,
              the creditor released the Company from this liability.

         o    Through April 2005, as a result of the Debt Restructuring and in
              exchange for receipt of the Restructuring Shares, ADP Management
              has transferred and sold 8,113,999 of the Restructuring Shares to
              third parties.

As part of this conversion and exchange, the Company recognized a non-cash
expense of $845,628 based on the excess of the value of the stock issued over
the debt relieved and subscription receivable recorded.

The total debt relief provided to us as a result of Debt Restructuring
transactions was approximately $5,767,621.

ADPManagement Line of Credit Arrangement

In addition to the Debt Restructuring transactions described above, ADP
Management has an ongoing line of credit agreement with the Company. The essence
of that agreement is that as the Company needs funds, ADP Management will loan
the Company money. During the nine months ended June 30, 2004, ADP Management
had loaned the Company $400,000. This amount was converted into 740,741 shares
of common stock at a conversion price of $0.54 per share. During the three
months ended September 30, 2004, ADP Management loaned the Company an additional
$222,546. In the past, ADP has converted outstanding amounts into common stock.
Under the line of credit arrangement, the Company pays interest on outstanding
amounts at the rate of 5%. Payments are due on July 31, 2006.

During the year ended September 30, 2003, in connection with the line of credit
arrangement, ADP agreed to assume the following obligations of the Company and
to convert the amounts assumed into debt payable by the Company directly to ADP
under the line of credit:

         o    $1,086,628 of short-term notes payable;

         o    $503,387 under a bank line of credit;

         o    $550,000 of certificates of deposit owed to individuals used to
              secure a bank line of credit.

         o    In June 2003, we entered into agreements with former shareholders
              of SecureAlert pursuant to which the shareholders assigned to the
              Company two certificates of deposit in the aggregate amount of
              $200,000 pledged as security for the line of credit with SunTrust
              Bank, which was subsequently refinanced by Zion's Bank. This
              assignment of the certificates of deposit, along with a letter of
              credit from a trust, whose trustee is related to an officer of the
              Company, replaced the personal guarantees of four former
              SecureAlert shareholders. In June 2003 these certificates of
              deposit were assigned to the Company and the obligation to repay
              these individuals was assumed by ADP Management.


                                       38
<PAGE>

Item 13.  Exhibits

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

(a)      Exhibits

Exhibit Number             Title of Document
--------------             -----------------

3.01                Articles of Incorporation and Amendments thereto
                    (incorporated by reference to the Company's Registration
                    Statement and Amendments thereto on Form 10-SB, effective
                    December 1, 1997).


3.01(1)             Amendment to Articles of Incorporation for Change of Name
                    (previously filed)


3.01(2)             Amendment to Articles of Incorporation Amending Rights and
                    Preferences of Series A Preferred Stock (previously filed)

3.01(3)             Amendment to Articles of Incorporation Adopting Designation
                    of Rights and Preferences of Series B Preferred Stock
                    (previously filed)

3.01(4)             Certificate of Amendment to the Designation of Rights and
                    Preferences Related to Series A 10% Cumulative Convertible
                    Preferred Stock of RemoteMDx, Inc.

3.02                Bylaws (incorporated by reference to our Registration
                    Statement on Form 10-SB, effective December 1, 1997)

10.01               Distribution and Separation Agreement (incorporated by
                    reference to our Registration Statement and Amendments
                    thereto on Form 10-SB, effective December 1, 1997).

10.02               1997 Stock Incentive Plan, (incorporated by reference to our
                    Registration Statement and Amendments thereto on Form 10-SB,
                    effective December 1, 1997).

10.03               1997 Transition Plan (incorporated by reference to our
                    Registration Statement and Amendments thereto on Form 10-SB,
                    effective December 1, 1997).

10.04               Securities Purchase Agreement for $1,200,000 of Series A
                    Preferred Stock (incorporated by reference to the Company's
                    Registration Statement and Amendments thereto on Form 10-SB,
                    effective December 1, 1997).

10.05               Securities Purchase Agreements with ADP Management and James
                    Dalton (previously filed)

10.06               Agreement and Plan of Merger (SecureAlert) (previously filed
                    as exhibit to Current Report on Form 8-K)

10.07               Amended and Restated Loan and Security Agreement (SunTrust
                    Bank and SecureAlert), dated January 24, 2002 (filed as an
                    exhibit to the Company's quarterly report on Form 10-QSB for
                    the quarter ended December 31, 2001)

10.08               Amended and Restated Loan and Security Agreement (SunTrust
                    Bank and SecureAlert) dated March 1, 2002 (filed as an
                    exhibit to the Company's quarterly report on Form 10-QSB for
                    the quarter ended December 31, 2001)

                                       39
<PAGE>

10.09               Loan Agreement (as amended and extended) dated March 5, 2002
                    between ADP Management and the Company, effective December
                    31, 2001 (filed as an exhibit to the Company's quarterly
                    report on Form 10-QSB for the quarter ended December 31,
                    2001)

10.10               License Agreement between RemoteMDx, Inc. and SecureAlert,
                    Inc. as licensor and Matsushita Electric Works, Ltd., as
                    licensee, (April 12, 2002)

10.11               Agreement with SecureAlert Entertainment, LLC, with
                    amendments (January and June 2003)

10.12               Agreement with SecureAlert Telematic, Inc. (January 2003)

10.13               Agreement with ADP Management, Derrick and Dalton (April
                    2003)

31.1                Certification of President and Chief Executive Officer under
                    Section 302 of Sarbanes-Oxley Act of 2002

31.2                Certification of Chief Financial Officer under Section 302
                    of Sarbanes-Oxley Act of 2002

32                  Certification under Section 906 of the Sarbanes-Oxley Act of
                    2002 (18 U.S.C. SECTION 1350)

Item 14.  Principal Accountant Fees and Services

For the years ended September 30, 2003, and 2004, Tanner LC provided audit and
other services for the Company.

Audit Fees

Audit services consist of the audit of the annual consolidated financial
statements of the Company, review of the quarterly financial statements,
stand-alone audits of subsidiaries, accounting consultations and consents and
other services related to SEC filings and registration statements filed by the
Company and its subsidiaries and other pertinent matters. Audit fees paid to
Tanner LC. for fiscal years 2004 and 2003 totaled $86,000 and $87,000,
respectively.

Tax Fees, Audit Related Fees, and All Other Fees

Tanner LC did not provide any consulting services to the Company in fiscal years
2003 and 2004, including tax consultation and related services, nor did Tanner
LC perform any financial information systems design and implementation services
for the Company in either period. Non-audit-related services consist primarily
of tax consultation and related services.

The Audit Committee of the Board of Directors considered and authorized all
services provided by Tanner LC and considered that the provision of non-audit
services was compatible with maintaining auditor independence.


                                       40
<PAGE>

                                   SIGNATURES

         In accordance with Section 13 and/or 15(d) of the Securities Exchange
Act, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                  RemoteMDx, Inc.


                                  By: /s/David G. Derrick
                                      -------------------
                                      David G. Derrick,
                                      Chief Executive Officer

                                  Dated:   June 15, 2005

         In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.

Signature                            Title                                 Date



/s/David G. Derrick            Director, Chairman, and             June 15, 2005
-------------------            Chief Executive Officer
David G. Derrick               (principal executive officer)



/s/James Dalton                Director, Vice Chairman,            June 15, 2005
---------------                President
James Dalton



/s/Peter McCall                Director                            June 15, 2005
---------------
Peter McCall



/s/Robert E. Childers          Director                            June 15, 2005
---------------------
Robert E. Childers


/s/Michael G. Acton            Chief Financial Officer             June 15, 2005
-------------------            (principal financial officer)
Michael G. Acton


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