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, 2006


[ ]           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.)

150 West Civic Center Drive
Suite 400
Sandy, Utah                                                  84070
(Address of principal executive offices)                     (Zip Code)

 Issuer's telephone number: (801) 563-7171

Securities registered under                               Name of each exchange
Section 12(b) of the Act:                                 on which registered:
         None                                                    None

 Securities registered under Section 12(g) of the Act:
       Common Stock, $0.0001 par value.

Check whether the issuer is not required to file reports  pursuant to Section 13
or 15 of the Exchange Act. [ ]

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. [ ]

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

Issuer's  revenues for the fiscal year ended September 30, 2006 were $1,070,141.
Aggregate  market  value  of the  voting  stock  held by  non-affiliates  of the
registrant at December 12, 2006 was approximately $103,248,000.

There were 85,642,364 shares of common stock of the registrant outstanding as of
December 12, 2006.

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


                                       1
<PAGE>

                                TABLE OF CONTENTS


                                                                           Page
                                                                            No
                                                                           ----

PART I.

Item 1.    Description of Business............................................3

Item 2.    Description of Property...........................................11

Item 3.    Legal Proceedings.................................................11

Item 4.    Submission of Matters to a Vote of Security Holders...............12

PART II.

Item 5.    Market for Common Equity, Related Stockholder Matters
           and Small Business Issuer Purchases of Equity Securities..........12

Item 6.    Management's Discussion and Analysis or Plan of Operation.........14

Item 7.    Financial Statements..............................................28

Item 8.    Changes In and Disagreements with Accountants on
           Accounting and Financial Disclosure...............................28

Item 8A.   Controls and Procedures...........................................28

Item 8B.   Other Information.................................................29

PART III

Item 9.    Directors, Executive Officers, Promoters and Control
           Persons; Compliance with Section 16 (a) of the
           Exchange Act......................................................29

Item 10.   Executive Compensation............................................32

Item 11.   Security Ownership of Certain Beneficial Owners
           and Management and Related Stockholder Matters....................34

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

Item 13.   Exhibits..........................................................38

Item 14.   Principal Accountant Fees and Services............................39

Signatures...................................................................40


                                       2
<PAGE>

                                     PART I

Item 1.    Description of Business

General

RemoteMDx, Inc. ("RemoteMDx" or the "Company") markets and sells patented
wireless location technologies and related monitoring services, and develops,
markets and sells personal security, senior supervision, and monitoring
services. The RemoteMDx products and monitoring services feature wireless
products that utilize GPS and cellular technologies in conjunction with a
monitoring center. 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 developed a tracking device, TrackerPAL, which is being 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 market event or criminal activity respectively. 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. Similarly, law enforcement officials will be able to monitor the
location of offenders and parolees wearing the TrackerPAL product.

The Company's primary health monitoring market consists of approximately 35
million Americans over the age of sixty-five. Of these 35 million seniors, it is
estimated that 9.7 million currently live alone. However, in most cases, the
Company anticipates that the senior customers will not purchase the Company's
products for themselves. Instead, based on the Company's experience, the Company
believes that 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 approximately 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 has developed TrackerPAL, a wireless device that
works in conjunction with our monitoring center.

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 future
              as a percentage of total sales.

         o    Monitoring Activation - We sell our MobilePAL(TM) and lease our
              TrackerPAL devices as part of a monitoring contract.

         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 Matsushita Electric Works ("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.

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 market, the parolee and probation market, and the health monitoring
industries.

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.


                                       3
<PAGE>

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 Global Positioning Satellite ("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. The monitoring center and its related services also help us serve
our customers in the criminal justice 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. No
services were performed by MEW during fiscal year 2006.

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. We look to expand our sales of these products and services by
relying on and establishing our distribution network. In fiscal year 2005,
approximately 34% of our revenues were derived from the sale of PAL products and
services. In fiscal year 2006, approximately 37% of our revenues were derived
from the sale of MobilePAL and TrackerPAL products and services. We expect to
see this percentage to increase in the future as we pursue our business plan to
emphasize these services. This sales effort will be focused on the
parole/probation market and to a lesser extent the Personal Emergency Response
System ("PERS") industry.

Our PERS 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.

Under our current business model, our customers own our MobilePAL devices and
lease our TrackerPAL devices. The customer can terminate the service by sending
a written cancellation notice or by returning the MobilePAL device to us.
TrackerPAL devices are on a long-term contract and can only be cancelled as the
contract expires. 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

                                       4
<PAGE>

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. In 2003 the total
adult correctional population, including those incarcerated and those being
supervised in the community, was approximately 6.9 million and growing at the
rate of 2.4% per year. This equaled approximately 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").

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
the parolee directly 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

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, the 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.


                                       5
<PAGE>

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.

During the year ended September 30, 2006, we spent $2,087,802 on research and
development. This compares to $1,766,791 spent on research and development for
the year ended September 30, 2005.

TrackerPAL

We have worked with nexAira, Inc. ("nexAira") to develop 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 required the design and development
of four devices:

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

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 is
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 is able to guide emergency services to the caller's
location.



                                       6
<PAGE>

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;

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

         o    Ability to track device online;

         o    Active Monitoring;

         o    Enhanced GPS/GSM location;

         o    Web based real-time tracking;

         o    Inclusion and exclusion alarms; and

         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.


                                       7
<PAGE>

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 Global System Mobile (GSM)
              and AMPS (analog service).

         o    Rechargeable units.

         o    Alarm when not in proximity of base unit.

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.

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 six patents pending and one application 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>
Emergency Phone With Single Button activation                11/174,191                6/30/05          Responded to Office
                                                                                                              Action

Remote Tracking and Communication Device                     11/202,427                8/10/05               Pending

Remotely Controllable Thermostat                              6,260,765                7/17/01                Issued

Interference Structure for Emergency Response
System Wristwatch                                             6,366,538                 4/2/02                Issued

Emergency Phone with Single Button Activation                 6,636,732               10/21/03                Issued

Emergency Phone with Alternate Number Calling
Capability                                                    7,092,695                8/15/06                Issued
</TABLE>

                                       8
<PAGE>
<TABLE>
<CAPTION>
<S>                                                          <C>                       <C>                   <C>
Emergency Phone for Automatically Summoning                   6,226,510                 5/1/01                Issued
Multiple Emergency Response Services

Combination Emergency Phone and Personal Audio
Device                                                        6,285,867                 9/4/01                Issued

Panic Button Phone                                            6,044,257                3/28/00                Issued

Alarm and Alarm Management System for Remote
Tracking Devices                                             11/489,992                7/14/06               Pending

A Remote Tracking Device and a System and Method
for Two-Way Voice Communication Between Device and
a Monitoring Center                                          11/486,989                7/14/06               Pending

A Remote Tracking System with a Dedicated
Monitoring Center                                            11/486,976                7/14/06               Pending

Remote Tracking System and Device with Variable
Sampling                                                     11/486,991                7/14/06               Pending
</TABLE>

We also own the following Trademarks:

             Mark            Application   Registration   Status/Next Action
                               Number         Number
------------------------------------------------------------------------------
MOBILE911                    75/615,118     2,437,673        Registered
------------------------------------------------------------------------------
MOBILE911                    76/013,886     2,595,328        Registered
SIREN WITH 2-WAY VOICE
COMMUNICATION & Design
------------------------------------------------------------------------------
WHEN EVERY SECOND MATTERS    76/319,759     2,582,183        Registered
------------------------------------------------------------------------------
MOBILEPAL                    78/514,031     3,035,577        Registered
------------------------------------------------------------------------------
HOMEPAL                      78/514,093     3,041,055        Registered
------------------------------------------------------------------------------
PAL SERVICES                 78/514,514                       Pending
------------------------------------------------------------------------------
REMOTEMDX                    78/561,796                     Allowed-Awaiting
                                                            Statement of Use
------------------------------------------------------------------------------
TRACKERPAL                   78/843,035                       Pending
------------------------------------------------------------------------------
MOBILE911                    78/851,384                       Pending
------------------------------------------------------------------------------

                                       9
<PAGE>

Strategic Relationships

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

         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.

         Dynamic Source Manufacturing

Dynamic Source Manufacturing ("DSM") located in Calgary, Alberta, Canada is an
electronics manufacturing company which delivers a full range of services to its
clients. From quickturn prototyping to high volume turnkey manufacturing, DSM
has the resources available to manufacture all types of printed circuit boards.
DSM manufactures of the Company's TrackerPAL product.

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 our 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.

         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.

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.

         o    ISecuretrac Inc., Omaha, NE - This company supplies electronic
              monitoring equipment for tracking and monitoring persons on
              pretrial release, probation, parole, or work release.

         o    Sentinel Security and Communications, Inc., Rochester NY- This
              company supplies monitoring and supervision solutions for the
              offender population.

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

                                       10
<PAGE>

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, offender
tracking and diagnostic markets 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 2006, one customer accounted for more than 10% of sales.
Fisher Scientific accounted for approximately 21% ($228,437) of sales. The loss
of this customer could result in lower revenues and limit the cash available to
grow our business and to achieve profitability. We have no arrangements or
contracts with this customer that would require them to purchase a specific
amount of product from us.

Dependence on Major Suppliers

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. In the year ended September 30, 2006, the Company has entered
into several agreements with other cellular organizations to provide cellular
services. The costs to the Company during years ended September 30, 2006 and
2005 were approximately $290,000 and $103,900, respectively.

The Company has established a relationship with Dynamic Source Manufacturing
(DSM) to manufacture the TrackerPAL device. All monitoring leased equipment has
been manufactured by DSM. Should the relationship between DSM and Company cease,
the Company would need to find another company to manufacture the device which
could limit the ability to lease additional monitoring equipment.

Employees

As of December 12, 2006, the Company had 97 full time employees and 2 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

We entered into a 40-month lease for approximately $17,100 per month, in March
2005, consisting of approximately 11,400 square feet of office space at 150 West
Civic Center Drive, Sandy Utah. This facility serves as our monitoring center
and corporate headquarters. We moved into these facilities during the fourth
fiscal quarter of 2005.

We also have 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. This lease has been
renewed and now expires in November 2010 with monthly base rent of $5,750,
subject to annual adjustments according to changes in the Consumer Price Index.

Management believes that these facilities are efficient to meet our needs for
the foreseeable future.

Item 3.  Legal Proceedings

Michael Sibbet and HGR Enterprises v. RemoteMDx and SecureAlert, Third Judicial


                                       11
<PAGE>

District Court, Salt Lake County, State of Utah, Civil No. 060915336. On
September 20, 2006, Plaintiffs Michael Sibbet and HGR Enterprises brought an
action in Utah state court against RemoteMDx and SecureAlert. The suit alleges
that the Company and SecureAlert wrongfully terminated the plaintiffs, and
includes causes of action for breach of contract, breach of the implied covenant
of good faith and fair dealing, tortuous interference with contract and
prospective economic relations, unjust enrichment, and injunctive relief. The
plaintiffs seek damages of approximately $264 million over five years, plus the
value of converting 50% of $264 million into shares of our common sock at $0.60
per share, plus punitive damages of approximately $1 billion. The plaintiffs'
motion for temporary restraining order was denied by the Court in its entirety
on September 28,2006. SecureAlert's and RemoteMDx's responses to the Complaint
were filed on October 10, 2006. The litigation is at an early stage and
discovery has not yet commenced. The Company has had preliminary settlement
discussions but can make no representations of the possible outcome. The Company
and SecureAlert intend to defend themselves vigorously against this action.

SecureAlert, Inc. v. The Jaxara Group, LLC, et al., Case No. 2:06CV00098, United
States District Court for the District of Utah: On February 1, 2006, plaintiff
SecureAlert, Inc. ("SecureAlert") filed a Complaint against defendants Jaxara
Group, LLC, Daniel Boice and Alexander Petty (collectively, "Jaxara") in the
United States District Court for the District of Utah. The action arises out of
contracts between SecureAlert and Jaxara for certain software programming work
to be performed by Jaxara. Based upon the foregoing, SecureAlert's Complaint
alleges causes of action for: (1) Breach of Contract; (2) Breach of Express
Warranty; (3) Breach of the Implied Covenant of Good Faith and Fair Dealing; (4)
Fraud; (5) Constructive Fraud; (6) Declaratory Relief and (7) Federal Unfair
Competition. Jaxara thereafter on or about April 10, 2006 answered the Complaint
and filed counterclaims against SecureAlert for (1) Breach of Contract; (2)
Breach of the Implied Covenant of Good Faith and Fair Dealing; (3) and Unjust
Enrichment. The litigation is at an early stage of discovery. SecureAlert
intends to vigorously prosecute its claims against Jaxara and to defend itself
against Jaxara's counterclaims.

Strategic Growth International. Inc. et al. v. RemoteMDx, Inc., Case No. 06 Civ.
3915, United States District Court Southern District of New York: On May 23,
2006, plaintiffs Strategic Growth International, Inc., Richard E. Cooper and
Stanley S. Altschuler (collectively, the "SGI Defendants") filed a Complaint
against defendant RemoteMDx, Inc. ("RMDx") in the United States District Court
Southern District of New York. The action arises out of a contract between the
SGI Defendants and RMDx for certain financial relations services to be performed
by SGI. Based upon the foregoing, the SGI Defendants' Complaint alleges a cause
of action for: Breach of Contract. RMDx thereafter on September 29, 2006
answered the Complaint and filed counterclaims against SecureAlert for (1)
Breach of Contract, (2) Rescission; (3) and Declaratory Judgment. The litigation
is at an early stage of discovery. RMDx intends to vigorously defend itself
against the SGI Defendants' claim and to prosecute its counterclaims against the
SGI Defendants.

Mr. Joseph L. Markham v. RemoteMDx, Inc. The Company received a demand letter
from counsel for Mr. Joseph L. Markham dated September 25, 2006. Mr. Markham
contends that he entered into an agreement with the Company to provide investor
relation services in exchange for $20,000 and 100,000 shares of RemoteMDx stock.
Mr. Markham further contends that he has fully performed under the purported
agreement and is owed the above amounts. The Company denies that any such
agreement exists, written or otherwise. To date, the Company is unaware of any
lawsuit having been filed regarding this claim. If such a lawsuit is filed, the
Company intends to defend itself vigorously against such action, and we are
unable to express an opinion with respect to the likelihood of an unfavorable
outcome or to estimate the amount or the range of potential loss should the
outcome be unfavorable.

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

None

                                     PART II


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

Market Information. Our common stock is traded on the OTC Bulletin Board of the
National Association of Securities Dealers, Inc., under the symbol "RMDX.OB."
The following table sets forth, for the fiscal periods indicated the closing
price for our common stock. The sales information is available online at
http://otcbb.com.


                                       12
<PAGE>

                                Closing Price
                                -------------
2005
----
First Quarter                       N/A *
Second Quarter                      N/A *
Third Quarter                       N/A *
Fourth Quarter                      $1.06

2006
----
First Quarter                       $0.90
Second Quarter                      $0.70
Third Quarter                       $1.75
Fourth Quarter                      $1.99


* The Company's common stock began trading on August 25, 2005.

Holders. As of December 12, 2006, there were approximately 1,300 holders of
record of the common stock and approximately 85,642,364 shares of common stock
outstanding. We also have 17,310 shares of Series A preferred stock outstanding,
held by 27 shareholders, convertible into a minimum of approximately 6,404,633
shares of common stock, as well as 53,332 shares of Series B preferred stock
outstanding held by 11 shareholders, that at present are convertible into
approximately 533,320 shares of common stock; and 5,532,369 shares of Series C
preferred stock outstanding, held by approximately 126 share holders,
convertible into approximately 16,597,107 shares of common stock. We also have
granted options and warrants for the purchase of approximately 21,597,392 shares
of common stock. As discussed elsewhere in this report, we may be required to
issue additional shares of common stock or preferred stock to pay accrued
dividends, or to comply with anti-dilution adjustments to the conversion rights
of present or former preferred shareholders.

Dividends. Since incorporation, we have not declared any dividends 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, valued at $200 per share of preferred. We are not
required to pay and do not pay dividends with respect to the Series B Preferred
Stock. Series C preferred stock has an 8% dividend that may be paid in cash or
additional shares of Series C Convertible Preferred Stock at the option of the
Company. During the years ended September 30, 2006 and 2005, the Company
recorded $642,512 and $512,547 in dividends on Series A and C Preferred Stock,
respectively.

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

The issuance of any shares of common stock for any reason will result in
dilution of the equity and voting interests of existing 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 defined in Rule 501
under Regulation D of the Securities Act, and 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.


                                       13
<PAGE>

Subsequent to September 30, 2006, the Company entered into various transactions.
These transactions are described in the Current Report on Form 8-K of the
Company filed with the Commission on November 9, 2006.

On November 9 ,2006, RemoteMDx,Inc. (the"Company"), closed a private placement
of shares of its common stock. The Company sold 3,000,000 shares of its common
stock (the "Shares"), at a purchase price of $2.00 per share, for aggregate
proceeds to the Company of $6,000,000. The Company also issued warrants (the
"Warrants") to purchase up to an additional 7,000,000 shares of the Company's
common stock. The investor was VATAS Holding GmbH.

The Company intends to use the proceeds from the sale of the Shares and the
Warrants for general corporate and working capital purposes.

In connection with the sale of the Shares and the Warrants, the Company granted
registration rights to the purchaser, in connection with which the Company
agreed to file a registration statement to register the resale of the Shares and
shares underlying the Warrants by the purchaser not later than 10 days after the
Company files its annual report for the year ended September 30, 2006. The
Company also agreed to use its best efforts to have the registration statement
declared effective within 30 days of the filing, and to respond within ten days
to any comments from the Securities and Exchange Commission. In the event that
the Company does not (a) have the registration statement filed by the filing
deadline, (b) respond within ten days to any SEC comments, or (c) have the
registration statement effective within 100 days of the filing, the Company is
required to pay a 5% penalty to the investor.

Fiscal Year 2006

During the year ended September 30, 2006, we issued 35,005,811 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    10,739,753 shares were exchanged for debt and accrued interest of
              $7,893,782;

         o    5,846,428 shares were issued for services in the amount of
              $3,983,607;

         o    4,014,916 shares were issued upon the conversion of 10,843 shares
              of Series A Preferred Stock of the Company; and

         o    7,171,380 shares were issued upon the conversion of 1,315,825
              shares of Series B Preferred Stock of the Company;

         o    6,883,334 shares were issued for $7,910,000 in cash;

         o    350,000 shares were issued from the exercise of options.

         o    See note 16 to the financial statements for a discussion of
              financing activities subsequent to September 30, 2006.

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
COMPANY DISCLAIMS ANY OBLIGATION OR INTENTION TO UPDATE ANY FORWARD- LOOKING
STATEMENT.

                                       14
<PAGE>

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,
                                                     2006              2005
                                              ----------------------------------
        Net sales                              $    1,070,141    $      861,868
        Cost of goods sold                            940,132           823,752
                                              ----------------------------------
           Gross profit (loss)                        130,009            38,116

        Research and development expenses           2,087,802         1,766,791

        Selling, general, and
         administrative expenses                   16,025,373         7,230,222
                                              ----------------------------------
           Loss from operations                   (17,983,166)       (8,958,897)
                                              ----------------------------------
        Other income (expenses):
           Derivative valuation gain (loss)           629,308          (580,626)
      Interest and other income                        97,190             4,570
      Interest expense                             (6,541,077)       (1,448,736)
                                              ----------------------------------
       Net loss                                $  (23,797,745)   $  (10,983,689)
                                              ==================================

Fiscal Year Ended September 30, 2006, Compared to Fiscal Year Ended September
30, 2005

Results of Operations

Net Sales

During the fiscal year ended September 30, 2006, the Company had net sales of
$1,070,141 compared to net sales of $861,868 for the fiscal year ended September
30, 2005, an increase of $208,273. This increase is due primarily to the Company
beginning to generate revenue from the TrackerPAL. The Company's experience is
that from time of deployment of the TrackerPAL unit (the moment a TrackerPAL
unit is delivered to a customer) that it may take in excess of 90 days to
receive any cash flow from the deployed unit. During the year ended September
30, 2006, SecureAlert provided net sales of $391,600 compared to net sales of
$289,236 for the year ended September 30, 2005, an increase of approximately
36%. Net sales by Volu-Sol Reagents Corporation ("Reagents") for the fiscal year
ended September 30, 2006, were $678,541 compared to $572,632 in fiscal year
2005, an increase of approximately 18%. The increase in sales is due primarily
to focusing on existing customers.

Cost of Goods Sold

During the fiscal year ended September 30, 2006, cost of goods sold totaled
$940,132, compared to cost of goods sold in fiscal 2005 of $823,752. This
increase is due primarily to the increase in sales of TrackerPAL. SecureAlert's
cost of goods sold totaled $569,664, or 145% of its net sales in 2006, compared
to $437,224, or 151% for fiscal 2005. Reagents' cost of goods sold totaled
$370,468 in fiscal 2006, compared to $386,528 for the year ended September 30,
2005, a decrease of $16,060 or approximately 4% from the prior fiscal year. The
increase in overall margins of the Company from 4% in fiscal year 2005 to 12% in
fiscal year 2006 is attributable primarily to the Company now having an
established distributor network.

Research and Development Expenses

During the fiscal year ended September 30, 2006, the Company incurred research
and development expenses of $2,087,802 compared to similar expenses in 2005
totaling $1,766,791. This increase is due primarily to expenses associated with
the development of the TrackerPAL device for the parolee market. We expect
research and development expenses to continue in the future due to ongoing
research and development related to our TrackerPAL, WatchPAL, and MobilePAL 3000
products.


                                       15
<PAGE>

Selling, General and Administrative Expenses

During the fiscal year ended September 30, 2006, the Company's selling, general
and administrative expenses totaled $16,025,373, compared to $7,230,222 for the
fiscal year ended September 30, 2005. This increase of $8,795,151 is
attributable primarily to an increase 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. In fiscal year 2006 these non-cash expense items totaled
approximately $8,454,000 compared to approximately $2,750,000 during the fiscal
year 2005. In addition to the non-cash expense associated with the grant of
options and issuance of shares, selling, general and administrative expenses for
fiscal year ended September 30, 2006 primarily consists of the following
expenses: advertising ($118,241), consulting ($1,037,792), insurance ($312,830),
investment banking fees ($517,606), legal, accounting, and professional fees
($983,978), payroll ($2,102,504), rent ($227,181), and travel expenses
($671,542).

Other Income and Expense

During the fiscal year ended September 30, 2006, interest expense was
$6,541,077, compared to $1,448,736 in fiscal year 2005. The increase of
$5,092,341 resulted primarily from the issuance of common stock and options
granted in connection with debt instruments. These debt instrument were
converted throughout the year ended September 30, 2006 and contained unamortized
debt discounts which were fully expensed upon conversion. During the year ended
September 30, 2006, the Company incurred $6,229,485 of non-cash interest
expense. The Company had interest income of $30,051 and other income of $67,139
during fiscal year 2006, compared to interest income of $1,720 and other income
of $2,850 during fiscal year 2005. This increase in other income is due to
settling debts in prior fiscal years at less than the expense incurred.

Net Loss

The Company had a net loss for the year ended September 30, 2006, totaling
$23,797,745, compared to a net loss of $10,983,689 for fiscal year 2005. This
increase is due primarily to expenses associated with the development of the
TrackerPAL device for parolees, related increase in selling, general and
administrative expenses and interest expense.

Liquidity and Capital Resources

September 30, 2006

The Company has not historically financed operations entirely from cash flows
from operating activities. During the year ended September 30, 2006, the Company
supplemented cash flows with funding from the sale of equity securities and to a
much lesser extent borrowings from a related party.

At September 30, 2006, the Company had unrestricted cash of $5,872,529, compared
to cash of $416,036 at September 30, 2005. At September 30, 2006, the Company
had a working capital of $2,410,471, compared to a working capital deficit of
$5,217,466 at September 30, 2005. The change in working capital primarily
resulted from the conversion of debt into shares of common stock and from the
sale of common and preferred stock.

During fiscal year 2006, the Company's operating activities used cash of
$11,397,627, compared to $3,839,236 cash used in 2006.

Investing activities for the year ended September 30, 2006, used cash of
$3,333,983, compared to $303,273 of cash used by investing activities in the
year ended September 30, 2005. Cash used in 2006 was expended primarily for
property, equipment and monitoring equipment purchases.

Financing activities for the year ended September 30, 2006, provided $20,188,103
of net cash compared to $4,496,442 of net cash provided from those activities in
the year ended September 30, 2005.

The Company had net payments of $635,073 on a related-party line of credit and
payments of $2,047,575 on long and short-term notes payable. The Company had
proceeds from the sale of SecureAlert Series A preferred stock of $600,000,
$7,439,558 from the issuance of RemoteMDx Series C preferred stock and
$7,910,000 from the issuance of common stock. In addition, the Company had
$6,164,293 from the issuance of debt and $252,000 from the exercise of options
and warrants.


                                       16
<PAGE>

During the fiscal year 2006, the Company incurred a net loss of $23,797,745 and
negative cash flows from operating activities of $11,397,627, compared to a net
loss of $10,983,689 and negative cash flow of $3,839,236 for the year ended
September 30, 2005. As of September 30, 2006, the Company's working capital was
$2,410,471 and the Company had a net tangible stockholders' equity of $2,351,200
and accumulated deficit of $106,726,375.

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 is to focus on sales of the TrackerPAL product.
There can be no assurance that revenues will increase rapidly enough to payback
operating losses and payback debts. Likewise, 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 increase
revenues or obtain additional financing, it will be unable to continue the
development of its products and may have to cease operations.

The following chart includes principal balances and interest rates applicable to
borrowings (net of any applicable debt discounts) as of September 30, 2006. See
note 16 of the financial statements for a complete discussion of financing
transactions subsequent to September 30, 2006.

      Description of      Annual Interest   Maturity Date           Amount
        Obligation              Rate                          Owing at 9/30/06

     Advances from ADP
     Management                  5%         July 31, 2007     $       44,549(1)
     Note to Shareholder         5%          January 2004     $       84,838
     Note to Shareholder         5%          January 2004     $       84,838
     Bank Line of Credit        8.25%       June 30, 2007     $    3,897,111
                                                              -----------------
     Totals                      N/A             N/A          $    4,111,336
                                                              =================

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

Notes:

         (1)  By agreement dated August 19, 2004, ADP Management Corporation
              ("ADP Management"), an entity owned and controlled by Messrs.
              Derrick and Dalton, provided a $500,000 line-of-credit to the
              Company. During the year ended September 30, 2006, the
              line-of-credit increased by $662,007 due to a monthly management
              fee, that includes the salaries of Mr. Derrick and Mr. Dalton,
              owed to ADP Management and expenses incurred by ADP Management
              that are reimbursable by the Company. The Company made cash
              repayments during the year of $635,073.

Contractual Obligations

The following table summarizes the Company's outstanding borrowings and
long-term contractual obligations at September 30, 2006, and the periods in
which these obligations are scheduled to be paid in cash:



                                       17
<PAGE>
<TABLE>
<CAPTION>
                                                  Payments Due By Period
                             ------------------------------------------------------------

                                             Less Than 1    1 - 3      3 - 5   More than
  Contractual Obligations          Total        Year        Years      Years    5 Years
-----------------------------------------------------------------------------------------
<S>                          <C>             <C>          <C>        <C>       <C>
Notes from schedule above    $   4,111,336   $4,111,336   $      -   $     -   $      -

Operating leases                 1,310,785      507,959    723,430    79,396          -
                             ------------------------------------------------------------
Total                        $   5,422,121   $4,619,295   $723,430   $79,396          -
                             ============================================================
</TABLE>

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 2 to the audited financial statements for the fiscal year ended
September 30, 2006 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.


                                       18
<PAGE>

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, parolee sales 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, 2006 and 2005 the provision for sales returns was not material.
Amounts received in advance of shipment are recorded as deferred revenue. The
related freight costs and supplies directly associated with shipping products to
customers are included as a component of cost of goods sold.

Impairment of Long-lived Assets

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 Financial Accounting Standards Board ("FASB") issued FASB
Statement No. 123 (revised 2004), "Shared-Based Payment" ("Statement 123(R)").
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 share-based
compensation issued to employees in the statement of operations. 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.


                                       19
<PAGE>

Statement 123(R) is effective as of October 1, 2006 for the Company. All public
companies must use either the modified prospective or the modified retrospective
transition method. 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.

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
intention of management's views and assumptions as of the time the statements
are made and we disclaim any 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
year ended September 30, 2006 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 2006, the Company incurred a net loss of $23,797,745, negative
cash flow from operating activities of $11,397,627, and an accumulated deficit
of $106,726,375.

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 is to focus on sales of the TrackerPAL product.
There can be no assurance that revenues will increase rapidly enough to payback
operating losses and payback debts. Likewise, 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 increase
revenues or 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

                                       20
<PAGE>

         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 23% 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. Governmental
organizations may not use our products unless they determine, based on
experience, advertising or other factors, that those products are a preferable
alternative to currently available methods of tracking. In addition, decisions
to adopt new tracking 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 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. 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.

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 2006, one customer accounted for more than 10% of sales.
Fisher Scientific accounted for approximately 21% ($228,437) of sales. The loss
of this customer 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 this customer that would require them to purchase a specific
amount of product from us.

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.

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.


                                       21
<PAGE>

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. 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.

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.


                                       22
<PAGE>

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
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. 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 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.


                                       23
<PAGE>

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
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 received several additional patents; we have also applied for several
additional 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 seven 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

                                       24
<PAGE>

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 inasmuch as the Company has
offered and sold shares of common stock or securities convertible into shares of
common stock at prices below the initial conversion rate of $3.00 per common
share, unless those rights are waived.

The investors in our Series B preferred stock have the right to an automatic
adjustment of the conversion price of the Series B preferred shares held by them
in the event we sell shares of common stock or securities convertible into
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. We
have also issued promissory notes that are convertible into shares of common
stock at conversion prices below the original Series B conversion price of
$3.00. Certain holders of the Series B preferred stock have waived their right
to receive the adjustment but there is no assurance that any holder of Series B
preferred stock will waive those rights as to issuances of common stock.
Accordingly, we may be required to issue additional shares of common stock to
comply with anti-dilution adjustments to the conversion rights of present or
former preferred shareholders. 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
or conversion of outstanding notes or debentures, increases the potential for
short sales.

Downward pressure on the market price of our common stock that likely would
result from issuances of common stock upon conversion of preferred stock or
convertible debentures, or upon 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 or in
shares of common 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
or common 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

                                       25
<PAGE>

additional shares of Series A preferred stock or common 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.

Payment of dividends in additional shares of Series C preferred stock or in
shares of common 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
or common 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 or common 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 its 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
its 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
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

                                       26
<PAGE>

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.

The holders of our Series C 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.

Series C preferred stock has an 8% dividend that may be paid in cash or
additional shares of Series C Convertible Preferred Stock at the option of the
Company. During the years ended September 30, 2006 and 2005, the Company
recorded $294,379 and $0 in dividends on Series C Preferred Stock, respectively.
One share of Series C Convertible Preferred Stock is convertible into three
shares of the Company's common stock, subject to adjustments.

The holders of record of the shares of Series C Preferred Stock, exclusively and
as a separate class, shall be entitled to elect two directors of the Board of
Directors of the Corporation (the "Series C Directors"). Any director elected as
provided in the preceding sentence may be removed without cause by, and only by,
the affirmative vote of the holders of the shares of the class or series of
capital stock entitled to elect such director or directors, given either at a
special meeting of such stockholders duly called for that purpose, or by written
consent. The holders of record of the shares of Common Stock and of any other
class or series of voting stock (including the Series C Preferred Stock),
exclusively and voting together as a single class, shall be entitled to elect
the balance of the total number of directors of the Corporation. At any meeting
held for the purpose of electing a director, the presence in person or by proxy
of the holders of a majority of the outstanding shares of the class or series
entitled to elect such director shall constitute a quorum for the purpose of
electing such director. A vacancy in any directorship filled by the holders of
any class or series shall be filled only by vote of the holders of such class or
series or by any remaining director or directors elected by the holders of such
class or series pursuant to this Section.


                                       27
<PAGE>

Item 7.  Financial Statements

Our audited financial statements and associated notes are included and set forth
on pages F-3 through F-41 of this report.

RemoteMDx, Inc.
Consolidated Financial Statements
September 30, 2006 and 2005

Index to Consolidated Financial Statements

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


                                                                          Page
                                                                          ----

Report of Independent Registered Public Accounting Firm                   F - 3


Consolidated Balance Sheet                                                F - 4


Consolidated Statements of Operations                                     F - 6


Consolidated Statements of Stockholders' Deficit                          F - 7


Consolidated Statements of Cash Flows                                     F - 11


Notes to Consolidated Financial Statements                                F - 14





<PAGE>


HANSEN, BARNETT & MAXWELL
             A Professional Corporation
             CERTIFIED PUBLIC ACCOUNTANTS
             5 Triad Center, Suite 750
             Salt Lake City, UT 84180-1128
             Phone: (801) 532-2200
             Fax: (801) 532-7944
             www.hbmcpas.com



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have audited the accompanying  consolidated balance sheet as of September 30,
2006  and the  related  consolidated  statements  of  operations,  stockholders'
deficit and cash flows of RemoteMDx,  Inc., and subsidiaries (the Company),  for
the years  ended  September  30,  2006 and 2005.  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 audit.

We conducted  our audit 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  audit  provides  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 Remote
MDx,  Inc.  as of  September  30,  2006 and the  consolidated  results  of their
operations  and cash flows for the years  ended  September  30, 2006 and 2005 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 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/ HANSEN, BARNETT & MAXWELL


                                                            Salt Lake City, Utah
                                                               December 14, 2006




                                      F-3

<PAGE>
                                                                 RemoteMDx, Inc.
                                                      Consolidated Balance Sheet
                                                              September 30, 2006
--------------------------------------------------------------------------------


            Assets
      -------------------

Current assets:
  Cash                                                           $    5,872,529
  Accounts receivable, net of allowance for doubtful
       accounts of $8,000                                               229,428
  Interest receivable                                                    15,604
  Inventories, net of reserve of $54,977 (note 2)                        39,276
  Prepaid expenses and other assets (note 3)                          2,504,500
                                                                 ---------------

       Total current assets                                           8,661,337

  Property and equipment, net of accumulated depreciation
       and amortization of $626,581 (note 2)                          1,343,031
  Monitoring equipment, net of accumulated depreciation
       of $102,115 (note 4)                                           2,139,685
  Other assets                                                           48,013
                                                                 ---------------

       Total assets                                              $   12,192,066
                                                                 ===============




--------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.                 F-4



<PAGE>
                                                                 RemoteMDx, Inc.
                                                      Consolidated Balance Sheet
                                                              September 30, 2006
                                                                       Continued
--------------------------------------------------------------------------------

        Liabilities and Stockholders' Deficit
        -------------------------------------

 Current liabilities:
   Bank line of credit (note 6)                                  $    3,897,111
   Accounts payable                                                   1,696,165
   Accrued expenses (note 5)                                            404,671
   Deferred revenues                                                     17,817
   Related party line of credit (note 7)                                 44,549
   Notes payable (note 8)                                               169,676
   Dividends payable (note 11)                                           20,877
                                                                 ---------------
        Total current liabilities                                     6,250,866

        Total liabilities                                             6,250,866

 Commitments and contingencies (note 15)

 Series A Preferred stock of SecureAlert, Inc. (note 11)              3,590,000

 Stockholders' deficit:
   Series A convertible preferred stock; 10%
     dividend, non-voting, non-participating; $.0001
     par value, $200 stated value; 40,000 shares
     designated; 17,310 shares issued and outstanding
     (aggregate liquidation preference of $46,045)                            2
   Series B convertible preferred stock; $.0001 par
        value; 2,000,000 shares designated; 53,332
        shares issued and outstanding (aggregate
        liquidation preference of $159,996)                                   5
   Series C convertible preferred stock; $.0001
        par value; 7,357,144 shares designated;
        5,532,369 shares issued and outstanding
        (aggregate liquidation preference of $9,294,380)                    553
   Common stock, $.0001 par value, 175,000,000 shares
        authorized; 80,134,853 shares issued and
        outstanding                                                       8,013
   Additional paid-in capital                                       111,718,090
   Deferred compensation                                             (2,649,088)
   Accumulated deficit                                             (106,726,375)
                                                                 ---------------

        Total stockholders' deficit:                                  2,351,200
                                                                 ---------------

        Total liabilities and stockholders' deficit              $   12,192,066
                                                                 ---------------



--------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.                F-5



<PAGE>
                                                                 RemoteMDx, Inc.
                                           Consolidated Statements of Operations
                                                       Years Ended September 30,
--------------------------------------------------------------------------------

                                                       2006             2005
                                                 -------------------------------

Sales, net                                       $     1,070,141  $     861,868
Cost of goods sold                                       940,132        823,752
                                                 -------------------------------
       Gross profit                                      130,009         38,116
                                                 -------------------------------

Operating expenses:
  Research and development                             2,087,802      1,766,791
  Selling, general and administrative
     (including $8,453,840 and $2,742,837
     of compensation expense paid in stock
     or stock options / warrants,
     respectively)                                    16,025,373      7,230,222
                                                 -------------------------------
       Loss from operations                          (17,983,166)    (8,958,897)
                                                 -------------------------------

Other income (expense):
  Derivative valuation gain (loss)                       629,308       (580,626)
   Interest income                                        30,051          1,720
   Interest expense
    (including $6,229,485 and $1,387,143
    paid in stock and warrants,
    respectively)                                     (6,541,077)    (1,448,736)
   Other income                                           67,139          2,850
                                                 -------------------------------
       Net loss                                      (23,797,745)   (10,983,689)
Series A and C preferred stock dividends                (642,512)      (512,547)
                                                 -------------------------------
Net loss applicable to common shareholders       $   (24,440,257) $ (11,496,236)
                                                 -------------------------------

Net loss per common share - basic and diluted    $         (0.44) $       (0.33)
                                                 -------------------------------

Weighted average shares - basic and diluted           55,846,000     34,318,000



--------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.                 F-6

<PAGE>
<TABLE>
<CAPTION>

                                                                                       RemoteMDx, Inc.
                                                      Consolidated Statements of Stockholders' Deficit
                                                               Years Ended September 30, 2005 and 2006
------------------------------------------------------------------------------------------------------

                                                      Preferred Stock
                                              Series A            Series B             Common Stock
                                          Shares    Amount     Shares    Amount     Shares      Amount
                                        --------------------------------------------------------------
<S>                                        <C>       <C>     <C>         <C>      <C>          <C>
Balance at October 1, 2004                 23,349    $ 2     1,835,824   $  184   31,395,238   $ 3,140

Issuance of common stock for:
  Conversion of Series A preferred
    stock                                  (2,578)     -             -        -      953,895        95
  Conversion of Series B preferred
    stock                                       -      -      (466,667)     (47)   2,592,595       259
  Debt and accrued interest                     -      -             -        -    3,995,154       400
  Services                                      -      -             -        -    5,148,641       515
  Assumption of $563,500 of debt and
    accrued interest by related party           -      -             -        -    1,043,519       104
Issuance of warrants for:
  Debt                                          -      -             -        -            -         -
  Services                                      -      -             -        -            -         -

Amortization of deferred consulting
  and financing fees                            -      -             -        -            -         -

Preferred stock dividend                        -      -             -        -            -         -

Record beneficial conversion feature
  on notes                                      -      -             -        -            -         -

Issuance of Series A preferred stock
  for accrued dividends                         -      -             -        -            -         -

Preferred stock dividends paid with
  Series A preferred stock                  5,236      1             -        -            -         -

Subscription receivable                         -      -             -        -            -         -

Net loss                                        -      -             -        -            -         -
                                        --------------------------------------------------------------
Balance at September  30, 2005             26,007    $ 3     1,369,157   $  137   45,129,042   $ 4,513
                                        ==============================================================


------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.                                       F-7
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                                                                           RemoteMDx, Inc.
                                                          Consolidated Statements of Stockholders' Deficit
                                                                   Years Ended September 30, 2005 and 2006
                                                                                                 Continued
----------------------------------------------------------------------------------------------------------


                                                               Deferred       Preferred
                                                               Financing        Stock       Consolidated
                                                                 and        Subscriptions    Accumulated
                                                 APIC         Consulting     Receivables      Deficit
                                             -------------------------------------------------------------
<S>                                          <C>             <C>             <C>            <C>
                                             $  66,329,339   $    (331,312)  $          -   $ (69,480,005)


Conversion of Series A preferred stock                 (95)              -              -               -
Conversion of Series B preferred stock                (213)              -              -               -
Debt and accrued interest                        2,645,499      (1,970,910)             -               -
Services                                         2,822,395      (1,755,000)             -               -
Assumption of $563,500 of debt and accrued
    interest by related party                      641,054               -              -               -

Debt                                               267,174               -              -               -
Services                                         1,582,171        (214,776)             -               -


fees                                                     -         908,872              -               -

                                                  (512,547)              -              -               -

                                                 1,300,500               -              -               -


                                                 1,038,346               -              -               -

                                                         -               -              -               -
preferred stock

                                                         -               -       (504,900)              -

                                                         -               -              -     (10,983,689)

                                             ------------------------------------------------------------
                                             $  76,113,623   $  (3,363,126)  $   (504,900)  $ (80,463,694)
                                             ============================================================



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

<PAGE>
<TABLE>
<CAPTION>

                                                                                                         RemoteMDx, Inc.
                                                                        Consolidated Statements of Stockholders' Deficit
                                                                                 Years Ended September 30, 2005 and 2006
                                                                                                               Continued
------------------------------------------------------------------------------------------------------------------------

                                                       Preferred Stock
                                                 Series A          Series B           Series C           Common Stock
                                             Shares   Amount    Shares    Amount   Shares    Amount    Shares    Amount
                                           -----------------------------------------------------------------------------
<S>                                        <C>        <C>     <C>        <C>     <C>           <C>   <C>         <C>
Balance at October 1, 2005                  26,007    $  3    1,369,157  $  137          -       -   45,129,042  $ 4,513

Issuance of common stock for:
  Conversion of Series A Preferred stock   (10,843)     (1)           -       -          -       -    4,014,916      401
  Conversion of Series B Preferred stock         -       -   (1,315,825)   (132)         -       -    7,171,380      717
  Services                                       -       -            -       -          -       -    5,846,428      585
  Cash                                           -       -            -       -          -       -    6,883,334      688
  Exercise of options and warrants               -       -            -       -          -       -      350,000       35

Issuance of Series C Preferred Stock for:
  Debt and accrued interest                      -       -            -       -    617,352      62   10,739,753    1,074

Issuance of warrants for:
  Debt                                           -       -            -       -          -       -            -        -
  Services                                       -       -            -       -          -       -            -        -
  SecureAlert Series A Preferred stock           -       -            -       -          -       -            -        -

Amortization of deferred consulting
  and financing fees                             -       -            -       -          -       -            -        -

Issuance of RemoteMDx Series C Preferred
  stock for Cash                                 -       -            -       -  4,739,788     474            -        -

Record beneficial conversion feature
  on notes                                       -       -            -       -          -       -            -        -

Issuance of Series A & C Preferred stock
  for dividends                              2,146       -            -       -    175,226      17            -        -

Preferred stock dividend on SecureAlert
  Series A preferred stock                       -       -            -       -          -       -            -        -

Subscription receivable                          -       -            -       -          -       -            -        -

Net loss                                         -       -            -       -          -       -            -        -

                                           -----------------------------------------------------------------------------
Balance at September  30, 2006              17,310    $  2       53,332  $    5  5,532,366   $ 553   80,134,853  $ 8,013
                                           =============================================================================


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

<PAGE>
<TABLE>
<CAPTION>

                                                                                           RemoteMDx, Inc.
                                                          Consolidated Statements of Stockholders' Deficit
                                                                   Years Ended September 30, 2005 and 2006
                                                                                                 Continued
----------------------------------------------------------------------------------------------------------


                                                               Deferred       Preferred
                                                               Financing        Stock       Consolidated
                                                                 and        Subscriptions    Accumulated
                                                 APIC         Consulting     Receivables      Deficit
                                             -------------------------------------------------------------
<S>                                          <C>           <C>            <C>            <C>
Balance at October 1, 2005                   $ 76,113,623  $ (3,363,126)  $  (504,900)   $  (80,463,694)

Issuance of common stock for:
 Conversion of Series A Preferred stock              (400)            -             -                 -
 Conversion of Series B Preferred stock              (586)            -             -                 -
 Services                                       3,983,022    (1,935,000)            -                 -
 Cash                                           7,909,312             -             -                 -
 Exercise of options and warrants                 251,965             -             -                 -

Issuance of Series C Preferred stock
 Debt and accrued interest                      7,892,719    (1,434,550)            -                 -

Issuance of warrants for:
 Debt                                             255,012             -             -                 -
 Services                                       5,108,869    (2,776,889)            -                 -
 SecureAlert Series A Preferred stock                   -             -             -                 -

Amortization of deferred consulting
  and financing fees                                    -     6,860,477             -                 -

Issuance of Remote MDX Series C
  Preferred stock for Cash                      7,439,085             -    (1,712,565)                -

Record beneficial conversion feature
   on notes                                     2,786,364                                    (2,464,936)

Issuance of Series A & C Preferred
  stock for dividends                                 (18)            -             -                 -

Preferred stock dividend on SecureAlert
   Series A preferred stock                       (20,877)            -             -                 -

Subscription receivable                                 -             -     2,217,465                 -

Net loss                                                -             -             -       (23,797,745)
                                             -----------------------------------------------------------------
Balance at September  30, 2006               $111,718,090  $ (2,649,088)  $         -    $ (106,726,375)
                                             =================================================================

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

<PAGE>
<TABLE>
<CAPTION>
                                                                                              RemoteMDx, Inc.
                                                                        Consolidated Statements of Cash Flows
                                                                                    Years Ended September 30,
-------------------------------------------------------------------------------------------------------------

                                                                                 2006               2005
                                                                           ----------------------------------
<S>                                                                        <C>               <C>
Cash flows from operating activities:
   Net loss                                                                $   (23,797,745)  $   (10,983,689)
   Adjustments to reconcile net loss to net cash used in
     operating activities:
       Depreciation and amortization                                               231,982            36,632
       Amortization of debt discount                                             1,223,092           262,427
       Amortization of deferred consulting and financing services                6,826,077           908,872
       Amortization of interest expense related to debt                          1,809,643                 -
       Beneficial conversion feature recorded as interest expense                  321,429           340,000
       Derivative liability valuation                                             (629,308)          580,626
       Common stock issued for services                                          2,048,606         1,347,768
       Common stock issued for interest                                             88,100                 -
       Common stock options and warrants issued to
           board of directors                                                            -           170,138
       Options and warrants issued to consultants for services                   2,366,378           392,380
       Options and warrants issued to related party for services                         -         1,072,051
       Interest income on restricted cash                                            5,628            (3,742)
       Increase in related party line of credit for services                       662,007           752,708
       Changes in operating assets and liabilities:
          Accounts receivable                                                     (132,647)          163,694
          Interest receivable                                                      (15,604)                -
          Inventories                                                                7,300            31,711
          Prepaid expenses and other assets                                     (2,476,280)          (58,729)
          Accounts payable                                                         338,880           649,042
          Accrued liabilities                                                     (275,443)          494,770
          Deferred revenues                                                            278             4,105
                                                                           ----------------------------------
                   Net cash used in operating activities                       (11,397,627)       (3,839,236)
                                                                           ----------------------------------

Cash flows from investing activities:
  Purchase of property and equipment                                            (1,093,690)         (311,730)
  Purchase of monitoring equipment                                              (2,241,800)                -
  Proceeds from the disposal of fixed assets                                         1,507             8,457
                                                                           ----------------------------------
                   Net cash used in investing activities                   $    (3,333,983)  $      (303,273)
                                                                           ----------------------------------


-------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.                                             F-11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                                                                              RemoteMDx, Inc.
                                                                        Consolidated Statements of Cash Flows
                                                                            For the Years Ended September 30,
                                                                                                    Continued
-------------------------------------------------------------------------------------------------------------

                                                                                 2006               2005
                                                                           ----------------------------------
<S>                                                                        <C>               <C>
Cash flows from financing activities:
  Payments under a related-party line of
     credit / advances                                                     $      (635,073)  $      (782,639)
  Payments on a bank line of credit                                                 (3,952)             (102)
  Proceeds from bank line of credit                                              3,900,640                 -
  Decrease in subscription receivable                                              504,900                 -
  Payment on notes payable                                                      (2,043,623)         (197,787)
  Proceeds form the exercise of options and warrants                               252,000                 -
  Proceeds from note payable                                                       517,500                 -
  Proceeds from the issuance of SecureAlert Series A
     Preferred stock                                                               600,000         2,607,746
  Proceeds from the issuance of Series C Preferred stock                         7,439,558                 -
  Proceeds from issuance of debt                                                 1,746,153         2,869,224
  Proceeds from sale of common stock                                             7,910,000                 -
                                                                           ---------------------------------
                   Net cash provided by financing activities                    20,188,103         4,496,442
                                                                           ---------------------------------

Net increase in cash                                                             5,456,493           353,933

Cash, beginning of year                                                            416,036            62,103
                                                                           ---------------------------------

Cash, end of year                                                          $     5,872,529   $       416,036
                                                                           ---------------------------------
Supplemental Cash Flow Information:

                                                                                 2006               2005
                                                                           ----------------------------------
Cash paid for interest and taxes:
Cash paid for income taxes                                                               -                -
Cash paid for interest                                                     $       311,592   $        48,053


-------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.                                             F-12
</TABLE>
<PAGE>
                                                                 RemoteMDx, Inc.
                                           Consolidated Statements of Cash Flows
                                               For the Years Ended September 30,
                                                                       Continued

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

                                                       2006            2005
                                                    ----------------------------
Supplemental schedule of non-cash investing and
  financing activities:
Issuance of 4,014,916 and 953,895 common shares,
  respectively, in exchange for 10,843 and 2,578
  shares of Series A preferred stock, respectively  $         401   $        95
Issuance of 7,171,380 and zero common shares,
  respectively, in exchange for 1,315,825 and zero
  shares of Series B preferred stock, respectively            717             -
Issuance of 4,057,500 and 5,870,500 common shares,
  respectively, for deferred consulting and
  financing services                                    3,369,550     3,590,910
Preferred Series A and C stock dividends                  642,512       512,547
SecureAlert Series A Preferred stock dividends
  accrued                                                  20,877             -
Notes payable and accrued interest converted into
  7,586,299 and 750,000 shares of common stock,
  respectively                                          2,671,653       318,301
Notes payable and accrued interest converted
  into 736,400 and zero shares of Series C
  Preferred stock, respectively                         1,037,152             -
Series B&C debentures converted into 2,030,184
  and zero shares of common stock, respectively           913,583             -
Related party line of credit increased in
  exchange for related party consulting services
  of $662,007 and $480,000, assumption of Company
  notes payable of zero, and $77,658 of accrued
  interest                                                      -     1,097,988
Series A preferred stock issued in settlement of
  related party note                                            -       175,000
Issuance of 400,000 and zero common shares,
  respectively, for establishing letters of
  credit to secure line of credit                         656,000             -



--------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.                F-13

<PAGE>
                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                     September 30, 2006 and 2005

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

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 wholly-owned  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 tracking devices used
                        to monitor  convicted  offenders in the criminal justice
                        system.  The  Company's  revenues  for  the  year  ended
                        September 30, 2006,  were generated  primarily from from
                        the sale of 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,  2006.  As of  September  30,  2006,  the
                        Company has 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 and obtain the necessary  funding to meet its
                        projected capital investment requirements.


--------------------------------------------------------------------------------
                                                                            F-14
<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  raising  additional  capital  from  the sale of
     Continued          equity  securities  and  expanding  its  market  for its
                        tracking  products.  There  can  be  no  assurance  that
                        revenues  will  increase   rapidly   enough  to  payback
                        operating losses and payback debts. Likewise,  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  increase
                        revenues  or  obtain  additional  financing,  it will be
                        unable to continue the  development  of its products and
                        may have to cease operations.

                        Principles of Consolidation
                        The  accompanying   consolidated   financial  statements
                        include  the  accounts  of   RemoteMDx,   Inc.  and  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,  accounts payable, accrued liabilities,  and
                        other debt  obligations  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-15
<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         Accounting federally insured limits. The Company has not
     Policies           experienced  any losses in such accounts.
     Continued
                        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:

                                                         2006           2005
                                                    ----------------------------
                        Company A                  $     228,437   $   148,500

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

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

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


--------------------------------------------------------------------------------
                                                                            F-16
<PAGE>
                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

2.   Summary of         Reagent stains                            $    94,253
     Significant        Reserve for inventory obsolescence            (54,977)
     Accounting                                                   ------------
     Continued               Total inventory                      $    39,276
                                                                  ------------

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

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

                        Property and equipment  consisted of the following as of
                        September 30, 2006:

                        Equipment                                $      956,259
                        Tooling and dies                                500,683
                        Leasehold improvements                          322,845
                        Furniture and fixtures                          189,825
                                                                 ---------------
                                                                      1,969,612

                        Accumulated depreciation                       (626,581)
                                                                 ---------------

                                                                 $    1,343,031
                                                                 ---------------

                        Depreciation  expense for the years ended  September 30,
                        2006 and 2005 was $129,868 and $36,632, respectively.

--------------------------------------------------------------------------------
                                                                            F-17
<PAGE>
                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

2.   Summary of         Impairment of Long-Lived Assets and Goodwill
     Significant        The Company reviews its long-lived assets for impairment
     Accounting         when events or changes in  circumstances  indicate  that
     Policies           the book value of an asset may not be  recoverable.  The
     Continued          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.

                        Revenue Recognition
                        The  Company  derives  its  revenue  primarily  from the
                        monitoring of its mobile  security  products and reagent
                        stains.   Revenue,   less   reserves  for  returns,   is
                        recognized  upon shipment to the customer.  Revenue from
                        products  sold  with  long-term  service  contracts  are
                        recognized   ratably  over  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.

                        Monitoring   equipment  revenue  is  recognized  on  the
                        earlier of the  activation of the device or 21 days from
                        receipt by the customer. The customer is charged a daily
                        monitoring  rate and is invoiced  monthly.

                        Research and Development Costs
                        All   expenditures  for  research  and  development  are
                        charged to expense as incurred.  These  expenditures  in
                        both  2006  and  2005  were  for  the   development   of
                        SecureAlert's TrackerPAL device and associated services.
                        For the years ended September 30, 2006 and 2005 research
                        and development expenses were $2,087,802 and $1,766,791,
                        respectively.

--------------------------------------------------------------------------------
                                                                            F-18
<PAGE>
                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

2.   Summary of         Advertising Costs
     Significant        The  Company  expenses  advertising  costs as  incurred.
     Accounting         Advertising  expenses for the years ended  September 30,
     Policies           2006 and 2005 were  approximately  $118,300 and $145,400
     Continued          respectively.

                        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.

                        The following  table  illustrates the effect on net loss
                        and net loss per share as if the  Company had elected to
                        use the fair  value  based  method  to  account  for its
                        employee stock-based compensation.

                                                   Years Ended September 30,
                                                 -------------------------------
                                                      2006           2005
                                                 -------------------------------

               Net loss applicable to common
                 shareholders - as reported        $ (24,440,257) $ (11,496,236)

               Add:  intrinsic value of employee
               stock based compensation                        -              -


--------------------------------------------------------------------------------
                                                                            F-19
<PAGE>
                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

2.   Summary of   Deduct:  total stock based
     Significant  employee compensation expense
     Accounting   determined under fair value
     Policies     based method for all awards,
     Continued    net of related tax effects          (1,400,148)       (10,835)
                                                   -----------------------------

                  Net loss - pro forma             $ (25,840,405) $ (11,507,071)
                                                   -----------------------------

                  Basic and diluted loss per
                  share - as reported              $        (.44) $      ( 0.33)
                                                   -----------------------------

                  Basic and diluted loss per
                  share - pro forma                $        (.46) $      ( 0.34)
                                                   -----------------------------

                        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 weighted average
                        assumptions:

                                                                Years Ended
                                                                September 30,
                                                         -----------------------
                                                            2006         2005
                                                         -----------------------

                        Expected dividend yield                    -         -
                        Expected stock price volatility        129 %       106%
                        Risk-free interest rate               4.59 %      3.66%
                        Expected life of options             5 years    5 years

                        The weighted  average fair value of options and warrants
                        granted  during the years ended  September  30, 2006 and
                        2005, was $0.76 and $0.47, respectively.

                        The Company  accounts for its  stock-based  compensation
                        issued  to  non-employees,  other  than  members  of the
                        Company's  Board of  Directors,  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.

                        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.


--------------------------------------------------------------------------------
                                                                            F-20
<PAGE>
                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

2.   Summary of         Net Loss Per Common Share
     Significant        Basic  net  loss  per  common  share  ("Basic  EPS")  is
     Accounting         computed  by  dividing  net  loss  available  to  common
     Policies           stockholders  by the weighted  average  number of common
     Continued          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, 2006 and 2005, there were approximately
                        45,132,452  and  20,833,000   outstanding  common  share
                        equivalents, respectively, that were not included in the
                        computation  of  diluted  net loss per  common  share as
                        their  effect would be  anti-dilutive.  The common share
                        equivalents  listed  above  do not  include  the  shares
                        issuable  upon  conversion  of  convertible   notes  and
                        debentures with embedded conversion features.

                        Recent Accounting Pronouncements
                        In December  2004,  the Financial  Accounting  Standards
                        Board  (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 or (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 share based
                        compensation  issued to  employees  in the  statement of
                        operations.  The revised  Statement  generally  requires
                        that an entity account for those  transactions using the
                        fair value method,  and eliminates  the intrinsic  value
                        method of  accounting  in APB Opinion No. 25,  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.

--------------------------------------------------------------------------------
                                                                            F-21
<PAGE>
                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

2.   Summary of         Statement  123(R) is effective as of October 1, 2006 for
     Significant        the Company.  All public  companies  must use either the
     Accounting         modified  prospective  or  the  modified   retrospective
     Policies           transition method. The Company has not yet evaluated the
     Continued          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 has adopted
                        this standard  during the year ended September 30, 2006,
                        which  had  no   material   impact   on  the   financial
                        statements.

3.   Prepaid            For the year ended  September 30, 2006,  the Company had
     Expenses and       $2,504,500  of  prepaid   expenses.   Prepaid   expenses
     Other Assets       consisted of the following:

                        Manufacturing costs                      $    2,181,140
                        Commissions                                     124,989
                        Leases                                           86,420
                        Insurance                                        64,660
                        Interest related to line
                          of credit                                      15,069
                        Consulting                                       10,000
                        Other                                            22,222
                                                                 ---------------
                        Prepaid expenses and other
                          assets                                 $    2,504,500
                                                                 ---------------


--------------------------------------------------------------------------------
                                                                            F-22
<PAGE>
                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

4.   Monitoring         Monitoring  equipment  at  September  30,  2006,  is  as
     Equipment          follows:

                        Monitoring equipment                     $    2,241,800
                        Less accumulated depreciation                  (102,115)
                                                                 ---------------
                        Monitoring Equipment, net                $    2,139,685
                                                                 ---------------

                        The  Company  began  leasing  monitoring   equipment  to
                        agencies for  offender  tracking in April 2006 under the
                        terms  of  operating  leases.   During  the  year  ended
                        September  30,  2006,  the  Company had  deployed  2,172
                        TrackerPAL   devices.   The   monitoring   equipment  is
                        depreciated  on  the   straight-line   method  over  the
                        estimated  useful  lives of the  related  assets  over 3
                        years.

5.   Accrued            Accrued expenses consisted of the following at September
     Expenses           30, 2006:

                        Accrued tooling                             $   116,000
                        Accrued interest                                 69,694
                        Accrued compensation and
                           payroll taxes                                 68,259
                        Accrued vacation                                 71,718

                        Accrued property taxes                            9,000
                        Accrued board of director fees                   30,000
                        Accrued bonuses                                  30,000
                        Accrued legal and other costs                    10,000
                                                                    ------------
                        Total accrued expenses                      $   404,671
                                                                    ------------

6.   Bank Line of       During the year ended  September  30, 2006,  the Company
     Credit             opened a $4 million line of credit with Citizen National
                        Bank.  The  interest  rate is 8% and the line of  credit
                        matures on June 30, 2007.  The line of credit is secured
                        by  letters  of  credit  for a total of $4  million  and
                        SecureAlert's assets including TrackerPAL products. This
                        note can be  expanded up to $10  million  under  certain
                        terms  and  conditions.   The  letters  of  credit  were
                        provided as  collateral by four  entities.  The entities
                        received a total of 400,000 shares valued at $240,000 of
                        the Company's  common stock and were reimbursed  $40,000
                        in cash for expenses related to establishing the letters
                        of credit.

                        In  addition  the Company  will pay 11% annual  interest
                        rate,  paid  monthly,  on  the  line  of  credit  to the
                        entities  that  provided and arranged for the letters of
                        credit.  As  of  September  30,  2006,  the  outstanding
                        balance  of the line of credit  was  $3,897,111  due and
                        payable on June 30, 2007.

--------------------------------------------------------------------------------
                                                                            F-23
<PAGE>
                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

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

                        Related Party Advances Payable
                        As of September  30,  2006,  the Company owed $44,549 to
                        ADP Management, an entity owned and controlled by two of
                        the   Company's   officers   and   directors,   under  a
                        line-of-credit  agreement.  Outstanding  amounts  on the
                        line of  credit  accrue  at 5% and  are due on July  31,
                        2007. During the year ended September 30, 2006, the line
                        of credit increased $662,007 due to a monthly management
                        fee owed to ADP Management,  including  salaries for Mr.
                        Derrick  and Mr.  Dalton and  expenses  incurred  by ADP
                        Management  that are  reimbursable  by the Company,  The
                        Company  made  cash   repayments   during  the  year  of
                        $635,073. The note is due and payable on July 31, 2007.

                        During the year ended September 30, 2005, ADP Management
                        assumed   $563,500  of  debt  plus  $77,554  of  accrued
                        interest from various note holders for 1,043,519  shares
                        of common stock.  All note holders  released the Company
                        from these obligations.

                        Consulting Arrangements
                        In March 2000, the Company agreed to pay consulting fees
                        to ADP  Management  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  Management was paid a consulting fee of $20,000 per
                        month and the Company  agreed to reimburse  the expenses
                        incurred by ADP  Management  in the course of performing
                        services  under  the  consulting  arrangement.  The  ADP
                        Management agreement also requires ADP Management 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.
                        In May 2005, the Board of Directors, which then included
                        David Derrick and James Dalton, approved to increase the
                        amount  of  compensation  paid  to ADP  Management  from
                        $20,000 to $40,000 per month  effective  October 1, 2004
                        with David Derrick and James Dalton abstaining.

--------------------------------------------------------------------------------
                                                                            F-24
<PAGE>
                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

7.   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.   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, 2006,  these  warrants
                        were cancelled.  During the fiscal years ended September
                        30, 2006 and 2005,  the Company  made no payments to MEW
                        for GPS products and related services.

8.   Notes Payable      As of  September  30,  2006,  the Company had  unsecured
                        notes  of   $169,676   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,  although  these
                        notes are subject to an offset provision which has never
                        been provided to the Company

                        The following  schedule shows the principal payments due
                        under the Company's  bank line of credit,  related-party
                        line of credit  and notes  payable as of  September  30,
                        2006:

                                  Year Ending September 30          Amount
                                  ------------------------    ------------------
                                        2007                   $       4,111,336
                                                              ------------------
                                                               $       4,111,336
                                                              ==================

9.    Convertible       During the year ended  September  30, 2004,  the Company
      Debentures        sold  $1,023,527 of Series B Convertible  Debentures and
                        $247,058 of Series C Convertible Debentures in a private
                        placement. The Debentures were convertible automatically
                        into  shares  of the  Company's  common  stock  upon the
                        closing  of a  qualified  equity or debt  offering  with
                        gross proceeds of at  least $5,000,000. Under the terms,


--------------------------------------------------------------------------------
                                                                            F-25
<PAGE>
                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

9.    Convertible       the  conversion  price was  equal 80% of the fair  value
      Debentures        prior to  closing  the  offering.  The  Debentures  bear
      Continued         interest at an annual  rate of 10%,  not  including  any
                        original issue discount,  with interest during the first
                        six months of  $47,954  added to the  principal  amount.
                        Thereafter,  interest payments were 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 were  payable two years from each
                        Closing,  subject to the conversion as indicated  above.
                        During the year ended  September  30, 2006,  $404,956 of
                        the  convertible  debentures  plus accrued  interest was
                        paid  back in cash and  $913,583  of the  convertibility
                        debenture plus accrued interest converted into 2,030,184
                        shares of common stock.

10.    Derivatives      The   Company   does  not   hold  or  issue   derivative
                        instruments for trading purposes.  However,  the Company
                        had  convertible  notes payable that contained  embedded
                        derivatives  that required  separate  valuation from the
                        convertible   notes.   The  Company   recognized   these
                        derivatives  as  liabilities  in its  balance  sheet and
                        measured  them  at  their  estimated  fair  value,   and
                        recognized  changes  in their  estimated  fair  value in
                        earnings  (losses) in the period of change.  The Company
                        estimated the fair value of these  embedded  derivatives
                        using the  Black-Scholes  model based on the  historical
                        volatility  of its  common  stock  over the  past  three
                        years.  The fair value of  derivative  instruments  were
                        re-measured each quarter.

                        During the year ended  September  30, 2006,  the Company
                        issued  convertible notes payable containing an embedded
                        derivative.  The Company  received  $575,000  from these
                        convertible  notes and issued  575,000  shares of common
                        stock  valued at  $655,443  for three  years of  prepaid
                        interest.  During the year ended September 30, 2006, all
                        convertible  notes  payable with an embedded  derivative
                        converted into 1,720,970 shares of common stock. For the
                        year ended September 30, 2006, the derivative  valuation
                        gain was $629,308.

11.  Preferred          The  Company  is  authorized  to issue up to  20,000,000
     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.


--------------------------------------------------------------------------------
                                                                            F-26
<PAGE>
                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

11.  Preferred          Series A 10 % Convertible Non-Voting Preferred Stock
     Stock              The Company has  designated  40,000  shares of preferred
     Continued          stock as Series A 10% Convertible  Non-Voting  Preferred
                        Stock ("Series A Preferred Stock").  As of September 30,
                        2006,  there were  17,310  shares of Series A  Preferred
                        Stock   outstanding   11.   Preferred   Series  A  10  %
                        Convertible Non-Voting Preferred Stock Stock The Company
                        has  designated  40,000  shares  of  preferred  stock as
                        Series A 10% Continued Convertible  Non-Voting Preferred
                        Stock ("Series A Preferred Stock").  As of September 30,
                        2006,  there were  17,310  shares of Series A  Preferred
                        Stock outstanding.

                        Dividends
                        ---------
                        The  holders of the Series A  Preferred  Stock,  some of
                        which are entities  controlled by officers 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  the  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, 2006 and 2005, the Company
                        recorded  $348,133 and $512,547 in dividends on Series A
                        Preferred Stock, respectively.

                        Convertibility
                        --------------
                        Series A Preferred Stock is convertible at 370 shares of
                        common stock for each share of Series A Preferred Stock.
                        During the year ended September 30, 2006,  10,843 shares
                        of  Series  A  Preferred   Stock  were   converted  into
                        4,014,916 shares of common stock.  During the year ended
                        September  30, 2005,  2,578 shares of Series A Preferred
                        Stock  were  converted  into  953,895  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.

                        Optional Redemption
                        -------------------
                        The Company may, at its option,  redeem up to two-thirds
                        of the total  number  of  shares  of Series A  Preferred
                        Stock  at  any  time.  As of  September  30,  2006,  the
                        redemption price was 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, 2006, the Company
                        has not  exercised its option to redeem shares of Series
                        A Preferred Stock.


--------------------------------------------------------------------------------
                                                                            F-27
<PAGE>
                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

11.  Preferred          Issuances of Series A Preferred Stock
     Stock              -------------------------------------
     Continued          During the year ended  September  30, 2006,  the Company
                        had  recorded  and  issued  2,146  shares  of  Series  A
                        Preferred   Stock  for   payment  of  Series  A  accrued
                        dividends.

                        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  dividends  on the
                        common  stock,  and  subject to the  preferences  of the
                        holders of the Series A Preferred Stock.

                        Convertibility
                        --------------
                        Each share of Series B Preferred Stock is convertible at
                        any time into shares of common  stock at an initial rate
                        of $3.00 per  share of  common.  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.  The Company has issued shares of
                        common stock or securities convertible into common stock
                        for  consideration  per share less than $3.00 per share.
                        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 issued.

                        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.  The holders
                        of  Series  B   Preferred   Stock  are   entitled  to  a
                        liquidation  preference  of $3.00  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-28
<PAGE>
                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

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

                        Series C Convertible Preferred Stock
                        The Company has designated  7,357,144  shares  preferred
                        stock as Series C Convertible  Preferred  Stock,  $.0001
                        par value per share. During the year ended September 30,
                        2006, the Company received  subscriptions  for 5,357,143
                        shares of Series C Convertible  Preferred Stock at $1.68
                        per share for proceeds of $9,000,000. The Company issued
                        5,357,143   shares  of  Series  C  Preferred  Stock  for
                        $7,439,558  in cash and  $1,037,152  from  conversion of
                        debt and  accrued  interest.  The  holders  of shares of
                        Common  underlying  the Series C  Convertible  Preferred
                        Stock shall be entitled to registration  rights. For the
                        year ended  September 30, 2006, a beneficial  conversion
                        feature of $2,464,936 was recorded as a distribution  to
                        the  Series C  Preferred  shareholders  to  reflect  the
                        difference  between the market  value of the  underlying
                        common stock and the conversion  price.  During the year
                        ended  September 30, 2006,  the Company  issued  175,226
                        shares of Series C Preferred Stock for dividends.  As of
                        September 30, 2006, the  outstanding  Series C Preferred
                        shares totaled 5,532,369.

                        Convertibility
                        --------------
                        One share of  Series C  Convertible  Preferred  Stock is
                        convertible  into three shares of the  Company's  common
                        stock, subject to adjustments.

                        Dividends
                        ---------
                        The stock has an 8% dividend that may be paid in cash or
                        additional  shares  of  Series C  Convertible  Preferred
                        Stock at the  option of the  Company.  During  the years
                        ended September 30, 2006 and 2005, the Company  recorded
                        $294,379  and $0 in  dividends  on  Series  C  Preferred
                        Stock, respectively.


--------------------------------------------------------------------------------
                                                                            F-29
<PAGE>
                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

11.  Preferred          Voting Rights and Liquidation Preference
     Stock              ----------------------------------------
     Continued          Holders  of  shares  of  Series C  Preferred  Stock  are
                        entitled  to one vote per  share of  Series C  Preferred
                        Stock on all  matters  upon which  holders of the common
                        stock of the Company are entitled to vote. Generally the
                        holders of Series C  Preferred  Stock are  entitled to a
                        liquidation  preference  of $1.68  per  share,  plus all
                        accrued  and  unpaid  dividends.  For  purposes  of this
                        liquidation  preference,  the Series C  Preferred  Stock
                        ranks on a parity with the Series B Preferred Stock.

                        Optional Redemption
                        -------------------
                        The Company  may redeem the Series C Preferred  Stock at
                        its option at any time. The redemption  price payable by
                        the  Company  shall be equal to the greater of (a) $4.00
                        plus any and all  accrued  dividends  or (b) 110% of the
                        current  Conversion  Price  per share at the time of the
                        redemption,  as  adjusted  for  stock  dividends,  stock
                        splits,   stock   combinations,   other   dividends   or
                        distributions,    reclassifications,    exchanges,    or
                        substitutions plus any and all accrued dividends.

                        SecureAlert,  Inc.  (PAL  Services)  Series A  Preferred
                        Shares
                        During the year ended  September 30, 2005,  and pursuant
                        to Board of Director  approval,  the Company amended the
                        articles   of    incorporation   of   its   wholly-owned
                        subsidiary,   SecureAlert,   Inc.   (PAL   Services)  to
                        establish 3,500,000 shares of preferred stock designated
                        as Series A Convertible  Redeemable Non-Voting Preferred
                        Stock.

                        Dividends
                        The holders of shares of Series A Preferred  Stock shall
                        be entitled to receive quarterly dividends out of any of
                        the   SecureAlert's   (PAL   Services)   assets  legally
                        available  therefore,  prior  and in  preference  to any
                        declaration  or  payment of any  dividend  on the common
                        stock  of  SecureAlert,  (PAL  Services)  at the rate of
                        $1.50 per day times the number of the SecureAlert's (PAL
                        Services)  parolee  contracts  calculated in days during
                        the quarter.  For  example,  if there were an average of
                        10,000 parolee contracts outstanding during the quarter,
                        the total dividend would be $1,350,000  ($1.50 x 90 days
                        x 10,000  contracts)  or  $0.385  per  share of Series A
                        Preferred  Stock.  In no case will a dividend be paid if
                        the gross  revenue per contract  per day to  SecureAlert
                        (PAL Services) averages less than $4.50.  Dividends will
                        be paid in cash to the  holders  of  record of shares of
                        Series A Preferred Stock as they appear on the books and
                        records of  SecureAlert  (PAL  Services)  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 the Company.  During
                        the years ended September 30, 2006 and 2005, the Company
                        recorded  $20,877  and $0 in  dividends  on  SecureAlert
                        Series A Preferred Stock.


--------------------------------------------------------------------------------
                                                                            F-30
<PAGE>
                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

11.  Preferred          Convertibility
     Stock              --------------
     Continued          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 the
                        SecureAlert, Inc. (PAL Services).

                        Issuances  of  SecureAlert  Series A Preferred Stock
                        ----------------------------------------------------
                        During the year ended  September  30, 2006,  the Company
                        sold  600,000  of  these  shares  for  consideration  of
                        $600,000.   As  of  September   30,   2006,   the  total
                        outstanding  Series A Preferred  shares were  3,590,000.
                        Because the preferred  stock sold was Series A Preferred
                        Stock of the Company's  subsidiary,  SecureAlert,  Inc.,
                        the  consideration  received  from  the  sale  has  been
                        recorded  similar  to  minority  interest  as a separate
                        component  of the  balance  sheet  outside of  permanent
                        equity.

12.  Common             Authorized Shares
     Stock              The  Company is  authorized  to issue up to  175,000,000
                        shares of common stock.

                        Common Stock Issuances
                        During the year ended  September  30, 2006,  the Company
                        issued  35,005,811  shares  of common  stock.  5,846,428
                        shares  were  issued  for  services  in  the  amount  of
                        $3,983,607,   4,014,916  shares  were  issued  upon  the
                        conversion of 10,843 shares of Series A Preferred Stock,
                        7,171,380  shares  were issued  upon the  conversion  of
                        1,315,825 shares of Series B Preferred Stock, 10,739,753
                        shares  were  issued for debt and  accrued  interest  of
                        $7,893,782,  350,000  were issued  from the  exercise of
                        options and warrants,  and the remaining  6,883,334 were
                        issued for cash.

                        During the year ended  September  30, 2005,  the Company
                        issued  13,733,804  shares  of common  stock.  5,148,641
                        shares  were  issued  for  services  in  the  amount  of
                        $2,822,911,   953,895   shares   were  issued  upon  the
                        conversion of 2,578 shares  of Series A Preferred Stock,

--------------------------------------------------------------------------------
                                                                            F-31
<PAGE>
                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

12.  Common             2,592,595  shares  were issued  upon the  conversion  of
     Stock              466,667  shares of Series B Preferred  Stock,  3,995,154
     Continued          shares  were  issued for debt and  accrued  interest  of
                        $2,626,522,  and the remaining  1,043,519 were issued to
                        ADP for assuming $563,500 of debt and $77,554 of accrued
                        interest.

13.  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, 2006,  1,465,000  shares have
                        been granted under the 1997 Plan of which 1,015,000 have
                        expired; thus, 450,000 shares remain outstanding.

                        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  the fiscal  years
                        2006 and 2005, 0 and 5,000,000 shares were granted under
                        this plan respectively.

                        During  the  year  ended   September   30,   2006,   the
                        shareholders  approved the 2006 Equity  Incentive  Award
                        Plan (the "2006 Plan").  The 2006 Plan replaced the 1997
                        Plan and the 2004 Plan.  The 2006 Plan  provides for the
                        grant of incentive stock options and nonqualified  stock
                        options,  restricted stock, stock  appreciation  rights,
                        performance  shares,  performance stock units,  dividend
                        equivalents,  stock payments, deferred stock, restricted
                        stock    units,    other    stock-based    awards    and
                        performance-based   awards  to  employees   and  certain



--------------------------------------------------------------------------------
                                                                            F-32
<PAGE>
                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

13.  Options and        non-employees who have important  relationships with the
     Warrants           Company. A total of 10,000,000 shares are authorized for
     Continued          issuance pursuant to awards granted under the 2006 Plan.
                        No grants have been made 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, 2006 and 2005 is as follows:

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

Outstanding at September 30, 2004              7,822,043  $    .54 to 7.00
    Granted                                    7,849,000       .54 to 3.00
    Expired or cancelled                      (1,905,000)      .54 to 7.00
    Exercised                                          -       .54 to 1.00
                                        -----------------------------------

Outstanding at September 30, 2005             13,766,043       .54 to 3.00
    Granted                                   11,529,076       .56 to 1.41
    Expired or cancelled                      (3,347,727)      .70 to 3.00
    Exercised                                   (350,000)      .54 to 0.75
                                        -----------------------------------

Outstanding at September 30, 2006             21,597,392  $    .50 to 3.00
                                        -----------------------------------

                        The Company has adopted the  disclosure-only  provisions
                        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, 2006:

                       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
--------------------------------------------------------------------------------
$   .50 - 1.00   20,589,159    3.94      $        .62   17,009,413 $        .62
          3.00    1,008,233    1.04              2.76    1,008,233         2.76
--------------------------------------------------------------------------------

$   .50 - 3.00   21,597,392    3.12      $       0.72   18,017,646 $       3.12
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
                                                                            F-33
<PAGE>
                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

13.  Options and        As of September 30, 2006,  18,017,646 of the  21,597,392
     Warrants           outstanding options and warrants are vested.
     Continued
                        During the year ended  September  30, 2006,  the Company
                        issued  11,529,076  common  stock  options  as  follows:
                        3,170,000 to employees,  600,000 to SecureAlert Series A
                        Preferred  shareholders,  365,150 for debt, 5,413,926 to
                        consultants,  480,000  to the  Board of  Directors,  and
                        1,500,000 to related  parties  (David  Derrick and James
                        Dalton).  The exercise  prices range from $0.56 to $1.41
                        per share.

                        During the year ended  September  30, 2005,  the Company
                        issued   7,849,000  common  stock  options  as  follows:
                        1,450,000 to employees, 599,000 to consultants,  400,000
                        to the Board of Directors,  5,000,000 to related parties
                        (David Derrick and James Dalton),  and 400,000 for debt.
                        The exercise prices range from $0.54 to $3.00 per share.

14.  Income Taxes       For the years ended  September  30,  2006 and 2005,  the
                        Company  incurred net operating  losses of approximately
                        $23,798,000 and $10,984,000 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.

                        At  September  30, 2006,  the Company has net  operating
                        loss  carryforwards  available to offset future  taxable
                        income of approximately  $63,129,000 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,  it is likely  that 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.

--------------------------------------------------------------------------------
                                                                            F-34
<PAGE>
                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

14.  Income Taxes       Deferred  income  taxes  are  determined  based  on  the
     Continued          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, 2006:

                                                                        2006
                                                                    ------------
                        Net operating loss carryforwards            $23,547,000
                        Depreciation and reserves                         7,000
                        Accruals and reserves                            53,000
                        Valuation allowance                         (23,607,000)
                                                                    ------------
                                                                    $         -
                                                                    ------------

                        Reconciliations  between the benefit for income taxes at
                        the federal  statutory income tax rate and the Company's
                        benefit for income  taxes for the years ended  September
                        30, 2006 and 2005 are as follows:

                                                  2006             2005
                                            ----------------------------------

Federal income tax benefit at
  statutory rate                             $      8,092,000  $    3,740,000
State income tax benefit, net of
  federal income tax effect                         1,190,000         550,000
Loss on non-deductible expenses                      (118,000)         30,000
Change in valuation allowance                      (9,164,000)     (4,320,000)
                                            ----------------------------------

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

15.  Commitment         Legal Matters
     and                On September  20, 2006,  former  consultants  brought an
     Contingencies      action in Utah state court against the Company. The suit
                        alleges  that  the  Company  wrongfully  terminated  the
                        plaintiffs,  and includes causes of action for breach of
                        contract,  breach of the implied  covenant of good faith
                        and fair dealing,  tortious  interference  with contract
                        and prospective  economic relations,  unjust enrichment,
                        and injunctive  relief.  The plaintiffs  seek damages of
                        approximately  $264  million  over five years,  plus the
                        value of  converting  50% of $264 million into shares of


--------------------------------------------------------------------------------
                                                                            F-35
<PAGE>
                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

15.  Commitment         our  common  stock at $0.60  per  share,  plus  punitive
     and                damages of  approximately  $1 billion.  The  plaintiffs'
     Contingencies      motion for temporary restraining order was denied by the
     Continued          Court  in  its  entirety  on  September  28,  2006.  The
                        litigation  is at an early stage and  discovery  has not
                        yet  commenced.   Management  has  determined  that  the
                        probability  of a material loss is remote and management
                        intends to defend  themselves  vigorously  against  this
                        action.

                        On  February  1, 2006,  the  Company  filed a  Complaint
                        against  defendants  Jaxara Group, LLC, Daniel Boice and
                        Alexander Petty  (collectively,  "Jaxara") in the United
                        States  District  Court for the  District  of Utah.  The
                        action  arises out  contracts  between  SecureAlert  and
                        Jaxara  for  certain  software  programming  work  to be
                        performed by Jaxara. Jaxara thereafter on or about April
                        10, 2006 answered the Complaint and filed  counterclaims
                        against the Company. The litigation is at an early stage
                        of discovery. Management has determined that probability
                        of a material loss from the counterclaim is remote.  The
                        Company  intends  to  vigorously  prosecute  its  claims
                        against  Jaxara and to defend  itself  against  Jaxara's
                        counterclaims.

                        On   May   23,   2006,   plaintiffs   Strategic   Growth
                        International,  Inc.,  Richard E.  Cooper and Stanley S.
                        Altschuler (collectively,  the "SGI Defendants") filed a
                        Complaint  against  defendant  the Company in the United
                        States District Court Southern District of New York. The
                        action  arises  out  of  a  contract   between  the  SGI
                        Defendants   and  the  Company  for  certain   financial
                        relations  services to be  performed by SGI. the Company
                        thereafter  on September 29, 2006 answered the Complaint
                        and filed  counterclaims  against SGI. The litigation is
                        at  an  early  stage  of   discovery.   Management   has
                        determined that  probability of a material loss from the
                        counterclaim   is  remote.   The   Company   intends  to
                        vigorously  defend  itself  against the SGI  Defendants'
                        claim and to prosecute its counterclaims against the SGI
                        Defendants.

                        In a demand letter from counsel to Joseph  Markham,  Mr.
                        Markham  contends that he entered into an agreement with
                        the  Company to provide  investor  relation  services in
                        exchange for $20,000 and 100,000 shares of the Company's
                        common stock.  Mr. Markham further  contends that he has
                        fully  performed  under the  purported  agreement and is
                        owed the above amounts. The Company denies that any such

--------------------------------------------------------------------------------
                                                                            F-36
<PAGE>
                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

15.  Commitment         agreement  exists,  written or otherwise.  To date,  the
     and                Company  is  unaware of any  lawsuit  having  been filed
     Contingencies      regarding  this claim.  If such a lawsuit is filed,  the
     Continued          Company intends to defend itself vigorously against such
                        action.  Management has determined that probability of a
                        loss is remote.

                        Lease Obligations
                        In March 2005, the Company  entered into an agreement to
                        lease a facility under a noncancellable  operating lease
                        that expires in November  2008.  Future  minimum  rental
                        payments under the non-cancelable  operating lease as of
                        September 30, 2006 are approximately as follows:

                                  Year Ending September 30:         Amount
                                  -------------------------      ---------------
                                        2007                     $      206,572
                                        2008                            212,126
                                        2009                             36,049
                                                                 ---------------
                                                                 $      454,747
                                                                 ===============

                        Rent expense  related to this  non-cancelable  operating
                        lease was  approximately  $122,000  and  $45,000 for the
                        years ended September 30, 2006 and 2005, respectively.

                        In  addition,  the  Company's  wholly-owned  subsidiary,
                        Volu-Sol Reagents Corporation, leases a facility under a
                        non-cancelable  operating lease that expires in November
                        2010.   Future   minimum   rental   payments  under  the
                        non-cancelable  operating lease as of September 30, 2006
                        are approximately as follows:

                                  Year Ending September 30:           Amount
                                  -------------------------      --------------
                                      2007                       $      69,906
                                      2008                              71,720
                                      2009                              73,584
                                      2010                              75,496
                                      2011                              12,636
                                                                 --------------
                                                                 $     303,342
                                                                 ==============

                        Rent expense  related to this  non-cancelable  operating
                        lease was  approximately  $69,000  and  $68,000  for the
                        years ended September 30, 2006 and 2005 respectively.

--------------------------------------------------------------------------------
                                                                            F-37
<PAGE>
                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

15.  Commitment         Indemnification Agreements
     and                In  November  2001,  the  Company's  Board of  Directors
     Contingencies      agreed that the Company  would  indemnify  officers  and
     Continued          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
                        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.  During the year ended  September 30,
                        2006,  the Company has entered into  several  agreements
                        with other cellular  organizations  to provide  cellular
                        services.  The cost to the  Company  during  years ended
                        September 30, 2006 and 2005 was  approximately  $290,000
                        and $103,900 respectively.

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 tracking devices for monitoring offenders
                        in the criminal justice system. 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-38
<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

                                                     2006             2005
                                              --------------------------------
Net sales:
        SecureAlert                           $       391,600  $       289,236
        Reagents                                      678,541          572,632
                                              --------------------------------

                                              $     1,070,141  $       861,868
                                              --------------------------------
Operating income (loss):
     SecureAlert                              $    (6,061,427) $    (3,631,458)
     Reagents                                         (68,201)          36,455
     Other (unallocated)                          (11,853,538)      (5,363,894)
                                              --------------------------------

                                              $   (17,983,166) $    (8,958,897)
                                              --------------------------------
Depreciation and amortization:
     SecureAlert                              $       218,701  $        21,144
     Reagents                                           2,542            1,397
     Other (unallocated)                               10,739           14,091
                                              --------------------------------

                                              $       231,982  $        36,632
                                              --------------------------------
Capital expenditures:
     SecureAlert                              $     1,073,217  $       310,770
     Reagents                                          20,473              960
     Other (unallocated)                                    -                -
                                              --------------------------------

                                              $     1,093,690  $       311,730
                                              --------------------------------
Interest income:
     SecureAlert                              $         3,272  $             -
     Reagents                                               -                -
     Other (unallocated)                               26,779            1,720
                                              --------------------------------

                                              $        30,051  $         1,720
                                              --------------------------------


--------------------------------------------------------------------------------
                                                                            F-39
<PAGE>
                                                                 RemoteMDx, Inc.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

16.  Segment
     Information
     Continued                                        2006            2005
                                              --------------------------------

Interest expense:
     SecureAlert                              $       271,696  $        13,540
     Reagents                                               3                -
     Other (unallocated)                            6,269,378        1,435,196
                                              --------------------------------

                                              $     6,541,077  $     1,448,736
                                              --------------------------------
Identifiable assets:
     SecureAlert                              $    6,106,836
     Reagents                                        216,818
     Other (unallocated)                           5,868,412
                                              ---------------

                                              $   12,192,066
                                              ---------------

17.  Subsequent         Subsequent  to  September  30,  2006,  the  Company  has
     Events             entered into several agreements:

                            a) On November 9, 2006, the Company closed a private
                               placement  of shares  of its  common  stock.  The
                               Company sold 3,000,000 shares of its common stock
                               at a  purchase  price of  $2.00  per  share,  for
                               aggregate  proceeds to the Company of $6,000,000.
                               The Company  also issued  warrants to purchase up
                               to  an   additional   7,000,000   shares  of  the
                               Company's common stock at $2.00 per share.

                            b) The  Company  issued  2,242,511  shares of common
                               stock  upon the  conversion  of 5,949  shares  of
                               Series  A  Preferred  Stock  and  2,000  share of
                               Series B Preferred Stock.

                            c) The Company issued 265,000 shares of common stock
                               for penalties  associated with the late filing of
                               the registration statement.


--------------------------------------------------------------------------------
                                                                            F-40
<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, 2006. 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. 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. Other than as described
above, 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.

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.

Item 8B.  Other Information

None

                                       28
<PAGE>
                                    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, 2006:

      Name               Age                  Position
      ----               ---                  --------

David G. Derrick         54      Chief Executive Officer and Chairman (Director)
James J. Dalton          64      President and Vice Chairman (Director)
Michael G. Acton         43      Chief Financial Officer, Secretary-Treasurer
Bruce G. Derrick         49      Chief Technology Officer
Randy E. Olshen          43      President of SecureAlert, Inc.
Gary S. Horrocks         45      President of Volu-Sol Reagents, Inc.
Peter McCall             50      Director
Robert E. Childers       62      Director
David P. Hanlon          62      Director
Larry G. Schafran        68      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, Mr. 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, Mr. 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, Mr. Dalton was the owner and
President of Dalton Development, a real estate development company. He served as
the President and coordinated the development of The Pinnacle, an 86-unit
condominium project located at Deer Valley Resort in Park City, Utah. Mr. Dalton
also served as the President 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, Mr. Dalton served as an officer and
director of Biomune Systems, Inc. Prior to joining us and following his
resignation from Biomune Systems, Mr. 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.

                                       29
<PAGE>

Bruce G. Derrick - Chief Technology Officer

Mr. Derrick has extensive experience in management of custom solutions
development and customer management in the wireless telecom 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.

Larry G. Schafran - Director

Mr. Schafran is currently associated with Providence Recovery Partners, LP
("PRP, LP") as a Managing General Partner. PRP, LP is a New York City-based
activist investment fund. Mr. Schafran is also currently a Director and Audit
Committee Chairman of PubliCard, Inc. and Tarragon Corporation, both publicly
traded. Additionally, Mr. Schafran was Lead Director and Audit Committee
Chairman and is now a Consultant to the Chairman of WorldSpace, Inc., and a
Director of Glasstech, Inc.

In recent years, Mr. Schafran served in several capacities, including, as a
Trustee, Chairman/Interim-CEO/President and Co-Liquidating Trustee of Special
Liquidating Trust of Banyan Strategic Realty Trust; Director and/or Chairman of
the Executive Committees of Dart Group Corporation, Crown Books Corporation,
TrakAuto Corporation, and Shoppers Food Warehouse, Inc. (Vice-Chairman);
Director and Member of the Strategic Planning and Finance Committees of COMSAT
Corporation., and Managing General Partner of L. G. Schafran & Partners, LP, a
real estate investment and development firm. Mr. Schafran is the Audit Committee
Chairman of the Company.

David P. Hanlon - Director

Mr. Hanlon is currently Chief Executive Officer and President of Empire Resorts,
Inc., a public company in the gaming industry. Prior to starting his own gaming
consulting business in 2000, in which he advised a number of Indian and
international gaming ventures, Mr. Hanlon was President and Chief Operating
Officer of Rio Suites Hotel & Casino from 1996-1999, a period in which the Rio
Suites Hotel & Casino underwent a major expansion. From 1994-1995, Mr. Hanlon
served as President and Chief Executive Officer of International Game
Technology, the world's leading manufacturer of microprocessor gaming machines.
From 1988-1993, Mr. Hanlon served as President and Chief Executive Officer of

                                       30
<PAGE>

Merv Griffin's Resorts International, and prior to that, Mr. Hanlon served as
President of Harrah's Atlantic City (Harrah's Marina and Trump Plaza). Mr.
Hanlon's education includes a B.S. in Hotel Administration from Cornell
University, an M.S. in Accounting, an M.B.A. in Finance from the Wharton School,
University of Pennsylvania, and he completed the Advanced Management Program at
the Harvard Business School.

Randy E. Olshen - President of SecureAlert, Inc.

Prior to joining SecureAlert, Inc., Mr. Olshen was the Executive Vice President
for Elan Nutrition from 2001 to 2004. From 1998 to 2001, Mr. Olshen was the
President of Optim Nutrition, a wholly-owned subsidiary of Biomune Systems
(NASDAQ: BIME). From 1992 to 1998, Mr. Olshen was the Executive Vice President
of Sales, Marketing and Operations at Nellson Nutraceutical. From 1987 to 1992
Mr. Olshen was the General Manager of the specialty products division of a $500
million pharmaceutical company, McGaw, Inc. He currently serves as a director
and a member of the compensation committee for two companies, Helios Nutrition
and Dr. Soy Nutrition. Mr. Olshen earned his Bachelor's degree from Chapman
College.

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, except as follows: In 2005 prior to the Company trading, Mr.
Derrick and Mr. Dalton filed late Forms 4 but all transactions were disclosed in
subsequently filed Forms 5.

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.

The holders of record of the shares of Series C Preferred Stock, exclusively and
as a separate class, shall be entitled to elect two directors of the Board of
Directors of the Corporation (the "Series C Directors"). Any director elected as
provided in the preceding sentence may be removed without cause by, and only by,
the affirmative vote of the holders of the shares of the class or series of
capital stock entitled to elect such director or directors, given either at a
special meeting of such stockholders duly called for that purpose, or by written
consent. The holders of record of the shares of Common Stock and of any other
class or series of voting stock (including the Series C Preferred Stock),
exclusively and voting together as a single class, shall be entitled to elect
the balance of the total number of directors of the Corporation. At any meeting
held for the purpose of electing a director, the presence in person or by proxy
of the holders of a majority of the outstanding shares of the class or series
entitled to elect such director shall constitute a quorum for the purpose of
electing such director. A vacancy in any directorship filled by the holders of
any class or series shall be filled only by vote of the holders of such class or
series or by any remaining director or directors elected by the holders of such
class or series pursuant to this Section.

The board of directors met one time during fiscal year 2006. No director
attended fewer than 75% of the meetings during the fiscal year. The board also
acted three times during fiscal year 2006 by unanimous written consent in lieu
of a meeting, as permitted by Utah law and our bylaws. The board has an Audit
Committee, currently comprised of Mr. Schafran and Mr. McCall, and a
Compensation Committee, currently comprise of Mr. Childers and Mr. McCall.

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

                                       31
<PAGE>

respect to the scope of our audit procedures, accounting practices and internal
accounting and financial controls. Mr. Schafran and Mr. McCall are independent
directors within the meaning of that term under applicable Securities and
Exchange Commission rules.

Audit Committee Financial Expert

Larry Schafran, 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. Peter McCall is also a member of the Compensation
Committee. The Committee shall have responsibility for developing and
maintaining an executive compensation policy that creates a direct relationship
between pay levels and corporate performance and returns to shareholders. The
Committee shall monitor the results of such policy to assure that the
compensation payable to the Company's executive officers provides overall
competitive pay levels, creates proper incentives to enhance shareholder value,
rewards superior performance, and is justified by the returns available to
shareholders.

Remuneration

Non-employee directors are entitled to receive $5,000 per month and receive a
grant of an option to acquire 50,000 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.

Code of Ethics

The Company has established a Code of Business Ethics that applies to its
officers, directors and employees. The Code of Business Ethics contains general
guidelines for conducting the business of the Company consistent with the
highest standards of business ethics, and is intended to qualify as a "code of
ethics" within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and
the rules promulgated thereunder. The Code of Business Ethics is attached as
Exhibit 14 to this Annual Report on Form 10-KSB.

There have been no material changes to the procedures by which security holders
may recommend nominees to the Company's Board of Directors.

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, 2006, as well as our three most highly compensated
executive officers other than the CEO who were serving as executive officers at
the end of the year ended September 30, 2006, whose total annual salary and
bonus for the year then ended exceeded $100,000 (the "Named Executive
Officers").

                                       32
<PAGE>

<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    2004    $120,000   $      0     $     53,910        845,628/0      $     0
   Chairman of the Board of Directors (1)    2005    $240,000   $300,000(6)  $          0              0/0      $     0
                                             2006    $240,000   $321,428(6)  $          0              0/0      $     0

James J. Dalton                              2004    $120,000   $      0     $          0              0/0      $     0
   President and Vice Chairman (2)           2005    $240,000   $300,000(6)  $          0              0/0      $     0
                                             2006    $240,000   $321,428(6)  $          0              0/0      $     0

Randy Olshen                                 2006    $149,000   $ 50,000     $          0              0/0      $60,000(6)
    President of SecureAlert, Inc. (3)

Bryan Dalton                                 2006    $ 78,000   $ 50,000     $          0              0/0      $60,000(6)
     Vice President of Sales (4)

Michael G. Acton                             2004    $100,000   $ 25,000     $      4,192              0/0      $     0
     Chief Financial Officer (5)             2005    $100,000   $ 25,000     $          0              0/0      $35,000(6)
                                             2006    $100,000   $ 45,357     $          0              0/0      $60,000
</TABLE>

         (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
              2004, 2005 or 2006. Salary was accrued and included in amounts
              owed to ADP Management under various financing agreements. Mr.
              Derrick is the principal owner and control person of ADP
              Management. See "Certain Relationships and Related Party
              Transactions."

         (2)  During 2004, 2005 and 2006, Mr. Dalton was paid $120,000, $240,000
              and $240,000 a year under a consulting agreement. Mr. Dalton's
              annual salary as President is $240,000. The consulting fees and
              salary owed to Dalton have historically been accrued as part of
              the ADP Management financing arrangements. Other amounts have been
              paid or accrued during 2006. See "Certain Relationships and
              Related Transactions."

         (3)  Mr. Olshen became President of SecureAlert during the 2006 fiscal
              year.

         (4)  Mr. Bryan Dalton became Vice-President of Sales during the 2006
              fiscal year.

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

         (6)  These payments were made by issuing restricted common stock.

Employment Agreements

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

Stock Option Grants in Fiscal Year 2006

During fiscal year 2006, the Company granted 750,000 warrants to each Mr.
Derrick and Mr. Dalton with an exercise price ranging of $0.54 to $0.56 per
share. All of these warrants are five-year warrants and expire in 2011. In
addition, 1,250,000 options at $0.54 per share vested during the fiscal year
ended September 30, 2006 to Mr. Derrick and Mr. Dalton respectively.

                                       33
<PAGE>

Stock Options Outstanding and Options Exercised in Fiscal Year 2005

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, 2006. We have not granted any stock appreciation
rights ("SAR's").

<TABLE>
<CAPTION>

                              Aggregated Option Exercises in Last Fiscal Year
                                     and Fiscal Year-End Option Values

                                                            Number of Securities
                                                                Underlying           Value of Unexercised
                                                             Unexercised Options    In-the-Money Options/
                          Shares                                At 9/30/2006        SARs At 9/30/2006 ($)
                        Acquired on     Valued Realized         Exercisable/            Exercisable/
   Name                 Exercise (#)         ($)               Unexercisable           Unexercisable (1)
--------------------    ------------    ----------------     -------------------    ---------------------
<S>                           <C>              <C>            <C>                      <C>
David G. Derrick (2)          -                -                  4,886,155/0              $6,954,925/$0
James J. Dalton (2)           -                -                  4,886,155/0              $6,954,925/$0
Randy Olshen (3)              -                -               25,000/975,000         $34,570/$1,355,250
Bryan Dalton (4)              -                -               25,000/975,000         $34,570/$1,355,250
Michael G. Acton (5)          -                -              200,000/500,000          $274,000/$695,000
</TABLE>

(1)      Value is based on the fair market value of our common stock on
         September 30, 2006 in the amount of $1.99 per share.

(2)      Mr. Derrick and Mr. Dalton hold 3,250,000 options with exercise prices
         ranging from $0.54 to $0.60 per share respectively. In addition,
         1,636,155 options ranging from $0.54 to $0.75 per share issued to ADP
         Management are included in both Mr. Derrick and Mr. Dalton's options in
         the table above. "Certain Relationships and Related Transactions."

(3)      The exercise price of these options are $0.60 per share.

(4)      The exercise price of these options are $0.60 per share.

(5)      The exercise prices of these options range from $0.54 to $0.70 per
         share.

Stock Plans

The 2006 RemoteMDx, Inc. Stock Incentive Plan

On July 10, 2006, the Board of Directors approved the 2006 RemoteMDx, Inc Stock
Incentive Plan ("2006 Plan"). The shareholders approved this plan on July 10,
2006. Under the 2006 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 10,000,000 shares are
authorized for issuance pursuant to awards granted under the 2006 Plan. No
grants have been made under this plan.

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

This Item 11 sets forth information known to us with respect to the beneficial
ownership of our common stock as of December 10, 2006. 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
December 10, 2006, 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.


                                       34
<PAGE>

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                  VATAS Holdings GmbH(2)              11,785,717         14.39%

      Common                   David G. Derrick (3)               11,520,076         14.09%
      Common                     James Dalton (4)                 11,291,365         13.81%
                                 J. Lee Barton (5)
                                196 No. Forest Ave.
      Common                    Hartwell, GA 30643                7,282,961          8.99%
      Common                  ADP Management Corp.(6)             6,259,691          7.68%
__________________
</TABLE>

         (1)  Unless otherwise indicated, the business address of the
              shareholder is the address of the Company, 150 West Civic Center
              Drive, Suite 400, Sandy, Utah 84070.

         (2)  Includes 3,000,000 shares of common stock, 1,785,717 are issuable
              upon conversion of Series C preferred stock, and 7,000,000 shares
              issuable upon exercise of warrants.

         (3)  Includes shares owned of record as follows: 3,278,527 shares held
              of record by ADP Management, 1,716,270 shares owned of record by
              Mr. Derrick, 1,345,009 shares issuable upon conversion of Series A
              preferred stock owned of record by ADP Management, 294,115 shares
              issuable upon conversion of Series B preferred stock owned of
              record by Mr. Derrick, 1,636,155 shares issuable upon exercise of
              stock options held by ADP Management, and 3,250,000 shares
              issuable upon exercise of stock options held by Mr. Derrick. Mr.
              Derrick is the secretary and treasurer of ADP Management.

         (4)  Includes shares owned of record as follows: 3,278,527 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), 1,486,725 shares owned of record by
              Mr. Dalton, 294,949 shares issuable upon conversion of Series A
              preferred stock owned of record by Mr. Dalton, 1,345,009 shares
              issuable upon conversion of Series A preferred stock owned of
              record by ADP Management, 1,636,155 shares issuable upon exercise
              of stock options held by ADP Management, and 3,250,000 shares
              issuable upon exercise of stock options held by Mr. Dalton.

         (5)  Includes 2,621,347 shares owned directly by Mr. Barton, 3,768,757
              shares owned of record by Lintel, Inc., an entity owned and
              controlled by Mr. Barton, and 892,857 shares issuable upon
              conversion of 297,619 shares of Series C preferred stock owned of
              record by Lintel, Inc.

         (6)  Includes 3,278,527 shares owned of record, 1,345,009 shares
              issuable upon conversion of Series A preferred stock, and
              1,636,155 shares issuable upon exercise of stock options held by
              ADP Management.


                                       35
<PAGE>

Security Ownership of Management

We have three classes of voting equity securities, the common stock, Series B
preferred stock and the Series C preferred stock. In addition, we have a class
of nonvoting Series A preferred stock that is convertible into common stock. The
following table sets forth information as of September 30, 2006, 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.

                            Name and                                 Percent of
 Title of Class   Address of Beneficial Owner(9)     Amount Owned       Class

   Common         David G. Derrick (1)                10,175,067         12.65%
                  James Dalton (2)                     9,651,407         12.04%
                  Michael G. Acton (4)                 1,070,507          1.34%
                  Peter McCall (5)                       720,000            *
                  Robert Childers (6)                    725,514            *

                  Larry Schafran (7)                       1,200            *
                  Randy Olshen (8)                     1,000,000          1.25%

                  David Hanlon                                 0            *
                  Officers and Directors as a
                      Group (6 persons) (9)           22,342,495         21.43%
-----------------

         (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
              700,000 shares issuable under options granted to Mr. Acton, and
              370,507 shares owned of record by Mr. Acton.

         (5)  Mr. McCall is a director. Includes 720,000 shares issuable upon
              exercise of stock options held by Mr. McCall.

         (6)  Mr. Childers is a director. Includes (a) 305,514 shares of common
              stock owned of record by the Robert E. Childers Living Trust, (b)
              420,000 shares issuable upon exercise of stock options held by Mr.
              Childers.

         (7)  Mr. Schafran is a director. Includes 1,200 shares held in Mr.
              Schafran's retirement account.

         (8)  Mr. Olshen is the President of SecureAlert, Inc. Includes
              1,000,000 shares issuable under options granted to Mr. Olshen.

         (9)  Duplicate entries eliminated.

Unless otherwise indicated, the business address of the shareholder is the
address of the Company, 150 West Civic Center Drive, Suite 400, Sandy, Utah
84070.

                  *Less than 1% ownership percentage.

Securities Authorized for Issuance under Equity Compensation Plans

The following table sets forth information as of the September 30, 2006, 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.

                                       36
<PAGE>

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                              10,000,000                $0.00                   10,000,000
</TABLE>

Item 12. Certain Relationships and Related Transactions and Director
Independence

The following discussion summarizes transactions between the Company and related
parties.

ADP Management Line of Credit Arrangement

As of September 30, 2006, the Company owed $44,549 to ADP Management, an entity
owned and controlled by two of the Company's officers and directors, under a
line-of-credit agreement. Outstanding amounts on the line of credit accrue at 5%
and are due on July 31, 2007. During the year ended September 30, 2006, the line
of credit increased $662,282 due to a monthly management fee, including Mr.
Derrick and Mr. Dalton's salary, owed to ADP Management and expenses incurred by
ADP Management that are reimbursable by the Company. The Company made cash
repayments during the year of $635,348.

As of the date of this Report, the Company's common stock traded on the OTC
Bulletin Board (the "Bulletin Board"). The Bulletin Board does not impose on the
Company standards relating to director independence or the makeup of committees
with independent directors, or provide definitions of independence.
Nevertheless, the Company has undertaken to appoint four individuals to its
Board of Directors, Messrs. Schafran, McCall, Childers and Hanlon, who are
independent under the NASDAQ Marketplace Rules and those standards applicable to
companies trading on NASDAQ.

Specifically, neither Mr. Schafran, Mr. Hanlon, Mr. Childers or Mr. McCall

         -    have been any time during the past three years was, employed by
              the Company or by any parent or subsidiary of the Company;

         -    have accepted or has a family member who accepted any compensation
              from the Company in excess of $60,000 during any period of twelve
              consecutive months within the three years preceding the
              determination of independence, other than the following:

         (i)  compensation for board or board committee service;

         -    is a family member of an individual who is, or at any time during
              the past three years was, employed by the Company as an executive
              officer;

         -    is, or has a Family Member who is, a partner in, or a controlling
              shareholder or an executive officer of, any organization to which
              the Company made, or from which the company received, payments for
              property or services in the current or any of the past three
              fiscal years that exceed 5% of the recipient's consolidated gross
              revenues for that year, or $200,000, whichever is more:

         -    is, or has a family member who is, employed as an executive
              officer of another entity where at any time during the past three
              years any of the executive officers of the Company serve on the
              compensation committee of such other entity; or

                                       37
<PAGE>

         -    is, or has a family member who is, a current partner of the
              Company's outside auditor, or was a partner or employee of the
              Company's outside auditor who worked on the Company's audit at any
              time during any of the past three years.

The Company has the following committees comprised of the following directors:

         Audit Committee:
                  Independent Directors: Mr. Schafran and Mr. McCall
                  Non-Independent Directors: Mr. Derrick

         Compensation Committee
                  Independent Directors: Mr. Childers and Mr. McCall
                  Non-Independent Directors: Mr. Derrick

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(1)     Articles of Incorporation dated July 27, 1995 and Articles of
                  Amendment dated September 8, 1997 (incorporated by reference
                  to Exhibit 3 to the Company's Registration Statement and
                  Amendments thereto on Form 10-SB, filed October 1, 1997).

      3.01(2)     Articles of Amendment dated July 31, 2001to Articles of
                  Incorporation, and changing name of Company to RemoteMDx, Inc.

      3.01(3)     Certificate of Amendment to Designation of Rights and
                  Preferences dated June 15, 2001, adopting Amended and Restated
                  Designation of Rights and Preferences of Series A 10%
                  Convertible Non-Voting Preferred Stock.

      3.01(4)     Articles of Amendment dated July 31, 2001 to Articles of
                  Incorporation adopting Designation of Rights and Preferences
                  of Series B Convertible Preferred Stock.

      3.01(5)     Certificate of Amendment dated January 16, 2002 to Designation
                  of Rights and Preferences Related to Series A 10% Cumulative
                  Convertible Preferred Stock of RemoteMDx, Inc., adopting Third
                  Amended and Restated Designation of Rights and Preferences of
                  Series A 10% Convertible Non-Voting Preferred Stock
                  (incorporated by reference to Exhibit 3 to the Annual Report
                  on Form 10-KSB of the Company filed January 22, 2002).

      3.01(6)     Certificate of Amendment dated December 16, 2003 to
                  Designation of Rights and Preferences Related to Series A 10%
                  Cumulative Convertible Preferred Stock of RemoteMDx, Inc.,
                  increasing number of shares of Series A Preferred to 40,000.

      3.01(7)     Articles of Amendment to the Articles of Incorporation of the
                  Company dated October 3, 2005, increasing number of shares of
                  Common Stock to 100,000,000.

      3.02        Bylaws of the Company adopted August 28, 1995 (incorporated by
                  reference to Exhibit 3 to our Registration Statement on Form
                  10-SB, filed October 1, 1997)

      10.01       Form of Senior Secured Convertible Promissory Note in
                  aggregate principal amount of $500,000 dated December 27,
                  2005.

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

                                       38
<PAGE>

      10.03       2004 RemoteMDx Stock Option Plan (incorporated by reference to
                  the definitive proxy statement of the Company filed on May 19,
                  2004).

      10.04       Agreement for cellular service with AT&T dated October 14,
                  2004.

      10.05       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).

      10.06       License Agreement between RemoteMDx, Inc. and SecureAlert,
                  Inc. as licensor and Matsushita Electric Works, Ltd., as
                  licensee (April 12, 2002; previously filed as an exhibit 10 to
                  the Company's Quarterly Report on Form 10-QSB for the quarter
                  ended March 31, 2002).

      10.07       Agreement with ADP Management, Derrick and Dalton (April 2003;
                  previously filed as an exhibit 10 to the Company's Quarterly
                  Report on Form 10-QSB for the quarter ended March 31, 2003).

      10.08       Form of Convertible Note Purchase Agreement between the
                  Company and certain investors, together with exhibits
                  including form of Convertible Note (previously filed as an
                  exhibit to the Company Current Report on Form 8-K filed on
                  November 2, 2005).

      10.09       Form of Convertible Bridge Note purchase agreement between the
                  Company and certain investors, together with exhibits
                  including form of Convertible Bridge Note (previously filed as
                  an exhibit to the Company Current Report on Form 8-K filed on
                  November 2, 2005).

      10.10       Form of Debenture Purchase Agreement between the Company and
                  certain investors, together with exhibits including form of
                  Debenture and Debenture Registration Rights Agreement
                  (previously filed as an exhibit to the Company Current Report
                  on Form 8-K filed on November 2, 2005).

      14          Code of Ethics (filed herewith).

      31.1        Certification of President and Chief Executive Officer under
                  Section 302 of Sarbanes-Oxley Act of 2002 (filed herewith).

      31.2        Certification of Chief Financial Officer under Section 302 of
                  Sarbanes-Oxley Act of 2002 (filed herewith).

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

Item 14.  Principal Accountant Fees and Services

For the years ended September 30, 2006 and 2005, Hansen, Barnett and Maxwell
(HBM) provided audit services for the Company.

Audit Fees

Audit services consist of the audit of the annual consolidated financial
statements of the Company, 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 HBM for fiscal years 2006 and 2005 totaled
approximately $94,000 and $50,000, respectively.

Tax Fees, Audit Related Fees, and All Other Fees

HBM has not provided any consulting services to the Company in fiscal years 2006
and 2005, including tax consultation and related services, nor did HBM perform
any financial information systems design and implementation services for the
Company in either period.

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


                                       39
<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: December 19, 2006 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               December 19, 2006
----------------------  Chief Executive Officer
David G. Derrick        (principal executive officer)



/s/ James Dalton        Director, Vice Chairman,              December 19, 2006
----------------------  President
James Dalton


/s/ Peter McCall        Director                              December 19, 2006
----------------------
Peter McCall


/s/ Robert E. Childers  Director                              December 19, 2006
----------------------
Robert E. Childers


/s/ Larry G. Schafran   Director                               December 19,2006
----------------------
Larry G. Schafran


/s/ David P. Hanlon     Director                               December 19, 2006
----------------------
David P. Hanlon


/s/ Michael G. Acton    Chief Financial Officer                December 19, 2006
----------------------  (principal financial officer)
Michael G. Acton












                                       40