UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 ______________________
  FORM
10-Q
  (Mark
One)
 
 [X]  QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 
 For
the quarterly period ended March 31, 2009
 
 or
 
 [  ]  TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 
 For
the transition period from ___________ to ____________
 
 Commission
file number: 0-23153
 ______________________
 
 REMOTEMDX,
INC.
 (Exact
name of registrant as specified in its charter)
 
 
 Utah
                87-0543981(State
      or other jurisdiction of incorporation or organization )
                (I.R.S.
      Employer Identification
Number)
 ______________________
 
 150 West Civic Center Drive,
Suite 400, Sandy, Utah 84070
 (Address
of principal executive
offices                                   Zip
Code)
 ______________________
 
 (801)
451-6141
 (Registrant’s
telephone number, including area code)
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90
days.     [X]  Yes    [   ]  No
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files)    [   ]  Yes  [   ]  No
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
 
 Large
      accelerated filer [  ]
                Accelerated
      filer [X]Non-accelerated
      filer [  ]
                Smaller
      reporting company
[  ]
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
 [   ]
Yes  [X]  No
 The
number of shares outstanding of the registrant’s common stock as of May 1, 2009
was 186,364,367.
 
 
  
  REMOTEMDX,
INC.
 
 FORM
10-Q
 
 For
the Quarterly Period Ended March 31, 2009
 
 INDEX
 
 PagePART
      I. FINANCIAL INFORMATIONItem
      1
                            Financial
      StatementsCondensed
      Consolidated Balance Sheets
                            3Condensed
      Consolidated Statements of Operations
                            5Condensed
      Consolidated Statements of Cash Flows
                            6Notes
      to Condensed Consolidated Financial Statements
                            8Item
      2
                            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                            22Item
      3
                            Quantitative
      and Qualitative Disclosures About Market Risk
                            27Item
      4
                            Controls
      and Procedures
                            27PART
      II.     OTHER INFORMATIONItem
      1
                            Legal
      Proceedings
                            29Item
      2
                            Unregistered
      Sales of Equity Securities and Use of Proceeds
                            29Item
      4
                            Submission
      of Matters to a Vote of Security Holders
                            29Item
      6
                            Exhibits
                            30Signatures
                            33
 
 
  
  2
  PART
I.  FINANCIAL INFORMATION
 
 Item
1.  Financial Statements
 
 
 
 REMOTEMDX,
INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 March
      31,
                  2009
                
                
                September
      30,
                  2008AssetsCurrent
      assets:Cash
                
                $
                738,194
                
                
                $
                2,782,953Deposit
      held in escrow
                
                
                -
                
                
                
                500,000Accounts
      receivable, net of allowance for doubtful accounts of  $186,000
      and $312,000, respectively
                
                
                1,364,672
                
                
                
                1,441,853Receivables
                
                
                986,598
                
                
                
                -Inventory
                
                
                157,542
                
                
                
                -Receivable
      from related party
                
                
                58,792
                
                
                
                55,385Prepaid
      expenses and other
                
                
                359,474
                
                
                
                224,842Total
      current assets
                
                
                3,665,272
                
                
                
                5,005,033Property
      and equipment, net of accumulated depreciation and amortization of
      $2,250,057 and $1,937,710, respectively
                
                
                1,411,624
                
                
                
                1,581,558Monitoring
      equipment, net of accumulated depreciation of $3,720,454 and $3,061,321,
      respectively
                
                
                4,166,571
                
                
                
                1,349,146Goodwill
                
                
                5,662,661
                
                
                
                4,811,834Intangible
      assets, net of amortization of $26,400 and $16,500,
      respectively
                
                
                206,600
                
                
                
                216,500Other
      assets
                
                
                176,562
                
                
                
                46,626Total
      assets
                
                $
                15,289,290
                
                
                $
                13,010,697
 
  See
accompanying notes to condensed consolidated financial
statements.
  3
  REMOTEMDX,
INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED BALANCE SHEETS – Continued
 (Unaudited)
 
 
 March
      31,
                                          2009
                                        
                                        
                                        September
      30,
                                          2008Liabilities
      and Stockholders’ Equity (Deficit)Current
      liabilities:Bank
      line of credit
                                        
                                        $
                                        900,000
                                        
                                        
                                        $
                                        3,462,285Accounts
      payable
                                        
                                        
                                        2,878,244
                                        
                                        
                                        
                                        2,059,188Accrued
      liabilities
                                        
                                        
                                        1,947,596
                                        
                                        
                                        
                                        1,781,267Deferred
      revenue
                                        
                                        
                                        52,557
                                        
                                        
                                        
                                        21,343SecureAlert
      Series A Preferred stock redemption obligation
                                        
                                        
                                        3,248,370
                                        
                                        
                                        
                                        3,244,758Related-party
      line of credit and notes
                                        
                                        
                                        1,654,912
                                        
                                        
                                        
                                        792,804Convertible
      promissory note, net of debt discount of $112,629
                                        
                                        
                                        2,587,371
                                        
                                        
                                        
                                        -Senior
      secured convertible notes, net of debt discount of
$269,890
                                        
                                        
                                        2,379,741
                                        
                                        
                                        
                                        -Current
      portion of long-term debt
                                        
                                        
                                        218,833
                                        
                                        
                                        
                                        465,664Total
      current liabilities
                                        
                                        
                                        15,867,624
                                        
                                        
                                        
                                        11,827,309Series
      A 15% debentures, net of debt discount of $2,709,999
                                        
                                        
                                        761,751
                                        
                                        
                                        
                                        -Long-term
      debt, net of current portion
                                        
                                        
                                        806,268
                                        
                                        
                                        
                                        1,147,382Total
      liabilities
                                        
                                        
                                        17,435,643
                                        
                                        
                                        
                                        12,974,691Commitments
      and contingenciesStockholders’
      equity (deficit):Preferred
      stock:Series
      A 10% dividend, convertible, non-voting, $0.0001 par value: 40,000 shares
      designated; 0 and 19 shares outstanding, respectively (aggregate
      liquidation preference of $0)
                                        
                                        
                                        -
                                        
                                        
                                        
                                        1Series
      B convertible, $0.0001 par value: 2,000,000 shares designated; 0 and
      10,999 shares outstanding, respectively (aggregate liquidation preference
      of $0)
                                        
                                        
                                        -
                                        
                                        
                                        
                                        1Common
      stock,  $0.0001 par value: 250,000,000 shares authorized;
      186,364,367 and 155,881,260 shares outstanding,
    respectively
                                        
                                        
                                        18,636
                                        
                                        
                                        
                                        15,588Additional
      paid-in capital
                                        
                                        
                                        193,364,359
                                        
                                        
                                        
                                        186,203,084Deferred
      compensation
                                        
                                        
                                        (2,840,203
                                        )
                                        
                                        
                                        (3,498,672
                                        )Subscription
      receivable
                                        
                                        
                                        (1,000,000
                                        )
                                        
                                        
                                        -Accumulated
      deficit
                                        
                                        
                                        (191,689,145
                                        )
                                        
                                        
                                        (182,683,996
                                        )Total
      stockholders’ equity (deficit)
                                        
                                        
                                        (2,146,353
                                        )
                                        
                                        
                                        36,006Total
      liabilities and stockholders’ equity (deficit)
                                        
                                        $
                                        15,289,290
                                        
                                        
                                        $
                                        13,010,697
 
 See
accompanying notes to condensed consolidated financial
statements.
  4
  REMOTEMDX,
INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three months
      ended
                                                      March 31,
                                                    
                                                    
                                                    Six months
      ended
                                                      March 31,2009
                                                    
                                                    
                                                    2008
                                                    
                                                    
                                                    2009
                                                    
                                                    
                                                    2008Revenues:Products
                                                    
                                                    $
                                                    10,460
                                                    
                                                    
                                                    $
                                                    39,249
                                                    
                                                    
                                                    $
                                                    418,144
                                                    
                                                    
                                                    $
                                                    1,108,627Monitoring
      services
                                                    
                                                    
                                                    3,037,254
                                                    
                                                    
                                                    
                                                    2,449,198
                                                    
                                                    
                                                    
                                                    5,851,868
                                                    
                                                    
                                                    
                                                    4,849,105Total
    revenues
                                                    
                                                    
                                                    3,047,714
                                                    
                                                    
                                                    
                                                    2,488,447
                                                    
                                                    
                                                    
                                                    6,270,012
                                                    
                                                    
                                                    
                                                    5,957,732Cost of
      revenues:Products
                                                    
                                                    
                                                    5,758
                                                    
                                                    
                                                    
                                                    72,865
                                                    
                                                    
                                                    
                                                    217,419
                                                    
                                                    
                                                    
                                                    651,686Monitoring
      services
                                                    
                                                    
                                                    2,753,500
                                                    
                                                    
                                                    
                                                    3,132,313
                                                    
                                                    
                                                    
                                                    5,657,295
                                                    
                                                    
                                                    
                                                    5,296,277Total cost of
      revenues
                                                    
                                                    
                                                    2,759,258
                                                    
                                                    
                                                    
                                                    3,205,178
                                                    
                                                    
                                                    
                                                    5,874,714
                                                    
                                                    
                                                    
                                                    5,947,963Gross margin
      (deficit)
                                                    
                                                    
                                                    288,456
                                                    
                                                    
                                                    
                                                    (716,731
                                                    )
                                                    
                                                    
                                                    395,298
                                                    
                                                    
                                                    
                                                    9,769Operating
      expenses:Selling, general and
      administrative(including
      $1,208,592, $2,373,097, $2,073,996 and $3,965,757, respectively, of
      compensation expense paid in stock or stock options /
      warrants)
                                                    
                                                    
                                                    3,810,452
                                                    
                                                    
                                                    
                                                    7,634,214
                                                    
                                                    
                                                    
                                                    7,899,726
                                                    
                                                    
                                                    
                                                    11,786,929Research and
      development
                                                    
                                                    
                                                    353,498
                                                    
                                                    
                                                    
                                                    2,848,036
                                                    
                                                    
                                                    
                                                    845,901
                                                    
                                                    
                                                    
                                                    3,713,380Loss from
      operations
                                                    
                                                    
                                                    (3,875,494
                                                    )
                                                    
                                                    
                                                    (11,198,981
                                                    )
                                                    
                                                    
                                                    (8,350,329
                                                    )
                                                    
                                                    
                                                    (15,490,540)Other income
      (expense):Gain on sale of  intellectual
      property
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    2,400,000Redemption of SecureAlert Series A
      Preferred
                                                    
                                                    
                                                    (22,327)
                                                    
                                                    
                                                    
                                                    (8,477,168)
                                                    
                                                    
                                                    
                                                    (3,611)
                                                    
                                                    
                                                    
                                                    (8,477,168)Minority interest
      allocation
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    30,285
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    14,587Interest
    income
                                                    
                                                    
                                                    1,761
                                                    
                                                    
                                                    
                                                    3,747
                                                    
                                                    
                                                    
                                                    3,443
                                                    
                                                    
                                                    
                                                    34,264Interest expense(including
      $608,195, $181,609, $829,599, $360,015, respectively, of interest expense
      paid in stock)
                                                    
                                                    
                                                    (1,055,157)
                                                    
                                                    
                                                    
                                                    (398,238)
                                                    
                                                    
                                                    
                                                    (1,534,903
                                                    )
                                                    
                                                    
                                                    (773,748)Acquisition option extension
      cost
                                                    
                                                    
                                                    (199,500)
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (199,500
                                                    )
                                                    
                                                    
                                                    -Other income (expense),
      net
                                                    
                                                    
                                                    1,079,726
                                                    
                                                    
                                                    
                                                    23,321
                                                    
                                                    
                                                    
                                                    1,079,751
                                                    
                                                    
                                                    
                                                    32,581Net loss from continuing
      operations
                                                    
                                                    
                                                    (4,070,991)
                                                    
                                                    
                                                    
                                                    (20,017,034)
                                                    
                                                    
                                                    
                                                    (9,005,149
                                                    )
                                                    
                                                    
                                                    (22,260,024)Discontinued
      operations
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (101,046)
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (200,000)Net loss
                                                    
                                                    
                                                    (4,070,991)
                                                    
                                                    
                                                    
                                                    (20,118,080)
                                                    
                                                    
                                                    
                                                    (9,005,149)
                                                    
                                                    
                                                    
                                                    (22,460,024)Dividends on Series A Preferred
      stock
                                                    
                                                    
                                                    (62)
                                                    
                                                    
                                                    
                                                    (178,002)
                                                    
                                                    
                                                    
                                                    (175)
                                                    
                                                    
                                                    
                                                    (345,139)Net loss attributable to common
      stockholders
                                                    
                                                    $
                                                    (4,071,053)
                                                    
                                                    
                                                    $
                                                    (20,296,082)
                                                    
                                                    
                                                    $
                                                    (9,005,324)
                                                    
                                                    
                                                    $
                                                    (22,805,163)Net loss per common
      sharefrom continuing
      operations, basic and
      diluted
                                                    
                                                    $
                                                    (0.02)
                                                    
                                                    
                                                    $
                                                    (0.15)
                                                    
                                                    
                                                    $
                                                    (0.06)
                                                    
                                                    
                                                    $
                                                    (0.17)Net loss per common
      sharefrom
      discontinued operations,basic and
      diluted
                                                    
                                                    $
                                                    (0.00)
                                                    
                                                    
                                                    $
                                                    (0.00)
                                                    
                                                    
                                                    $
                                                    (0.00)
                                                    
                                                    
                                                    $
                                                    (0.00)Net loss per common share, basic
      and diluted
                                                    
                                                    $
                                                    (0.02)
                                                    
                                                    
                                                    $
                                                    (0.15)
                                                    
                                                    
                                                    $
                                                    (0.06)
                                                    
                                                    
                                                    $
                                                    (0.17)Weighted average common shares
      outstanding, basic and diluted
                                                    
                                                    
                                                    171,282,000
                                                    
                                                    
                                                    
                                                    132,661,000
                                                    
                                                    
                                                    
                                                    163,724,000
                                                    
                                                    
                                                    
                                                    131,131,000
 
 See
accompanying notes to condensed consolidated financial
statements.
  5
  REMOTEMDX,
INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Six
      Months Ended
                                                      March
      31,2009
                                                    
                                                    
                                                    2008Cash
      flows from operating activities:Net
      loss
                                                    
                                                    $
                                                    (9,005,149
                                                    )
                                                    
                                                    $
                                                    (22,460,024
                                                    )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                                                    
                                                    
                                                    1,028,572
                                                    
                                                    
                                                    
                                                    1,187,008Common
      stock issued for services
                                                    
                                                    
                                                    654,624
                                                    
                                                    
                                                    
                                                    3,564,835Amortization
      of deferred financing and consulting costs
                                                    
                                                    
                                                    1,032,089
                                                    
                                                    
                                                    
                                                    2,890,578Stock
      options and warrants issued during the period for services
                                                    
                                                    
                                                    345,838
                                                    
                                                    
                                                    
                                                    445,117Common stock issuedforacquisition optionextension
    cost
                                                    
                                                    
                                                    19,500
                                                    
                                                    
                                                    
                                                    -Amortization
      of debt discount
                                                    
                                                    
                                                    426,837
                                                    
                                                    
                                                    
                                                    -Common
      stock issued to settle lawsuit
                                                    
                                                    
                                                    292,207
                                                    
                                                    
                                                    
                                                    -Redemption
      of SecureAlert series A preferred stock
                                                    
                                                    
                                                    3,612
                                                    
                                                    
                                                    
                                                    8,477,168Loss
      on discontinued operations
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    200,000Increase
      in related-party line of credit for services
                                                    
                                                    
                                                    143,958
                                                    
                                                    
                                                    
                                                    375,060Impairment
      of monitoring equipment
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    563,653Minority
      interest expense, net
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (14,587
                                                    )Changes
      in operating assets and liabilities:Accounts
      receivable, net
                                                    
                                                    
                                                    77,181
                                                    
                                                    
                                                    
                                                    2,373,495Deposit
      released from escrow
                                                    
                                                    
                                                    500,000
                                                    
                                                    
                                                    
                                                    -Interest
      receivable (payable)
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (9,068
                                                    )Inventories
                                                    
                                                    
                                                    (157,542
                                                    )
                                                    
                                                    
                                                    -Prepaid
      expenses and other assets
                                                    
                                                    
                                                    (273,313
                                                    )
                                                    
                                                    
                                                    757,090Receivables
                                                    
                                                    
                                                    (981,261
                                                    )
                                                    
                                                    
                                                    -Accounts
      payable
                                                    
                                                    
                                                    734,093
                                                    
                                                    
                                                    
                                                    (738,960
                                                    )Accrued
      liabilities
                                                    
                                                    
                                                    134,273
                                                    
                                                    
                                                    
                                                    1,419,208Deferred
      revenue
                                                    
                                                    
                                                    31,214
                                                    
                                                    
                                                    
                                                    (115,363
                                                    )Net
      cash used in operating activities
                                                    
                                                    
                                                    (4,993,267
                                                    )
                                                    
                                                    
                                                    (1,084,790
                                                    )Cash
      flows from investing activities:Purchase
      of property and equipment
                                                    
                                                    
                                                    (178,963
                                                    )
                                                    
                                                    
                                                    (96,553
                                                    )Purchase
      of monitoring equipment
                                                    
                                                    
                                                    (783,773
                                                    )
                                                    
                                                    
                                                    (214,698
                                                    )Disposal
      of monitoring equipment
                                                    
                                                    
                                                    2,268
                                                    
                                                    
                                                    
                                                    -Net
      cash used in investing activities
                                                    
                                                    
                                                    (960,468
                                                    )
                                                    
                                                    
                                                    (311,251
                                                    )Cash
      flows from financing activities:Principal
      payments on related-party line of credit
                                                    
                                                    
                                                    (531,850
                                                    )
                                                    
                                                    
                                                    (575,963
                                                    )Principal
      payments on notes payable
                                                    
                                                    
                                                    (189,312
                                                    )
                                                    
                                                    
                                                    (170,590
                                                    )Cash
      acquired through acquisitions
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    160,898Net
      borrowings (reductions) on bank line of credit
                                                    
                                                    
                                                    87,346
                                                    
                                                    
                                                    
                                                    (3,123,036
                                                    )Proceeds
      from notes payable
                                                    
                                                    
                                                    55,744
                                                    
                                                    
                                                    
                                                    23,410Principal
      payments on notes payable related to acquisitions
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (2,100,000
                                                    )Proceeds
      from issuance of subsidiary stock
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    2,400,000Proceeds
      from related-party notes payable
                                                    
                                                    
                                                    1,500,000
                                                    
                                                    
                                                    
                                                    1,106,791Proceeds
      from issuance of common stock
                                                    
                                                    
                                                    100,000
                                                    
                                                    
                                                    
                                                    -Payment
      on related-party notes payable
                                                    
                                                    
                                                    (584,702
                                                    )
                                                    
                                                    
                                                    -Proceeds
      from exercise of options and warrants
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    2,658,380Proceeds
      from Series A 15% debenture
                                                    
                                                    
                                                    3,471,750
                                                    
                                                    
                                                    
                                                    -Net
      cash provided by financing activities
                                                    
                                                    
                                                    3,908,976
                                                    
                                                    
                                                    
                                                    379,890Net
      decrease in cash
                                                    
                                                    
                                                    (2,044,759
                                                    )
                                                    
                                                    
                                                    (1,016,151
                                                    )Cash,
      beginning of period
                                                    
                                                    
                                                    2,782,953
                                                    
                                                    
                                                    
                                                    4,803,871Cash,
      end of period
                                                    
                                                    $
                                                    738,194
                                                    
                                                    
                                                    $
                                                    3,787,720
  See
accompanying notes to condensed consolidated financial
statements.
  6
  REMOTEMDX,
INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
 (Unaudited)
 Six
      Months Ended
                                                        March  31,2009
                                                      
                                                      
                                                      2008Cash
      paid for interest
                                                      
                                                      $
                                                      488,793
                                                      
                                                      
                                                      $
                                                      239,113Supplemental
      schedule of non-cash investing and financing activities:Issuance
      of shares of common stock in exchange for shares of Series B
      Preferredstock
                                                      
                                                      
                                                      2
                                                      
                                                      
                                                      
                                                      2Issuance
      of shares of common stock and warrants in exchange for deferred consulting
      services and financing costs
                                                      
                                                      
                                                      373,620
                                                      
                                                      
                                                      
                                                      403,200Accrual
      of Series A Preferred stock dividends
                                                      
                                                      
                                                      175
                                                      
                                                      
                                                      
                                                      344,933Issuance
      of common stock for payment of SecureAlert Series A Preferred
      dividends
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      465,703Issuance
      of common stock in acquisition of Midwest Monitoring & Surveillance,
      Inc.
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      1,668,780Issuance
      of common stock in acquisition of Court Programs, Inc. Court Programs of
      Florida, Inc. and Court Programs of Northern Florida, Inc.
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      847,500Issuance
      of shares of common stock for subscription receivable
                                                      
                                                      
                                                      1,000,000
                                                      
                                                      
                                                      
                                                      -Issuance
      of shares of common stock in connection with debt
                                                      
                                                      
                                                      3,520,334
                                                      
                                                      
                                                      
                                                      -Cancellation
      of common stock issued
                                                      
                                                      
                                                      175
                                                      
                                                      
                                                      
                                                      -Acquisition
      of monitoring equipment through issuance of debt
                                                      
                                                      
                                                      2,700,000
                                                      
                                                      
                                                      
                                                      -Stock
      and options issued in connection with acquisition of Bishop Rock Software,
      Inc.
                                                      
                                                      
                                                      856,522
                                                      
                                                      
                                                      
                                                      -Issuance
      of common stock to settle notes payable and accrued
    interest
                                                      
                                                      
                                                      187,793
                                                      
                                                      
                                                      
                                                      -Line
      of credit paid through the issuance of Senior convertible
      notes
                                                      
                                                      
                                                      2,649,631
                                                      
                                                      
                                                      
                                                      -
 
 See
accompanying notes to condensed consolidated financial
statements.
  7
  REMOTEMDX,
INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 
 (1) Basis
of Presentation
 
 The
unaudited interim consolidated financial information of RemoteMDx, Inc. and
subsidiaries (collectively, the “Company” or “RemoteMDx”) has been prepared in
accordance with Article 10 of Regulation S-X promulgated by the Securities and
Exchange Commission.  Certain information and disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations.  In the
opinion of management, the accompanying interim consolidated financial
information contains all adjustments, consisting only of normal recurring
adjustments necessary to present fairly the Company’s financial position as of
March 31, 2009, and results of its operations for the three and six months ended
March 31, 2009 and 2008.  These financial statements should be read in
conjunction with the annual consolidated financial statements and notes thereto
that are included in the Company’s Annual Report on Form 10-K for the year ended
September 30, 2008.  The results of operations for the three and six
months ended March 31, 2009 may not be indicative of the results for the fiscal
year ending September 30, 2009.
 
 (2) Going
Concern
  The
Company has recurring net losses, negative cash flows from operating activities,
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 achieve successful
operations, the Company must generate positive cash flows from operating
activities and obtain the necessary funding to meet its projected capital
investment requirements.
 
 Management’s
plans with respect to this uncertainty include raising additional capital from
the issuance of Series A 15% debentures, sale of common stock, expanding its
market for its tracking products, and increasing monitoring service
revenues.  There can be no assurance that revenues will increase
rapidly enough to deliver profitable operating results and pay the Company’s
debts as they come due.  Likewise, there can be no assurance 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 cash flows
from operating activities or obtain additional financing, it will be unable to
continue the development of its business and may have to cease
operations.
  (3)           Principles
of Consolidation
  The
condensed consolidated financial statements include the accounts of RemoteMDx
and its subsidiaries. All significant inter-company transactions have been
eliminated in consolidation.
 
 (4)           Recently
Issued Accounting Standards
 
 In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of
Intangible Assets(FSP FAS 142-3). FSP FAS 142-3 amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under SFAS
No. 142, Goodwill and Other
Intangible Assets. The intent of this FSP is to improve the consistency
between the useful life of a recognized intangible asset under SFAS 142 and the
period of expected cash flows used to measure the fair value of the asset under
SFAS No. 141(R) and other generally accepted accounting principles. FSP FAS
142-3 is effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2008. The Company has not yet determined the
effect on its consolidated financial statements, if any, that will occur upon
adoption of FSP FAS 142-3.
 
 In May
20008, the FASB issued FSP APB 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement).  FSP APB 14-1 clarifies that convertible debt
instruments that may be settled in cash upon conversion (including partial cash
settlement) are not addressed by paragraph 12 ofAPB Opinion
No. 14,Accounting for
Convertible Debt and Debt Issued with Stock Purchase Warrants,and specifies that issuers of such
instruments should separately account for the liability and equity components in
a manner that will reflect the entity's nonconvertible debt borrowing rate when
interest cost is recognized in subsequent periods. FSP APB 14-1 is effective for
financial statements issued for fiscal years beginning after December 15, 2008
and interim periods within those fiscal years. The Company has not yet
determined the effect on its consolidated financial statements, if any, will
occur upon adoption of FSP APB 14-1.
  8
 
 In June
2008, the FASB ratified EITF Issue No. 07-5, Determining Whether an Instrument
(or an Embedded Feature) Is Indexed to an Entity's Own Stock (EITF 07-5).
EITF 07-5 provides that an entity should use a two step approach to evaluate
whether an equity-linked financial instrument (or embedded feature) is indexed
to its own stock, including evaluating the instrument's contingent exercise and
settlement provisions. It also clarifies on the impact of foreign currency
denominated strike prices and market-based employee stock option valuation
instruments on the evaluation. EITF 07-5 is effective for fiscal years beginning
after December 15, 2008. The Company has not yet determined the effect on its
consolidated financial statements, if any, that will occur upon adoption of EITF
07-5.
 
 In
November 2008, the FASB ratified EITF Issue No. 08-7, Accounting for Defensive Intangible
Assets. EITF 08-7 clarifies the accounting for certain separately
identifiable intangible assets which an acquirer does not intend to actively use
but intends to hold to prevent its competitors from obtaining access to them.
EITF 08-7 requires an acquirer in a business combination to account for a
defensive intangible asset as a separate unit of accounting which should be
amortized to expense over the period the asset diminishes in value. EITF 08-7 is
effective for fiscal years beginning after December 15, 2008, with early
adoption prohibited. We are currently evaluating the impact of the pending
adoption of EITF 08-7 on our consolidated financial statements.
 
 In
December 2008, the FASB issued FASB Staff Position FAS 140-4 and FIN 46(R)-8,
Disclosures by Public Entities
(Enterprises) about Transfers of Financial Assets and Interests in Variable
Interest Entities ("FSP FAS 140-4 and FIN 46(R)-8"). FSP FAS 140-4 and
FIN 46(R)-8 amends SFAS 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities and FIN
46(R), FASB Interpretation No.
46 (R), Consolidation of Variable Interest Entities, an interpretation of
Accounting Research Bulletin No. 51, to require public entities to
provide additional disclosures about transfers of financial assets and their
involvement with variable interest entities. FSP FAS 140-4 and FIN 46(R)-8 is
effective for the first interim or annual reporting period ending after December
15, 2008. The Company has not yet determined the effect on its consolidated
financial statements, if any, will occur upon adoption of FSP FAS 140 and FIN
46(R)-8.
 
 In
November 2008, the FASB ratified EITF No. 08-8, “Accounting for an
Instrument (or an Embedded Feature) with a Settlement Amount That Is Based on
the Stock of an Entity’s Consolidated Subsidiary,” (EITF08-8).EITF08-8 clarifies whether a
financial instrument for which the payoff to the counterparty is based, in whole
or in part, on the stock of an entity’s consolidated subsidiary is indexed to
the reporting entity’s own stock and therefore should not be precluded from
qualifying for the first part of the scope exception in paragraph 11
(a) of SFAS No. 133, “Accounting for Derivative Instruments and
Hedging Activities” or from being within the scope of EITF No. 00-19,
“Accounting for Derivative Financial Instruments Indexed to, and, Potentially
Settled in, a Company’s Own Stock.”EITF08-8 is effective for fiscal years beginning on or after
December 15, 2008, and interim periods within those fiscal years. The
Company has not yet determined the effect on its consolidated financial
statements, if any, that will occur upon adoption of EITF 08-5.
 
 In September 2008, the FASB ratified
EITF Issue No. 08-5,Issuer’s Accounting
for Liabilities Measured at Fair Value With a Third-Party Credit
Enhancement(EITF 08-5).
EITF 08-5 provides guidance for measuring liabilities issued with an attached
third-party credit enhancement (such as a guarantee). It clarifies that the
issuer of a liability with a third-party credit enhancement (such as a
guarantee) should not include the effect of the credit enhancement in the fair
value measurement of the liability. EITF 08-5 is effective for the first
reporting period beginning after December 15, 2008.The Company has not
yet determined the effect on its consolidated financial statements, if any, that
will occur upon adoption of EITF 08-5.
 
 (5)           Impairment
of Long-Lived Assets
  The
Company reviews its long-lived assets for impairment when events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable. The Company evaluates, at each balance sheet date, whether events
and circumstances have occurred which indicate possible impairment. The Company
uses an estimate of future undiscounted net cash flows of the related asset or
group of assets over the estimated remaining life in measuring whether the
assets are recoverable. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized for the amount by which
the carrying amount exceeds the estimated fair value of the asset. Impairment of
long-lived assets is assessed at the lowest levels for which there are
identifiable cash flows that are independent of other groups of assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value, less the estimated costs to sell.  During the six months ended
March 31, 2009 and 2008, the Company disposed of $0 and $563,653, respectively,
in monitoring equipment that no longer had value.  This expense was
classified as cost of revenues.
  9
 
 (6)           Revenue
Recognition
 
 The
Company’s revenue has historically been from two sources: (i) monitoring
services; (ii) monitoring device and other product sales.
 
 Monitoring
Services
 Monitoring
services include two components: (a) lease contracts in which the Company
provides monitoring services and leases devices to distributors or end users and
the Company retains ownership of the leased device; and (b) monitoring services
purchased by distributors or end users who have previously purchased monitoring
devices and opt to use the Company’s monitoring services.
 
 The
Company typically leases its devices under one-year contracts with customers
that opt to use the Company’s monitoring services.  However, these
contracts may be cancelled by either party at anytime with 30 days
notice.  Under the Company’s standard leasing contract, the leased
device becomes billable on the date of activation or 21 days from the date the
device is assigned to the lessee, and remains billable until the device is
returned to the Company.  The Company recognizes revenue on leased
devices at the end of each month that monitoring services have been
provided.  In those circumstances in which the Company receives
payment in advance, the Company records these payments as deferred
revenue.
 
 Monitoring Device Product
Sales
 Although
not the focus of the Company’s business model, the Company sells its monitoring
devices in certain situations. In addition, the Company sells home security and
PERS units.  The Company recognizes product sales revenue when
persuasive evidence of an arrangement with the customer exists, title passes to
the customer and the customer cannot return the devices, prices are fixed or
determinable (including sales not being made outside the normal payment terms)
and collection is reasonably assured. When
purchasing products (such as TrackerPAL devices) from the Company, customers
may, but are not required to, enter into monitoring service contracts with the
Company.  The Company recognizes revenue on monitoring services for
customers that have previously purchased devices at the end of each month that
monitoring services have been provided.
 
 Multiple Element
Arrangements
 The
majority of the Company’s revenue transactions do not have multiple elements. On
occasion, the Company has revenue transactions that have multiple elements (such
as product sales and monitoring services).  For revenue arrangements
that have multiple elements, the Company considers whether: (i) the delivered
devices have standalone value to the customer; (ii) there is objective and
reliable evidence of the fair value of the undelivered monitoring services,
which is generally determined by surveying the price of competitors’ comparable
monitoring services; and (iii) the customer does not have a general right of
return.  Based on these criteria, the Company recognizes revenue from
the sale of devices separately from the monitoring services to be provided to
the customer.  In accordance with EITF 00-21, if the fair value of the
undelivered element exists, but the fair value does not exist for one or more
delivered elements, then revenue is recognized using the residual method. Under
the residual method as applied to these particular transactions, the fair value
of the undelivered element (the monitoring services) is deferred and the
remaining portion of the arrangement (the sale of the device) is recognized as
revenue when the device is delivered and all other revenue recognition criteria
are met.
 
 Other
Matters
 The
Company considers an arrangement with payment terms longer than the Company’s
normal terms not to be fixed or determinable, and revenue is recognized when the
fee becomes due.  Normal payment terms for the sale of monitoring
services are 30 days, and normal payment terms for device sales are between 120
and 180 days.  The Company sells its devices and services directly to
end users and to distributors.  Distributors do not have general
rights of return.  Also, distributors have no price protection or
stock protection rights with respect to devices sold to them by the
Company.  Generally, title and risk of loss pass to the buyer upon
delivery of the devices.
 
 The
Company estimates its product returns based on historical experience and
maintains an allowance for estimated returns, which is recorded as a reduction
to accounts receivable and revenue.
 
 Shipping
and handling fees are included as part of net revenues.  The related
freight costs and supplies directly associated with shipping products to
customers are included as a component of cost of revenues.
  10
 
 (7)           Net
Loss Per Common Share
 
 Basic net
loss per common share ("Basic EPS") is computed by dividing net loss
attributable to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted net loss per common share
("Diluted EPS") is computed by dividing net loss attributable to common
stockholders 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
stock equivalents consist of shares issuable upon the exercise of common stock
options and warrants, shares issuable upon conversion of debt. As of March 31,
2009 and 2008, there were 66,685,379 and 17,455,912 outstanding common stock
equivalents, respectively, that were not included in the computation of diluted
net loss per common stock as their effect would be anti-dilutive. The common
stock equivalents outstanding as of March 31, 2009, consisted of 43,640,714
shares of common stock from the potential conversion of $8,977,686 of debt and
accrued interest, and 23,044,665 shares underlying options and
warrants.  Of the 23,044,665 shares underlying options and warrants,
19,360,331 shares underlie options and warrants which have vested and 3,684,334
shares underlie options and warrants which have not yet vested.
 
 (8)           Equity-based
Compensation
 
 Effective
October 1, 2006, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 123R, using the modified prospective method. SFAS No. 123R requires
the recognition of the cost of employee services received in exchange for an
award of equity instruments in the financial statements and is measured based on
the grant date fair value of the award. SFAS No. 123R also requires the stock
option compensation expense to be recognized over the period during which an
employee is required to provide service in exchange for the award (the vesting
period). Prior to adopting SFAS No. 123R, the Company accounted for its
stock-based compensation plans under Accounting Principles Board Opinion ("APB")
No. 25, Accounting for Stock
Issued to Employees ("APB 25"). Under APB 25, generally no compensation
expense is recorded when the terms of the award are fixed and the exercise price
of the employee stock option equals or exceeds the fair value of the underlying
stock on the date of grant. The Company adopted the disclosure-only provisions
of SFAS No. 123, Accounting
for Stock-Based Compensation.
 
 For
options granted subsequent to October 1, 2006, the fair value of each stock
option grant will be estimated on the date of grant using the Black-Scholes
option pricing model.  The expected life of stock options represents
the period of time that the stock options granted are expected to be outstanding
based on historical exercise trends. The expected volatility is based on the
historical price volatility of common stock. The risk-free interest rate
represents the U.S. Treasury bill rate for the expected life of the related
stock options. The dividend yield represents the Company’s anticipated cash
dividends over the expected life of the stock options. The Company granted
1,517,714 and 25,000 stock options to employees during the six months ended
March 31, 2009 and 2008, respectively.
  11
  A summary
of stock option activity for the six months ended March 31, 2009, is presented
below:
 Shares
                                                                  Under
                                                                  Option
                                                                
                                                                
                                                                Weighted
                                                                  Average
                                                                  Exercise
                                                                  Price
                                                                
                                                                Weighted
                                                                  Average
                                                                  Remaining
                                                                  Contractual
                                                                  Life
                                                                
                                                                Aggregate
                                                                  Intrinsic
                                                                  ValueOutstanding
      as of September 30, 2008
                                                                
                                                                
                                                                3,600,000
                                                                
                                                                
                                                                $
                                                                1.08Granted
                                                                
                                                                
                                                                1,517,714
                                                                
                                                                
                                                                $
                                                                0.21Exercised
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                $
                                                                -Forfeited
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                $
                                                                -Expired
      / Cancelled
                                                                
                                                                
                                                                (408,500
                                                                )
                                                                
                                                                $
                                                                1.45Outstanding
      as of  March 31, 2009
                                                                
                                                                
                                                                4,709,214
                                                                
                                                                
                                                                $
                                                                0.76
                                                                
                                                                3.20
      years
                                                                
                                                                $
                                                                72,699Exercisable
      as of  March 31, 2009
                                                                
                                                                
                                                                1,694,880
                                                                
                                                                
                                                                $
                                                                0.31
                                                                
                                                                3.46
      years
                                                                
                                                                $
                                                                72,699
  (9)           RECEIVABLES
  On March
31, 2009, the Company agreed to the sum of $950,000 in satisfaction of certain
claims asserted by the Company and in exchange for mutual general
releases.  The payor denied any wrongdoing in connection with such
claims and in accepting the payment the Company acknowledged that the payment is
not an admission of any wrongdoing on the part of the payor. Payment was
received on April 9, 2009.
 
 Additionally,
the Company had $36,598 of other receivables resulting in a total of $986,598 as
of March 31, 2009.
 
 (10)         INVENTORY
  Inventory
is recorded at the lower of cost or market, cost being determined on a first-in
(“FIFO”) method.  Substantially all items included in inventory
consisted of parts related to the manufacturing of the Company’s TrackerPAL
devices.  Inventory was $157,542 as of March 31, 2009 and $0 as of
September 30, 2008.
  (11)         PROPERTY
AND EQUIPMENT
 
 Property
and equipment as of March 31, 2009 and September 30, 2008, were as
follows:
  March
      31,
                                          2009
                                        
                                        
                                        September
      30,
                                          2008Equipment,
      software and tooling
                                        
                                        $
                                        2,588,442
                                        
                                        
                                        $
                                        2,472,076Automobiles
                                        
                                        
                                        305,658
                                        
                                        
                                        
                                        287,736Building
      and land
                                        
                                        
                                        377,555
                                        
                                        
                                        
                                        377,555Leasehold
      improvements
                                        
                                        
                                        102,190
                                        
                                        
                                        
                                        102,190Furniture
      and fixtures
                                        
                                        
                                        287,836
                                        
                                        
                                        
                                        279,7113,661,681
                                        
                                        
                                        
                                        3,519,268Accumulated
      depreciation
                                        
                                        
                                        (2,250,057
                                        )
                                        
                                        
                                        (1,937,710
                                        )Property
      and equipment, net of accumulated depreciation
                                        
                                        $
                                        1,411,624
                                        
                                        
                                        $
                                        1,581,558
 
 Depreciation
expense for the six months ended March 31, 2009 and 2008 was $354,592 and
$306,567, respectively.
  12
  (12)         MONITORING
EQUIPMENT
 
 Monitoring
equipment as of March 31, 2009 and September 30, 2008, was as
follows:
 
 March
      31,
                                      2009
                                    
                                    
                                    September
      30,
                                      2008Monitoring
      equipment
                                    
                                    $
                                    7,887,025
                                    
                                    
                                    $
                                    4,410,467Less:
      accumulated depreciation
                                    
                                    
                                    (3,720,454
                                    )
                                    
                                    
                                    (3,061,321
                                    )Total
                                    
                                    $
                                    4,166,571
                                    
                                    
                                    $
                                    1,349,146
 
 The
Company began leasing monitoring equipment to agencies for offender tracking in
April 2006 under operating lease arrangements.  The monitoring
equipment is depreciated using the straight-line method over an estimated useful
life of 3 years.
 
 Depreciation
expense for the six months ended March 31, 2009 and 2008 was $664,080 and
$486,782, respectively.  These expenses were classified as a cost of
revenues.
 
 (13)         GOODWILL
AND OTHER INTANGIBLE ASSETS
 
 Midwest Monitoring &
Surveillance
 Effective
December 1, 2007, the Company purchased a 51% ownership interest, including a
voting interest, of Midwest Monitoring & Surveillance (“Midwest”) for
$1,800,000 in notes payable and up to 438,000 shares of the Company’s common
stock.  The notes payable of $1,800,000 were paid off on January 18,
2008.  The RemoteMDx shares issued as part of the consideration for
the Midwest shares were placed in escrow and were released by the Company in
March 2008.
 
 Midwest
provides electronic monitoring for individuals on parole.  The primary
reason for the acquisition of Midwest was the expansion of Company’s technology
and name recognition throughout the mid-western, central and eastern United
States.  The total consideration for the purchase of Midwest was
$4,400,427 comprised of notes payable of $1,800,000, shares of common stock
valued at $1,752,000 (438,000 shares valued at $4.00 per share), transaction
costs of $31,497, and long-term liabilities assumed of $816,930.
 
 The total
consideration of $4,400,427 less the tangible assets acquired of $674,679
resulted in an excess over net book value of $3,725,748.  The excess
over net book value was allocated as follows:
  Goodwill
      and Other Intangible AssetsGoodwill
                          
                          $
                          3,603,748Trade
      name
                          
                          
                          120,000Non-compete
      agreements
                          
                          
                          2,000Excess
      over net book value
                          
                          $
                          3,725,748
  The
Company recorded $4,500 of amortization expense for Midwest intangible assets
during the six months ended March 31, 2009 resulting in net intangible assets of
$110,000.
 
 In March
2009, the Company extended the option period for the purchase of the remaining
49% ownership of Midwest to April 15, 2010.  The Company agreed to
give the following consideration to Midwest owners to extend this
option:
 
 1)
              150,000
      shares of common stock valued at $0.13 per share for a total of
      $19,500.
 2)
              $75,000
      in cash upon execution of the
agreement.
 3)
              $105,000
      in cash paid in ten equal payments of $10,500 beginning April 15, 2009
      through January 15, 2010.
 
 Court
Programs
 Effective
December 1, 2007, the Company purchased a 51% ownership interest, including a
voting interest, of Court Programs, Inc., a Mississippi corporation, Court
Programs of Northern Florida, Inc., a Florida corporation, and Court Programs of
Florida, Inc., a Florida corporation (collectively, “Court Programs”) for
$300,000 in a note payable and up to 212,000 shares of the Company’s common
stock.  The RemoteMDx shares issued as part of the consideration for
the purchase of Court Programs were placed in escrow and were released by the
Company in August 2008.
  13
 
 Court
Programs is a distributor of electronic monitoring devices to courts providing a
solution to monitor individuals on parole.  The primary reasons to
acquire Court Programs are to expand the Company’s technology and to increase
the Company’s name recognition throughout the eastern United
States.  The total consideration for the purchase of Court Programs
was $1,527,743 delineated as follows: note payable of $300,000, shares of common
stock valued at $847,500 (212,000 shares valued at approximately $4.00 per
share), transaction costs of $45,324, and long-term liabilities assumed of
$334,919.
 
 The total
consideration of $1,527,743 less the tangible assets acquired of $208,658
resulted in an excess over net book value of $1,319,086.  The excess
over net book value was allocated as follows:
 
 Goodwill
      and Other Intangible AssetsGoodwill
                        
                        $
                        1,208,086Trade
      name
                        
                        
                        99,000Customer
      relationships
                        
                        
                        6,000Non-compete
      agreements
                        
                        
                        6,000Excess
      over net book value
                        
                        $
                        1,319,086
  The
Company recorded $5,400 of amortization expense on intangible assets for Court
Programs during the six months ended March 31, 2009 resulting in net intangible
assets of $96,600.
 
 Subsequent
to March 31, 2009, the Company and Court Programs agreed to extend the period
for the Company’s acquisition of the remaining 49% of Court Programs until April
15, 2010.
 
 Bishop Rock
Software
 Effective
January 14, 2009, the Company purchased a 100% ownership interest, including a
voting interest, of Bishop Rock Software, Inc., a California corporation,
(“Bishop Rock”) for 2,857,286 shares of the Company’s common stock valued at
$0.23 per share for a total of $657,176, 642,714 options to the Company’s common
stock with an exercise price of $0.09 per share for a value of $114,383 using
the Black-Scholes calculation, and $79,268 in debt for a total purchase price of
$850,827.  Bishop Rock has developed crime-scene correlation software
to be used with the TrackerPAL monitoring device. As of the date of this Report,
the goodwill and intangible assets have not yet been valued; and therefore, the
value of $850,827 has all been reflected as goodwill until the valuation is
completed.  It is anticipated that the valuation of Bishop Rock’s
goodwill and intangible assets will be completed by July 31, 2009.
 
 In
connection with the acquisitions of Midwest, Court Programs, and Bishop Rock
Software the Company recorded goodwill and other intangible
assets.  The table below shows the allocation of the goodwill and
identified intangibles for each company:
  Goodwill
      and other intangible assets, net of amortizationGoodwillMidwest
                  
                  $
                  3,603,748Court
      Programs
                  
                  
                  1,208,086Bishop
      Rock
                  
                  
                  850,827Other
      intangible assetsMidwest,
      net of amortization of $12,000
                  
                  
                  110,000Court
      Programs, net of amortization of $14,400
                  
                  
                  96,600Total
      goodwill and other intangible assets, net of amortization
                  
                  $
                  5,869,261
  14
  Supplemental
Pro Forma Results of Operations
 The following tables present the pro
forma results of operations for the three and six months ended March 31, 2009
and 2008, as though theMidwest, Court Programs, and Bishop Rock
acquisitions had been completed as of the beginning of each period
presented:
 
 Three Months
      EndedMarch 31,2009
                                                  
                                                  
                                                  2008Revenues:Products
                                                  
                                                  $
                                                  10,460
                                                  
                                                  
                                                  $
                                                  39,249Monitoring
      services
                                                  
                                                  
                                                  3,037,254
                                                  
                                                  
                                                  
                                                  2,449,198Total
      revenues
                                                  
                                                  
                                                  3,047,714
                                                  
                                                  
                                                  
                                                  2,488,447Cost of
      revenues:Products
                                                  
                                                  
                                                  (5,758
                                                  )
                                                  
                                                  
                                                  (72,865)Monitoring
      services
                                                  
                                                  
                                                  (2,753,500
                                                  )
                                                  
                                                  
                                                  (3,132,313)Total
      cost of revenues
                                                  
                                                  
                                                  (2,759,258
                                                  )
                                                  
                                                  
                                                  (3,205,178)Gross
      margin
                                                  
                                                  
                                                  288,456
                                                  
                                                  
                                                  
                                                  (716,731)Operating
      expenses:Selling,
      general and administrative
                                                  
                                                  
                                                  (3,822,285
                                                  )
                                                  
                                                  
                                                  (7,746,148)Research
      and development
                                                  
                                                  
                                                  (353,498
                                                  )
                                                  
                                                  
                                                  (2,848,036)Loss
      from operations
                                                  
                                                  
                                                  (3,887,327
                                                  )
                                                  
                                                  
                                                  (11,310,915)Other income
      (expense):RedemptionSecureAlert Series A Preferred
      stock
                                                  
                                                  
                                                  (22,327)
                                                  
                                                  
                                                  
                                                  (8,477,168)Minority
      interest allocation
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  30,285Extension
      financing cost
                                                  
                                                  
                                                  (199,500)
                                                  
                                                  
                                                  
                                                  -Other
      income (loss)
                                                  
                                                  
                                                  1,079,726
                                                  
                                                  
                                                  
                                                  23,321Interest
      income
                                                  
                                                  
                                                  1,761
                                                  
                                                  
                                                  
                                                  3,747Interest
      expense
                                                  
                                                  
                                                  (1,055,157
                                                  )
                                                  
                                                  
                                                  (398,238)Net lossfrom continuing
      operations
                                                  
                                                  
                                                  (4,082,824
                                                  )
                                                  
                                                  
                                                  (20,128,968)Discontinued operations
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (101,046)Net loss
                                                  
                                                  $
                                                  (4,082,824
                                                  )
                                                  
                                                  $
                                                  (20,230,014)Dividends on Series A Preferred stock
                                                  
                                                  
                                                  (62
                                                  )
                                                  
                                                  
                                                  (178,002)Net loss attributable to common
      stockholders
                                                  
                                                  $
                                                  (4,082,886
                                                  )
                                                  
                                                  $
                                                  (20,408,016)Net loss per common sharefrom continuing
      operations,basic and
      diluted
                                                  
                                                  $
                                                  (0.02
                                                  )
                                                  
                                                  $
                                                  (0.15)Net loss per common sharefrom discontinued
      operations,basic and
      diluted
                                                  
                                                  $
                                                  (0.00
                                                  )
                                                  
                                                  $
                                                  (0.00)Net loss per common share – basic
      and diluted
                                                  
                                                  $
                                                  (0.02
                                                  )
                                                  
                                                  $
                                                  (0.15)Weighted average common shares
      outstanding – basic and diluted
                                                  
                                                  
                                                  171,282,000
                                                  
                                                  
                                                  
                                                  132,661,000
  15
 
 Six Months
      Ended
                                                  March 31,2009
                                                
                                                
                                                2008Revenues:Products
                                                
                                                $
                                                418,144
                                                
                                                
                                                $
                                                1,108,627Monitoring
      services
                                                
                                                
                                                5,851,868
                                                
                                                
                                                
                                                5,767,044Total
      revenues
                                                
                                                
                                                6,270,012
                                                
                                                
                                                
                                                6,875,671Cost of
      revenues:Products
                                                
                                                
                                                (217,419
                                                )
                                                
                                                
                                                (651,686)Monitoring
      services
                                                
                                                
                                                (5,657,295
                                                )
                                                
                                                
                                                (5,786,840)Total
      cost of revenues
                                                
                                                
                                                (5,874,714
                                                )
                                                
                                                
                                                (6,438,526)Gross
      margin
                                                
                                                
                                                395,298
                                                
                                                
                                                
                                                437,145Operating
      expenses:Selling,
      general and administrative
                                                
                                                
                                                (7,927,394
                                                )
                                                
                                                
                                                (12,380,293)Research
      and development
                                                
                                                
                                                (845,901
                                                )
                                                
                                                
                                                (3,713,380)Loss
      from operations
                                                
                                                
                                                (8,377,997
                                                )
                                                
                                                
                                                (15,656,528)Other income
      (expense):Gain
      on sale of intellectual property
                                                
                                                
                                                -
                                                
                                                
                                                
                                                2,400,000RedemptionSecureAlert Series A Preferred
      stock
                                                
                                                
                                                (3,611)
                                                
                                                
                                                
                                                (8,477,168)Minority
      interest allocation
                                                
                                                
                                                -
                                                
                                                
                                                
                                                14,587Extension
      financing cost
                                                
                                                
                                                (199,500)
                                                
                                                
                                                
                                                -Other
      income (loss)
                                                
                                                
                                                1,079,751
                                                
                                                
                                                
                                                32,581Interest
      income
                                                
                                                
                                                3,443
                                                
                                                
                                                
                                                34,264Interest
      expense
                                                
                                                
                                                (1,534,903
                                                )
                                                
                                                
                                                (789,903)Net lossfrom continuing
      operations
                                                
                                                
                                                (9,032,817
                                                )
                                                
                                                
                                                (22,442,167)Discontinued
      operations
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (200,000)Net loss
                                                
                                                $
                                                (9,032,817
                                                )
                                                
                                                $
                                                (22,642,167)Dividends on Series A Preferred stock
                                                
                                                
                                                (175
                                                )
                                                
                                                
                                                (345,139)Net loss attributable to common
      stockholders
                                                
                                                $
                                                (9,032,992
                                                )
                                                
                                                $
                                                (22,987,306)Net loss per common sharefrom continuing
      operations,basic and
      diluted
                                                
                                                $
                                                (0.06
                                                )
                                                
                                                $
                                                (0.18)Net loss per common sharefrom discontinued
      operations,basic and
      diluted
                                                
                                                $
                                                (0.00
                                                )
                                                
                                                $
                                                (0.00)Net loss per common share – basic
      and diluted
                                                
                                                $
                                                (0.06
                                                )
                                                
                                                $
                                                (0.18)Weighted average common shares
      outstanding – basic and diluted
                                                
                                                
                                                163,724,000
                                                
                                                
                                                
                                                131,131,000
 
 (14)         BANK
LINE OF CREDIT
 
 In March
2009, the Company issued $2,649,631 in Senior Secured Convertible notes to
reduce the line of credit to $900,000 and extended the maturity date with the
bank to March 1, 2010. As of March 31, 2009, the Company’s outstanding balance
under this line of credit with a bank was $900,000. The interest rate is 7%. The
line of credit is secured by letters of credit for a total of $900,000 and
SecureAlert’s assets, excluding TrackerPAL products. The letters of credit were
provided as collateral by three unrelated individuals.  In addition,
the Company will make monthly interest payments, at a rate of 11% annually, on
the line of credit to the entities that provided and arranged for the letters of
credit.
  16
  (15)        
ACCRUED LIABILITIES
 
 
 Accrued
liabilities consisted of the following as of March 31, 2009 and September 30,
2008:
  March
      31,
                              2009
                            
                            
                            September
      30,
                              2008Accrued
      payroll and employee benefits
                            
                            $
                            464,962
                            
                            
                            $
                            451,485Accrued
      board of directors fees
                            
                            
                            300,000
                            
                            
                            
                            205,000Accrued
      warranty and manufacturing costs
                            
                            
                            247,844
                            
                            
                            
                            291,423Accrued
      interest
                            
                            
                            245,777
                            
                            
                            
                            97,383Accrued
      legal and consulting fees
                            
                            
                            235,399
                            
                            
                            
                            91,720Accrued
      extension payments
                            
                            
                            130,000
                            
                            
                            
                            -Accrued
      bonuses
                            
                            
                            118,671
                            
                            
                            
                            83,763Commissions
                            
                            
                            100,000
                            
                            
                            
                            56,828Accrued
      outside services
                            
                            
                            54,525
                            
                            
                            
                            118,665Accrued
      indigent fund
                            
                            
                            26,850
                            
                            
                            
                            -Other
      accrued expenses
                            
                            
                            14,136
                            
                            
                            
                            -Accrued
      cellular costs
                            
                            
                            9,432
                            
                            
                            
                            -Accrued
      lawsuit liability
                            
                            
                            -
                            
                            
                            
                            385,000Total
                            
                            $
                            1,947,596
                            
                            
                            $
                            1,781,267
   (16)        
CONVERTIBLE PROMISSORY NOTE
  
 On
January 15, 2009, the Company entered into an unsecured convertible promissory
note for $2,700,000 in order to purchase TrackerPAL units.  The note
may convert into shares of the Company’s common stock at a conversion price of
$0.22 per share.  The note bears interest at 8% per annum and matures
on January 15, 2010. Interest is due monthly and the principal is due at
maturity. The fair market value of the common stock was $0.23 per share on the
date the Company entered into the agreement resulting in a beneficial conversion
feature of $122,727.  This was recorded as a debt discount and will be
expensed over the life of the note. As of March 31, 2009, the remaining balance
of the debt discount was $112,629.
  (17)        
SENIOR SECURED CONVERTIBLE NOTES
  
 On March
1, 2009, the Company entered into senior secured convertible notes of $2,649,631
with three unrelated parties to pay down the Company’s line of credit from
$3,600,000 to $900,000.  The interest rate is 15% per annum and the
notes mature on March 13, 2010.  Interest is due monthly and the
principal is due at maturity.  These notes may convert into shares of
the Company’s common stock at a conversion price of $0.20 per share, or into
shares of SecureAlert at the fair market value on the date of conversion. In
connection with the issuance of these notes, the Company issued 2,649,630 shares
of common stock valued at $283,890. The value of $283,890 was recorded as a debt
discount and will be expensed over the life of these notes.  As of
March 31, 2009 the remaining balance of the debt discount was
$269,890.
  (18)        
SERIES A 15% DEBENTURES
 During
the six months ended March 31, 2009, the Company received $3,400,000 in cash
from the issuance of Series A 15% debentures.  Additionally, the
Company issued to a vendor debentures in the principal amount of $71,750 for
services rendered to the Company.  As of March 31, 2009, the total
outstanding balance of the debentures was $3,471,750.  The terms of
these debentures are as follows: 1) 15% interest per annum.  Interest
is due quarterly and principal is due at maturity, 2) 18-month maturity, 3) for
every $1 invested into the debenture the holder received 1 share of the
Company’s common stock, and 4) at the holder’s option, the debenture may be
converted into shares of common stock at a conversion rate of $0.20 per share.
In connection with the issuance of these debentures, the Company recorded a debt
discount from a beneficial conversion feature of $1,580,763.  This
discount of $1,580,763 will be expensed over the life of these
debentures.
  17
  In
September 2008, the Company sold 4,077,219 shares of common stock at $0.75 per
share to an entity.  Shortly following the transaction, the Company’s
common stock price fell to approximately $0.20 per share. The Company and the
other party agreed upon the investor’s investment of an additional $3,000,000
(included in the $3,471,750 discussed in the paragraph above) in the Series A
15% debenture that the Company would issue 9,796,636 additional
shares.  Furthermore, the Company agreed to reprice outstanding
warrants from $1.00 to $0.25 per share and extend the purchase period an
additional two years. The issuance of these shares and repricing of the warrants
attributed an additional $1,531,974 to the debt discount resulting in a total
$3,112,737 in a debt discount to be amortized over the life of the
debentures.  During the six months ended March 31, 2009, the Company
amortized $402,738 of this debt discount and recorded it as interest
expense.  As of March 31, 2009, the debt discount balance was
$2,709,999.
 
 (19)         DEBT
OBLIGATIONS
 
 Debt
obligations as of March 31, 2009 and September 30, 2008 consisted of the
following:
  March 31,
                                          
                                          
                                          September
    30,2009
                                          
                                          
                                          2008SecureAlert,
      Inc.Unsecured note payable to a former
      subsidiary bearing interest at 5%.  The note matures on December
      31, 2009.
                                          
                                          $
                                          314,091
                                          
                                          
                                          $
                                          598,793Unsecured notes payable to former
      SecureAlert stockholders, with interest at 5.00%, payable in installments
      of $80,000 per month. These notes were paid off during the six months
      ended March 31, 2009 in connection with the settlement of the Natale and
      Boling lawsuit.
                                          
                                          
                                          -
                                          
                                          
                                          
                                          169,676Court
      ProgramsNote payable due to the Small
      Business Administration (“SBA”).  Note bears interest at 6.04%
      and matures on April 6, 2037.  The note is secured by monitoring
      equipment.
                                          
                                          
                                          227,380
                                          
                                          
                                          
                                          229,100Unsecured revolving lines of
      credit with two banks, with interest rates between 4.85 % and
      13.49%.
                                          
                                          
                                          23,124
                                          
                                          
                                          
                                          48,499Unsecured note payable with
      interest rate of 8%. The note matures on May 31,
    2010.
                                          
                                          
                                          2,560
                                          
                                          
                                          
                                          16,028Automobile loan secured by the
      vehicle.  Loan bears interest at 7.09%, and matures on June 21,
      2014.
                                          
                                          
                                          33,084
                                          
                                          
                                          
                                          -MidwestNotes payable to a financial
      institution bearing interest at 6.37%.  Notes mature in July
      2011 and July 2016.  The notes are secured by
      property.
                                          
                                          
                                          216,927
                                          
                                          
                                          
                                          247,675Notes payable for monitoring
      equipment.  Interest rates range between 7.8% to 18.5% and
      mature January 2009 through November 2011.  The notes are
      secured by monitoring equipment.
                                          
                                          
                                          100,603
                                          
                                          
                                          
                                          199,747Automobile loans with several
      financial institutions secured by the vehicles.  Interest rates
      range between 6.9% and 8.5%, due between January 2010 and October
      2011.
                                          
                                          
                                          53,436
                                          
                                          
                                          
                                          43,570Note payable to a stockholder of
      Midwest.  The note bears interest at 4.9% maturing on February
      22, 2013.
                                          
                                          
                                          53,896
                                          
                                          
                                          
                                          59,958Total debt
      obligations
                                          
                                          $
                                          1,025,101
                                          
                                          
                                          $
                                          1,613,046Less current
      portion
                                          
                                          
                                          (218,833
                                          )
                                          
                                          
                                          (465,664
                                          )Long-term debt, net of current
      portion
                                          
                                          $
                                          806,268
                                          
                                          
                                          $
                                          1,147,382
  18
  (20)        
RELATED-PARTY TRANSACTIONS
  The
Company has entered into certain transactions with related parties. These
transactions consist mainly of financing transactions and consulting
arrangements.
 
 Related-Party
Line of Credit
 
 As of
March 31, 2009, the Company owed $154,912 under a line-of-credit agreement with
ADP Management, an entity owned and controlled by two of the Company’s
directors, Mr. Derrick and Mr. Dalton.  Mr. Derrick is also the
Company’s Chief Executive Officer. Outstanding amounts on the line of credit
accrue interest at 11% per annum and are due on August 31,
2009.  During the six months ended March 31, 2009, the net decrease
under this line of credit was $387,892. The decrease of $387,892 consisted of
cash repayments of $554,613 offset, in part, by $166,721 of expenses owed to ADP
Management that are reimbursable by the Company.
 
 Related-Party
Note Payable
 
 In
November 2008, the Company borrowed $1,000,000 from Mr. Derrick, the Chief
Executive Officer of the Company.  The unsecured note payable accrues
interest at 15% and is due and payable upon the Company receiving cash proceeds
of $1,000,000 or more from the sale of common stock or other additional
financing activities or February 4, 2009, whichever comes first.  The
Company and Mr. Derrick subsequently agreed to convert this note payable into a
future financing instrument.  The Company paid to Mr. Derrick a loan
origination fee of $50,000 in cash and 100,000 shares of restricted common
stock.  In February, Mr. Derrick loaned an additional $500,000 to the
Company resulting in a total of $1,500,000 due to Mr. Derrick.  The
Company and Mr. Derrick agreed to extend the due date of the full obligation to
February 26, 2010.  As of March 31, 2009, the Company owed $1,500,000
plus $61,163 in accrued interest to Mr. Derrick.
 
 Related-Party
Note Payable
 
 In
September 2008, the Company borrowed $250,000 from Randy Olshen, the former
President of SecureAlert.  The unsecured note payable accrues interest
at 11% and is due and payable on December 31, 2009 or upon demand whichever
comes first.  As of March 31, 2009, this note was paid in
full.
 
 Related-Party
Note Receivable
 
 The
Company acquired a 51% ownership in Midwest Monitoring & Surveillance, Inc.
(“Midwest”) effective December 1, 2007.  Prior to the sale to the
Company, Midwest had entered into a loan arrangement with Gary Bengtson, the
Chief Financial Officer of Midwest.  As of March 31, 2009, Mr.
Bengtson owed the Company $58,792. The note receivable accrues interest at 12%
and was due and payable on March 31, 2009.  Subsequent to March 31,
2009, no payment has been made on this loan.
 
 (21)         PREFERRED
STOCK
 
 Series
A 10% Convertible Non-Voting Preferred Stock
 
 Each
share of Series A Preferred stock is convertible into 370 shares of common
stock. During the six months ended December 31, 2008, 19 shares of Series A
Preferred stock were converted into 9,306 shares of common stock.  As
of March 31, 2009, there were no shares of Series A Preferred stock outstanding. The
holders of the Series A Preferred stock 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 or in additional shares of Series A Preferred stock
at the discretion of the board of directors. Dividends are fully cumulative and
accrue from the date of original issuance. During the six months ended March 31,
2009 and 2008, the Company recorded $175 and $206, respectively, in dividends
for Series A Preferred stock.
  19
 
 Series
B Convertible Preferred Stock
 
 During
the six months ended March 31, 2009 and 2008, 10,999 and 2,000 shares of Series
B Convertible Preferred stock were converted into 10,999 and 15,000 shares of
common stock, respectively.  As of March 31, 2009, there were no
shares of Series B Preferred stock outstanding.
 
 SecureAlert,
Inc. Preferred Stock
 
 On March
24, 2008, SecureAlert redeemed all outstanding shares of SecureAlert Series A in
exchange for 7,434,249 shares of RemoteMDx common stock for a value of
$8,549,386.  The former SecureAlert Series A stockholders are entitled
to receive quarterly contingency payments through March 23, 2011 based on a rate
of $1.54 per day times the number of SecureAlert’s parolee contracts calculated
in days during the quarter.  The Company estimated and accrued
$3,248,370 for future contingency payments.  The Company will make
quarterly adjustments as necessary to reflect the difference between the
estimated and actual contingency payments to the former SecureAlert Series A
stockholders.  During the six months ended March 31, 2009, RemoteMDx
recorded $3,611 in other expense to reflect the change between the estimated and
actual contingency payments.
  (22)        
COMMON STOCK
  During
the six months ended March 31, 2009, the Company issued 30,483,107 shares of
RemoteMDx common stock as follows:
  ·
              3,737,500
      shares were issued for services performed for a value of
      $854,625.
  ·
              150,000
      shares were issued to extend the purchase agreement between Midwest and
      the Company.
  ·
              3,200,000
      shares were issued to settle
lawsuits.
  ·
              1,750,000
      shares were cancelled that were previously issued for
      services.
  ·
              5,350,000
      shares were issued for net cash proceeds of
  $1,000,000.
  ·
              16,918,016
      shares were issued in connection with
debt.
  ·
              9,306
      shares were issued from the conversion of 19 shares of Series A Preferred
      stock.
  ·
              10,999
      shares were issued from the conversion of 10,999 shares of Series B
      Preferred stock.
  ·
              2,857,286
      shares were issued in connection with the purchase of Bishop Rock
      Software.
  Upon
shareholder approval, the Company amended the Articles of Incorporation of
RemoteMDx, Inc. and filed the amendment with the State of Utah Department of
Commerce Division of Corporation and Commercial Code on March 5, 2009 to
increase the authorized shares of common stock from 175,000,000 to
250,000,000.
 
 Common
Stock Options and Warrants
  As of
March 31, 2009, 19,360,331 of the 23,044,665 outstanding options and warrants
were vested with a weighted average exercise price of $1.30 per share. No stock
options and warrants were exercised during the six months ended March 31, 2009.
Of the 23,044,665 shares underlying options and warrants, 19,360,331 shares
underlie options and warrants which have vested, and 3,684,334 shares underlie
options and warrants which have not vested.
 
 The
Company currently has issued and outstanding options, warrants, convertible
notes and other instruments for the acquisition of the Company’s common stock in
excess of the available authorized but unissued shares of common stock provided
for under the Company’s Articles of Incorporation, as amended.  As a
consequence, in the event that the holders of such instruments requiring the
issuance, in the aggregate, of a number of shares of common stock that would,
when combined with the previously issued and outstanding common stock of the
Company exceed the authorized capital of the Company, seek to exercise their
rights to acquire shares under those instruments, the Company will be required
to increase the number of authorized shares or effect a reverse split of the
outstanding shares in order to provide sufficient shares for issuance under
those instruments.
  20
  (23)        
SUBSEQUENT EVENTS
  Subsequent
to March 31, 2009, the Company entered into the following
transactions:
 
 1)
              The
      Company received $100,000 in cash from an entity in connection with the
      issuance of the Series A 15%
debentures.
 
 2)
              The
      Company received $250,000 in cash from a related party from the issuance
      of the Series A 15% debenture.  As additional inducement, the
      Company granted 2,200,000 one-year warrants with an exercise price of
      $0.25 per share.
 
 3)
              Effective
      April 1, 2009, the Company and the seller agreed to extend the period for
      the Company to complete its acquisition of the remaining 49% ownership of
      Court Programs to April 15, 2010. In consideration of the extension of
      time, the Company gave the following to the buyer: 1) forgiveness of
      $94,154 in outstanding charges and expenses, 2) an increase of salary of
      $18,000 to the seller, who is an employee of the Company and an executive
      officer of Court Programs, and 3) payment of $15,000 in automobile
      expenses on behalf of the same employee and
  officer.
 
 (24)         COMMITMENTS
AND CONTINGENCIES
 
 Satellite Tracking of
People, L.L.C. (a/k/a STOP, LLC) and Michelle Enterprises, LLC v. Pro Tech
Monitoring, Inc., Omnilink Systems, Inc., and SecureAlert: A patent
infringement suit was filed against the Company and other defendants in the
United States District Court for the Eastern District of Texas on March 19,
2008.  Plaintiffs have alleged that the Defendants infringe United States
Patent No. RE39,909 ('909 Patent), Tracking System for Locational
Tracking of Monitored Persons.  On May 14, 2008, the Company
answered the complaint, denying Plaintiffs allegations and asserting various
affirmative defenses. The Company also asserted a counterclaim for declaratory
judgment that the Company has not infringed the '909 Patent and that the patent
is invalid. On February 17, 2009 the United States Patent and Trademark Office
("USPTO") granted a request for reexamination of the '909 Patent.  The
USPTO is now in the process of reexamining the claims of the '909 Patent. The
Company intends to vigorously defend the case and prosecute its counterclaim.
The Company has not accrued any potential loss as the probability of incurring a
material loss is deemed remote by management, after consultation with legal
counsel.
 
 RemoteMDx, Inc. v. Satellite
Tracking of People, L.L.C. (a/k/a STOP, LLC):  The Company
filed a patent infringement suit against STOP in the United States District
Court for the Central District of California on May 2, 2008.  The
Company has asserted that STOP infringes United States Patent No. 7,330,122 for
a remote tracking and communication device and method for processing data from
the device ("'122 patent"), in which the Company holds all rights and
interests.  STOP moved to dismiss the original complaint and also
filed an answer and counterclaim.  The motion to dismiss was granted
with leave to amend.  The Company filed an amended complaint on August
5, 2008.  The amended complaint seeks damages for infringement
according to proof, treble damages, injunctive relief enjoining the
infringement, and costs and attorney's fees.  STOP's counterclaim is
for declaratory relief, seeking a declaration that STOP has not infringed the
'122 patent and that the '122 patent is invalid. The Company filed an answer to
the counterclaim.  The Company intends to vigorously prosecute its
claims and defend against the counterclaim.
 
 Frederico and Erica
Castellanos, v. Volu-Sol, Inc.  On August 15, 2008, plaintiffs
Frederico and Erica Castellanos filed a lawsuit in the Superior Court of the
State of California, Los Angeles County.  The complaint names
twenty-four Defendants and one hundred unnamed Doe Defendants.  The
complaint asserts claims for negligence, strict liability - failure to warn,
strict liability - design defect, fraudulent concealment, breach of implied
warranties, and loss of consortium based on Mr. Castellanos' alleged exposure to
certain chemicals during the course of his employment.  One of the
original named Defendants was Logos Scientific, Inc.  On September 4,
2008, Plaintiffs amended their complaint to substitute "Volu-Sol, Inc. as
successor in interest to Logos Scientific, Inc." for the previously unnamed Doe
1.  Volu-Sol, Inc. was the original name of RemoteMDx,
Inc.  The Company intends to vigorously defend itself against
Castellanos’ claims.  The Company has not accrued any potential loss
as the probability of incurring a material loss is deemed remote by management,
after consultation with legal counsel.
  21
 
 SecureAlert, v. David Ezell,
et al.  The Company has filed a claim against David Ezell and
several related entities for breach of contract, unjust enrichment, conversion,
and punitive damages, and seeks approximately $290,810 in damages, as well as
other amounts to be proven at trial.  The case is in the discovery
stage.
 
 Informal
Inquiry.  In March 2008, the Company was advised by letter from
the U.S. Securities and Exchange Commission (“SEC”), Salt Lake District Office,
that it has begun an informal inquiry regarding the Company.  The
inquiry, among other items, relates to the Company’s revenue recognition policy
and documents, relationship with stockholders, and business.  The SEC
has advised the Company in its correspondence that this informal inquiry should
not be construed as an indication that any violation of law has occurred, nor
should it be considered a reflection upon any person, entity, or
security.  We voluntarily disclosed this inquiry in our Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31,
2008.  There were no material developments in this matter during the
fiscal quarter ended March 31, 2009.
 
 Item
2.    Management’s Discussion and Analysis of Financial
Condition and Results of Operations
 Forward-looking
Statements
 
 This
report contains information that constitutes “forward-looking statements” within
the meaning of the Private Securities Litigation Reform Act of 1995 and Section
21E of the Securities Exchange Act.  Generally, the statements
contained in this report that are not purely historical can be considered to be
“forward-looking statements.”  These statements represent our
expectations, hopes, beliefs, anticipations, commitments, intentions, and
strategies regarding the future.  They may be identified by the use of
words or phrases such as “believes,” “expects,” “intends,” “anticipates,”
“should,” “plans,” “estimates,” “potential,” and “will,” among
others.  Forward-looking statements include, but are not limited to,
statements contained in Management’s Discussion and Analysis of Financial
Condition and Results of Operations regarding our Company’s financial
performance, revenue, and expense levels in the future and the sufficiency of
our existing assets to fund future operations and capital spending
needs.  We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.  In addition, forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from our Company’s historical experience and our present
expectations or projections.  These risks and uncertainties include,
but are not limited to, those described in “Risk Factors” in our most recent
Annual Report on Form 10-K, and those described from time to time in our future
reports filed with the Securities and Exchange Commission.
 
 The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the condensed consolidated
financial statements and notes thereto that are contained in this Report, as
well as Management’s Discussion and Analysis and Plan of Operation in our Annual
Report on Form 10-K for the year ended September 30, 2008, and Current Reports
on Form 8-K that have been filed with the SEC through the date of this
Report.
 
 General
 
 RemoteMDx
and subsidiaries (collectively, the “Company”) market, monitor and sell the
TrackerPAL device.  The TrackerPAL is used to monitor convicted
offenders that are on probation or parole in the criminal justice
system.  The TrackerPAL device utilizes GPS and cellular technologies
in conjunction with a monitoring center that is staffed 365 days a
year.  The Company believes that its technologies and services benefit
law enforcement officials by allowing them to respond immediately to a problem
involving the monitored offender.  The parole and probation population
consists of approximately 4.9 million adults in the United States of America
criminal justice system at any given time. The TrackerPAL is targeted to meet
the needs of this market as well as the international market.
 
 Strategy
 
 Our
strategy is to empower law enforcement, corrections and rehabilitation
professionals with sole-sourced offender management programs, which grant
offenders accountable opportunity, while providing for greater public safety at
a lower cost. We will accomplish our strategy through the deployment of our
SecureAlert GPS/RF Tracking, Intervention Monitoring and Rehabilitation
Technologies to corrections, probation, law enforcement and rehabilitation
services agencies worldwide, all in support of offender reformation and
re-socialization initiatives. Our exclusive portfolio of products and services
balance the need to dynamically track and monitor offenders with the opportunity
to positively encourage and transform offenders, thus reducing recidivism
through our proprietary C.A.R.E.TM (Correction, Accountability, Rehabilitation,
Empowerment) programs and client-adapted initiatives. We will continue to
develop and deploy adaptive, cost-effective products and services, which meet
the ever-changing needs of our clients, while providing enhanced public safety
at a lower cost.
  22
 
 Critical
Accounting Policies
 
 In Notes
1 through 3 to the consolidated financial statements for the fiscal year ended
September 30, 2008 included in the Company’s Form 10-K, the Company discusses
those accounting policies that are considered to be significant in determining
its results of operations and its financial position.
 
 The
preparation of 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. We assess the reasonableness of 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 as well as available current information on a regular
basis.  Management uses this information to form the basis for making
judgments about the carrying value of assets and liabilities.  Actual
results may differ from these estimates under different assumptions or
conditions.
 
 Recent
Developments
 
 Subsequent
to March 31, 2009, the Company entered into the following
transactions:
 
 1)
              The
      Company received $100,000 in cash from an entity in connection with the
      issuance of the Series A 15%
debentures
 
 2)
              The
      Company received $250,000 in cash from a related party from the issuance
      of Series A 15% debenture.  As additional inducement, the
      Company granted 2,200,000 one-year warrants with an exercise price of
      $0.25 per share.
 
 3)
              Effective
      April 1, 2009, the Company and the seller agreed to extend the period for
      the Company to complete its acquisition of the remaining 49% ownership of
      Court Programs to April 15, 2010. In consideration of the extension of
      time, the Company gave the following to the buyer: 1) forgiveness of
      $94,154 in outstanding charges and expenses, 2) an increase of salary of
      $18,000 to the seller, who is an employee of the Company and an executive
      officer of Court Programs, and 3) payment of $15,000 in automobile
      expenses on behalf of the same employee and
  officer.
 
 Results
of Operations
 
 Three months ended March 31, 2009,
compared to three months ended March 31, 2008
 
 Revenues
 
 For the
three months ended March 31, 2009, the Company had revenues from continuing
operations of $3,047,714 compared to $2,488,447 for the three months ended March
31, 2008, an increase of $559,267. The increase in revenues resulted primarily
from the monitoring of offender tracking devices and providing probation
services to individuals on parole.  The operating results of our
subsidiaries, SecureAlert, Midwest and Court Programs, are described in the
following paragraphs.
 
 SecureAlert
had revenues of $1,465,732 during the three months ended March 31, 2009,
compared to revenues of $1,119,713 for the three months ended March 31, 2008.
The increase of $346,019 resulted primarily from increased monitoring of
offender tracking devices. Revenues from monitoring services increased from
$1,065,279 to $1,446,842 for the three months ended March 31, 2009 over the same
period in 2008. SecureAlert’s revenues for the three months ended March 31, 2009
also included $10,460 from devices sales compared to $33,333 in the same period
in 2008. Since the Company’s focus is on monitoring of tracking devices attached
to individuals on parole, revenues from home and personal security systems
decreased from $21,101 to $8,430 for the three months ended March 31, 2009
compared to the same period in 2008.  No SecureAlert customer
accounted for 10% or more of SecureAlert’s revenues during the three months
ended March 31, 2009 or 2008.
  23
 
 Midwest
had revenues of $975,317 during the three months ended March 31, 2009, compared
to revenues of $807,342 in the prior year period.  The increase of
$167,975 resulted primarily from increased monitoring of offender tracking
devices and probation services. During the three months ended March 31, 2009,
the Rock County Sheriff accounted for $175,562, or 18% of Midwest’s
revenues.  No other customer accounted for 10% or more on Midwest’s
revenues.
 
 Court
Programs had revenues of $603,255 during the three months ended March 31, 2009,
compared to revenues of $561,392 in the prior year quarter.  The
increase of $41,863 resulted primarily from increased monitoring of offender
tracking devices and probation services. No Court Program customer accounted for
10% or more of Court Program’s revenues during the three months ended March 31,
2009 or 2008.
 
 On
January 14, 2009, the Company purchased Bishop Rock Software.  During
the three months ended March 31, 2009, revenues from Bishop Rock Software were
$3,410.
 
 Cost
of Revenues
 
 For the
three months ended March 31, 2009, cost of revenues for continuing operations
declined to $2,759,258 compared to $3,205,178 during the three months ended
March 31, 2008, a decrease of $445,920.  Even though the number of
SecureAlert’s average billable devices increased during the three months ended
March 31, 2009 by 1,330 devices, compared to the same period in 2008, cost of
revenues decreased due to a $550,200 reduction of expenses associated with
impairment of devices resulting from water ingress problems with the Company’s
older device, savings of monitoring center labor costs of $92,149 resulting from
an increase in software automation, and lower communication costs of $58,547
resulting in reduced SIM coverage plans.
 
 SecureAlert’s
cost of revenues for the three months ended March 31, 2009 was $1,721,715, or
117% of revenues.  The largest components of these costs were
communication costs of $604,506, monitoring center costs of $424,581, and
amortization of $380,929. During the three months ended March 31, 2008, cost of
revenues was $2,361,108 or 211% of revenues and the principal components
included commissions of $106,736, communication costs of $663,053, monitoring
center costs of $516,730, amortization of $221,662, warranty reserve expense of
$105,742, impairment of TrackerPAL devices of $550,200, and other TrackerPAL
costs of $154,533.
 
 Midwest’s
cost of revenues totaled $633,565, or 65% of revenues for the three months ended
March 31, 2009, compared to $549,107 for the same period in
2008.  Court Program’s cost of revenues totaled $403,978, or 67% of
revenues for the three months ended March 31, 2009, compared to $294,963 for the
three months ended March 31, 2008.
 
 Research
and Development Expenses
 
 During
the three months ended March 31, 2009 and 2008, research and development expense
from continuing operations was $353,498 and $2,848,036, respectively, and
consisted primarily of expenses associated with the development of SecureAlert’s
TrackerPAL device and related services.  The research and development
expense in the 2008 quarter included $2,128,000 attributable to the issuance
745,000 shares of common stock (valued at an average of $2.86 per share) for
software and engineering associated with the development of the TrackerPAL
device.
 
 Selling,
General and Administrative Expenses
 
 During
the three months ended March 31, 2009, selling, general and administrative
expenses from continuing operations were $3,810,452 compared to $7,634,214
during the three months ended March 31, 2008.  The improvement of
$3,823,762 is primarily the result of decreases in the following expenses:
consulting expense of $3,106,258 related to stock and warrant issuance for
services rendered to the Company, travel of $354,814, and payroll and taxes of
$255,604.  These improvements were offset in part by increased legal
expenses of $246,574 during the same period to settle two lawsuits.
 
 Interest
Income and Expense
 
 During
the three months ended March 31, 2009, interest expense related to continuing
operations totaled $1,055,157 compared to $398,238 in the three months ended
March 31, 2008. The increase of $656,919 resulted primarily from non-cash
expense of $608,195 from the issuance of stock and warrants in connection with
debt obligations.
  24
 
 Six
months ended March 31, 2009, compared to six months ended March 31,
2008
 
 Revenues
 
 For the
six months ended March 31, 2009, the Company had revenues from continuing
operations of $6,270,012 compared to $5,957,732 for the six months ended March
31, 2008, an increase of $312,280. The increase in revenues resulted primarily
from increased monitoring of offender tracking devices.  The operating
results of our subsidiaries are summarized in the following
paragraphs.
 
 SecureAlert
had revenues of $2,948,812 during the six months ended March 31, 2009, compared
to revenues of $3,917,884 for the six months ended March 31, 2008. The decrease
in SecureAlert’s revenues of $969,072 resulted primarily from a decrease in
offender tracking device sales of $1,066,666 during the six months ended March
31, 2008, compared to $18,210 for the three months ended March 31,
2009.  The decrease in revenues from lower device sales was offset in
part by increases in monitoring revenues during the period as described
below.
 
 SecureAlert’s
monitoring service revenues increased to $2,913,509 during the six months ended
March 31, 2009, compared to $2,831,544 for the six months ended March 31, 2008.
The principal component of SecureAlert’s revenues for the six months ended March
31, 2009 was monitoring services of $2,913,509. The balance of revenues of
$35,303 was derived from device sales and home and personal security systems. By
comparison, during the six months ended March 31, 2008, SecureAlert’s revenues
were derived primarily from monitoring services of $2,831,544 and devices sales
of $1,066,666. Since the Company’s focus is on monitoring of tracking devices
attached to individuals on parole, revenues from home and personal security
systems decreased from $19,674 to $17,093 in the six months ended March 31,
2009, compared to the same period in 2008.  No SecureAlert customer
accounted for 10% or more of SecureAlert’s revenues during the six months ended
March 31, 2009 or 2008.
 
 Midwest’s
revenues for the six months ended March 31, 2009 were $2,145,993.  The
primary components of Midwest’s revenues were monitoring and probation services
of $1,839,639 and prison equipment sales of $335,750.  On December 1,
2007, the Company acquired Midwest. For the four months ended March 31, 2008,
Midwest had revenues of $1,158,925, including $1,116,964 from the monitoring of
offender tracking devices and $41,961 from the sale of
devices.  During the six months ended March 31, 2009, St. Peter
Regional Treatment Center accounted for $333,000, or 16%, and Rock County
Sheriff accounted for $321,855, or 15% of Midwest’s revenues.  No
other customer accounted for 10% or more on Midwest’s revenues.
 
 Court
Program’s revenues for the six months ended March 31, 2009 were $1,171,797,
derived from monitoring and probation services. On December 1, 2007, the Company
acquired Court Programs. For the four months ended March 31, 2008, Court
Programs had revenues of $880,923.
 
 On
January 14, 2009, the Company purchased Bishop Rock Software.  During
the period following the acquisition through March 31, 2009, revenues from
Bishop Rock Software were $3,410.
 
 Cost
of Revenues
 
 For the
six months ended March 31, 2009, cost of revenues from continuing operations was
$5,874,714 compared to $5,947,963 during the six months ended March 31, 2008, a
decrease of $73,249.  Even though the number of SecureAlert’s average
billable devices during the six months ended March 31, 2009 increased by 1,260
devices, cost of revenues decreased due to a reduction of $563,653 in expense
related to impairment of devices resulting from water ingress problems with the
Company’s older device.  Additionally, monitoring center labor costs
decreased in the amount of $74,155 as a result of increased software
automation.
 
 SecureAlert's
cost of revenues totaled $3,712,004, or 126%, of SecureAlert's revenues during
the six months ended March 31, 2009, compared to $4,792,366, or 122%, of
SecureAlert’s revenues during the six months ended March 31,
2008.  The primary components of these costs were communication costs
of $1,392,231, monitoring center costs of $898,893, amortization of $521,362,
utilization rental fees of $336,562, shipping of $174,244 and commissions of
$173,598, as well as other TrackerPAL costs of $152,136.  During the
six months ended March 31, 2008, SecureAlert’s cost of revenues was $4,792,366.
The primary components of those costs in 2008 included communication costs of
$1,365,186, monitoring center costs of $973,047, device costs of $727,653,
impairment of TrackerPAL devices of $563,653, amortization of $486,782,
commissions of $226,913, freight of $110,765, warranty reserve expense of
$105,742, and other TrackerPAL costs of $136,610.
  25
 
 Midwest’s
cost of revenues totaled $1,397,261 for the six months ended March 31, 2009,
with the principal components being monitoring and probation services of
$1,182,109 and prison equipment sales of $215,152. On December 1, 2007, the
Company acquired Midwest, resulting in cost of revenues of $723,022 for the four
months ended March 31, 2008.
 
 Court
Programs’ cost of revenues totaled $765,449 for the six months ended March 31,
2009.  The cost of revenues of $765,449 resulted from monitoring and
probation services.  On December 1, 2007, the Company acquired Court
Programs, resulting in cost of revenues of $432,575 for the four months ended
March 31, 2008.
 
 Research
and Development Expenses
 
 During
the six months ended March 31, 2009 and 2008, research and development expense
from continuing operations was $845,901 and  $3,713,380, respectively,
and consisted primarily of expenses associated with the development of
SecureAlert’s TrackerPAL device and related services. In 2008, the primary
component of research and development expense was $2,555,285 for the issuance of
815,000 shares of common stock (valued at an average of $3.14 per share) for
software and engineering associated with the development of the TrackerPAL
device.
 
 Selling,
General and Administrative Expenses
 
 During
the six months ended March 31, 2009, selling, general and administrative
expenses related to continuing operations were $7,899,726 compared to
$11,786,929 during the six months ended March 31, 2008.  The decrease
in selling, general and administrative expense in 2009 was the result primarily
of a reduction in consulting expense of $3,841,242 and reduced travel expense of
$709,775, offset by increased legal expenses of $625,053 incurred in connection
with the settlement of two lawsuits.
 
 Interest
Income and Expense
 
 During
the six months ended March 31, 2009, interest expense related to continuing
operations totaled $1,534,903 compared to $773,748 in the six months ended March
31, 2008. The increase of $761,155 resulted primarily from non-cash expense of
$829,599 from the issuance of stock and warrants in connection with debt
obligations.
 
 Liquidity
and Capital Resources
 
 The
Company is presently unable to finance its business solely from cash flows from
operating activities. During the six months ended March 31, 2009, the Company
financed its business primarily from the issuance of debt providing cash
proceeds of $5,027,494.
 
 As of
March 31, 2009, the Company had unrestricted cash of $738,194 and working
capital deficit of $12,202,352, compared to unrestricted cash of $2,782,953 and
working capital deficit of $6,822,276 as of September 30, 2008.  For
the six months ended March 31, 2009, the Company's operating activities used
cash of $4,993,267, compared to $1,084,790 of cash used in operating activities
for the six months ended March 31, 2008.
 
 The
Company used cash of $960,468 for investing activities during the six months
ended March 31, 2009, compared to $311,251 of cash used in investing activities
in the six months ended March 31, 2008.
 
 The
Company's financing activities for the six months ended March 31, 2009, provided
cash of $3,908,976 compared to $379,890 for the six months ended March 31, 2008.
For the six months ended March 31, 2009, the Company had net proceeds of
$5,027,494 from the issuance of debt instruments, $100,000 from the sale of
common stock, and net advances from the line of credit of
$87,346.  Cash decreased by $189,312 due to payments on notes payable
and $1,116,552 in net payments on the related-party line of credit and
note.  Cash provided by financing activities was used to fund
operating activities and upgrade monitoring equipment.
 
 The
Company incurred a net loss of $9,005,149 for the six months ended March 31,
2009 and a loss from operations of $8,350,329. In addition, the Company has an
accumulated deficit of $191,689,145.  These factors, as well as the
risk factors set out in the Company's annual report on Form 10-K for the year
ended September 30, 2008 raise substantial doubt about the Company's ability to
continue as a going concern. The condensed consolidated financial statements
included in this Report do not include any adjustments that might result from
the outcome of this uncertainty.  The Company’s plans with respect to
this uncertainty are to increase leases of the TrackerPAL product and to
increase monitoring services revenues.  There can be no assurance that
revenues will increase rapidly enough to deliver profitable operating results
and pay the Company’s debts as they come due.  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 cash flows from
operating activities or obtain additional financing, it will be unable to
continue the development of its business and may have to cease
operations.
  26
  Item
3.    Quantitative and Qualitative Disclosures About
Market Risk
 
 Our
business is extending to several countries outside the United States, and we
intend to continue to expand our foreign operations.  As a result, our
revenues and results of operations are affected by fluctuations in currency
exchange rates, interest rates, and other uncertainties inherent in doing
business in more than one currency.  In addition, our operations are
exposed to risks that are associated with changes in social, political, and
economic conditions in the foreign countries in which we operate, including
changes in the laws and policies that govern foreign investment, as well as, to
a lesser extent, changes in United States laws and regulations relating to
foreign trade and investment.
 
 Foreign Currency
Risks.  Revenues from sources outside the United States
represented 0% and 16% of our total revenues for the six months ended March 31,
2009 and 2008, respectively.  Sales of monitoring equipment during the
periods indicated were transacted in U.S. dollars and, therefore, the Company
did not experience any effect from foreign currency exchange in connection with
these international sales.  Changes in currency exchange rates affect
the relative prices at which we sell our products.  Given the
uncertainty of exchange rate fluctuations, we cannot estimate the effect of
these fluctuations on our future business, product pricing, results of
operations, or financial condition.
 
 We do not
use foreign currency exchange contracts or derivative financial instruments for
trading or speculative purposes.  To the extent foreign sales become a
more significant part of our business in the future, we may seek to implement
strategies which make use of these or other instruments in order to minimize the
effects of foreign currency exchange on our business.
 
 Interest Rate
Risks.  As of March 31, 2009, we had $900,000 of borrowings
outstanding on a line of credit with a weighted-average interest rate of
18%.  In addition, we had $23,124 of borrowings outstanding on a line
of credit with two banks with a weighted average interest rate of
10.17%.  The interest rates on these lines of credit are subject to
change from time to time based on changes in an independent index which is the
Prime Rate as published in The Wall Street Journal.
 
 Item
4.    Controls and Procedures
 
 Disclosure
Controls and Procedures
  Under the
supervision and with the participation of our management, including our Chief
Executive Officer and our Chief Financial Officer, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of
1934 (the “Exchange Act”)). Based upon that evaluation, the Chief Executive
Officer and the Chief Financial Officer concluded that, as of the end of the
period covered by this report, our disclosure controls and procedures were not
effective.  We and our auditors identified material weaknesses
discussed below in the Report of management on internal control over financial
reporting.
 
 Report
of Management on Internal Control over Financial Reporting
 
 Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) under the
Exchange Act. Our internal control over financial reporting is designed to
provide reasonable assurance regarding the reliability of financial reporting.
Our internal control over financial reporting includes those policies and
procedures that:
  27
  (i)
                pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect the transactions and dispositions of our
      assets;
 
 (ii)
              provide
      reasonable assurance that our receipts and expenditures are being made
      only in accordance with authorizations of our management and directors;
      and
 
 (iii)
              provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of assets that could have a
      material effect on the financial
statements.
 
 Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions or that the degree of compliance
with the policies or procedures may deteriorate.
 
 Management
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.  A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement to the Company's interim
financial statements will not be prevented or detected.
 
 In the
course of the management's assessment, it has identified the following material
weaknesses in internal control over financial reporting:
 
 ·
              Control
      Environment – We did not maintain an effective control environment
      for internal control over financial reporting. Specifically, we concluded
      that we did not have appropriate controls in the following
      areas:
 
 o
              Segregation of Duties –
      As a result of limited resources and the addition of multiple majority
      owned subsidiaries, we did not maintain proper segregation of incompatible
      duties. The effect of the lack of segregation of duties potentially
      affects multiple processes and
procedures.
 
 o
              Implementation of Effective
      Controls – We failed to complete the implementation of effective
      internal controls over our newly acquired majority owned subsidiaries as
      of December 31, 2008 due to limited
resources.
 
 ·
              Tracking
      of Leased Equipment – We failed to maintain effective internal
      controls over the tracking of leased equipment as it relates to the
      assignment and leasing of monitoring
equipment.
 
 ·
              Financial
      Reporting Process – We did not maintain an effective financial
      reporting process to prepare financial statements in accordance with
      generally accepted accounting principles. Specifically, we initially
      failed to appropriately account for and disclose the effects of issuing
      debentures with beneficial conversion
features.
 
 Accordingly,
management has determined the Company's internal control over financial
reporting as of March 31, 2009 was not effective.  These material
weaknesses have been disclosed to our audit committee.
 
 We are in
the process of improving our internal control over financial reporting in an
effort to eliminate these material weaknesses through improved supervision and
training of our staff, but additional effort is needed to fully remedy these
deficiencies.  Our management, audit committee, and directors will
continue to work with our auditors and outside advisors to ensure that our
controls and procedures are adequate and effective.
  28
  PART
II.   OTHER INFORMATION
 
 Item
1.    Legal Proceedings
 
 Lawsuits
Settled
 
 Strategic Growth
International, Inc., v. RemoteMDx:  This action was filed in
response to an action previously filed by the Company against Strategic Growth
International, Inc. ("SGI") in Utah.  The Company settled this lawsuit
for 1,200,000 restricted shares of the Company’s common stock valued at
$360,000, or $0.30 per share and $25,000 in cash. The shares have piggyback
registration rights and are protected against any potential reverse stock
splits.  The Company executed the settlement agreement with SGI in
February 2009.
 
 Thomas Natale v.
RemoteMDx.  This suit was filed against the Company and other
defendants, including ADP Management Corp., James Dalton and David Derrick in
the United States District Court for the Eastern District of Tennessee on August
18, 2008.  In March 2009, the Company settled this lawsuit for $50,000 in
cash and 2,000,000 shares of RemoteMDx common stock.
 
 Item
2.    Unregistered Sales of Equity Securities and Use of
Proceeds
 
 During
the six months ended March 31, 2009, the Company sold the following shares of
RemoteMDx common stock without registration under the Securities Act of
1933:
 
 ·
              5,350,000
      shares were issued for net cash proceeds of $1,000,000. The shares were
      issued to two accredited investors in a transaction exempt from
      registration under Section 4(2) of the Securities
  Act.
 
 ·
              16,918,016
      shares were issued in connection with debt financings in transactions
      exempt from registration under Section 4(2) of the Securities Act and
      rules promulgated thereunder as
follows:
 
 o
              3,400,000
      shares were issued during the six months ended March 31, 2009 to four
      purchasers of the Company’s Series A 15% Debentures in a private placement
      of the Debentures and shares.  The offer and sale of the
      Debentures and shares were not registered under the Securities Act in
      reliance upon the exemption from registration provided by Section 4(2) of
      the Securities Act. The purchasers of these securities were accredited
      investors.
 
 o
              100,000
      shares were issued to Mr. Derrick in connection with a loan made to the
      Company by Mr. Derrick in November 2008. Mr. Derrick is an executive
      officer and director of the
Company.
 
 o
              71,750
      shares were issued to a consultant in March in partial satisfaction of
      consulting fees owed to him.
 
 o
              3,549,630
      shares were issued to five accredited investors pursuant to senior secured
      convertible notes and the renewal of a bank line of
  credit.
 
 o
              9,796,636
      shares were issued in February to an accredited investor to compensate for
      a decline in the Company’s share price following the investor’s initial
      investment in September 2008.
 
 Item
4.    Submission of Matters to a Vote of Security
Holders
 
 The
Company amended its Articles of Incorporation and filed the amendment with the
State of Utah Department of Commerce Division of Corporation and Commercial Code
on March 5, 2009 to increase the number of authorized shares of common stock
from 175,000,000 to 250,000,000.  The amendment was approved by the
consent of the shareholders of the Company.  Shareholders holding a
total of 92,775,909 shares (approximately 58% of the total issued and
outstanding shares of the Company) submitted written consents approving the
amendment. The consents were obtained without a meeting pursuant to a proxy
solicitation distributed by the Company.
  29
 
 Item
6.    EXHIBITS
 
 (a)        
  Exhibits Required by Item 601 of Regulation S-K
 
 Exhibit
      Number
                
                Title of
      Document3(i)(1)
                
                Articles
      of Incorporation (incorporated by reference to the Company's Registration
      Statement and Amendments thereto on Form 10-SB, effective December 1,
      1997).3(i)(2)
                
                Amendment
      to Articles of Incorporation for Change of Name (previously filed as
      Exhibit on Form 10-KSB for the year ended September 30,
    2001)3(i)(3)
                
                Amendment
      to Articles of Incorporation Amending Rights and Preferences of Series A
      Preferred Stock (previously filed as Exhibit on Form 10-KSB for the year
      ended September 30, 2001)3(i)(4)
                
                Amendment
      to Articles of Incorporation Adopting Designation of Rights and
      Preferences of Series B Preferred Stock (previously filed as Exhibit on
      Form 10-QSB for the six months ended March 31, 2002)3(i)(5)
                
                Certificate
      of Amendment to the Designation of Rights and Preferences Related to
      Series A 10% Cumulative Convertible Preferred Stock of RemoteMDx, Inc.
      (incorporated by reference to the Company’s annual report on Form 10-KSB
      for the year ended September 30, 2001)3(i)(6)
                
                Certificate
      of Amendment to the Designation of Rights and Preferences Related to
      Series C 8% Convertible Preferred Stock of RemoteMDx, Inc. (incorporated
      by reference to the Company’s Current Report on Form 8-K, filed with the
      Commission on March 24, 2006)3(i)(7)
                
                Articles
      of Amendment to Articles of Incorporation filed July 12, 2006 (previously
      filed as exhibits to the Company’s current report on Form 8-K filed July
      18, 2006, and incorporated herein by reference).3(i)(8)
                
                Articles
      of Amendment to the Fourth Amended and Restated Designation of Right and
      Preferences of Series A 10% Convertible Non-Voting Preferred Stock of
      RemoteMDx, Inc. (previously filed as Exhibit on Form 10-QSB for the nine
      months ended June 30, 2007, filed in August 2007).3(i)(9)
                
                Articles
      of Amendment to the Designation of Right and Preferences of Series A
      Convertible Redeemable Non-Voting Preferred Stock of SecureAlert, Inc.
      (previously filed as Exhibit on Form 10-QSB for the nine months ended June
      30, 2007, filed in August 2007).3(ii)
                
                Bylaws
      (incorporated by reference to the Company’s Registration Statement on Form
      10-SB, effective December 1, 1997)4.01
                
                2006
      Equity Incentive Award Plan (previously filed in August 2006 the Form
      10-QSB for the nine months ended June 30, 2006)10.01
                
                Distribution
      and Separation Agreement (incorporated by reference to the Company's
      Registration Statement and Amendments thereto on Form 10-SB, effective
      December 1, 1997).10.02
                
                1997
      Stock Incentive Plan of the Company, (incorporated by reference to the
      Company’s Registration Statement and Amendments thereto on Form 10-SB,
      effective December 1, 1997).10.03
                
                1997
      Transition Plan (incorporated by reference to the Company’s Registration
      Statement and Amendments thereto on Form 10-SB, effective December 1,
      1997).10.04
                
                Securities
      Purchase Agreement for $1,200,000 of Series A Preferred Stock
      (incorporated by reference to the Company’s Registration Statement and
      Amendments thereto on Form 10-SB, effective December 1,
    1997)
  30
 
 10.05
                  
                  Loan
      Agreement (as amended) dated June 2001 between ADP Management and the
      Company (incorporated by reference to the Company’s annual report on Form
      10-KSB for the year ended September 30, 2001)10.06
                  
                  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)10.07
                  
                  Agreement
      with ADP Management, Derrick and Dalton (April 2003) (previously filed as
      Exhibit on Form 10-QSB for the six months ended March 31,
      2003)10.08
                  
                  Security
      Agreement between Citizen National Bank and the Company (previously filed
      on Form 8-K in July 2006).10.09
                  
                  Promissory
      Note between Citizen National Bank and the Company (previously filed on
      Form 8-K in July 2006).10.10
                  
                  Common
      Stock Purchase Agreement dated as of August 4, 2006 (previously filed as
      an exhibit to the Company’s current report on Form 8-K filed August 7,
      2006 and incorporated herein by reference).10.11
                  
                  Change
      in Terms Agreement between Citizen National Bank and the Company
      (previously filed as Exhibit on Form 10-KSB for the year ended September
      30, 2006)10.12
                  
                  Securities
      Purchase Agreement between the Company and VATAS Holding GmbH, a German
      limited liability company (previously filed on Form 8-K in November
      2006).10.13
                  
                  Common
      Stock Purchase Warrant between the Company and VATAS Holding GmbH dated
      November 9, 2006 (previously filed as Exhibit on Form 10-QSB for the three
      months ended December 31, 2006, filed in February
2007).10.14
                  
                  Settlement
      Agreement and Mutual Release between the Company and Michael Sibbett and
      HGR Enterprises, LLC, dated as of February 1, 2007 (previously filed as
      Exhibit on Form 10-QSB for the three months ended December 31, 2006, filed
      in February 2007).10.15
                  
                  Distributor
      Sales, Service and License Agreement between the Company and Seguridad
      Satelital Vehicular S.A. de C.V., dated as of February 5, 2007 (previously
      filed as Exhibit on Form 10-QSB for the three months ended December 31,
      2006, filed in February 2007).10.16
                  
                  Distributor
      Agreement between the Company and QuestGuard, dated as May 31,
      2007.  Portions of this exhibit were redacted pursuant to a
      request for confidential treatment filed with the Securities and Exchange
      Commission (previously filed as Exhibit on Form 10-QSB for the nine months
      ended June 30, 2007, filed in August 2007).10.17
                  
                  Stock
      Purchase Agreement between the Company and Midwest Monitoring &
      Surveillance, Inc., dated effective December 1, 2007 (previously filed as
      Exhibit on Form 10-KSB for the year ended September 30, 2007, filed in
      January 2008).10.18
                  
                  Stock
      Purchase Agreement between the Company and Court Programs, Inc., Court
      Programs of Florida Inc., and Court Programs of Northern Florida, Inc.,
      dated effective December 1, 2007 (previously filed as Exhibit on Form
      10-KSB for the year ended September 30, 2007, filed in January
      2008).10.19
                  
                  Sub-Sublease
      Agreement between the Company and Cadence Design Systems, Inc., a Delaware
      corporation, dated March 10, 2005 (previously filed as Exhibit on Form
      10-KSB/A for the year ended September 30, 2007, filed in June
      2008).10.20
                  
                  Patent
      Assignment Agreement between Futuristic Medical Devices, LLC, dated
      September 14, 2007 (previously filed as Exhibit on Form 10-KSB/A for the
      year ended September 30, 2007, filed in June 2008).10.21
                  
                  Patent
      Assignment Agreement between Futuristic Medical Devices, LLC, dated
      September 14, 2007 (previously filed as Exhibit on Form 10-KSB/A for the
      year ended September 30, 2007, filed in June
  2008).
  31
 
 10.22
                  
                  Patent
      Assignment Agreement between Futuristic Medical Devices, LLC, dated
      September 14, 2007 (previously filed as Exhibit on Form 10-KSB/A for the
      year ended September 30, 2007, filed in June 2008).10.23
                  
                  Patent
      Assignment Agreement between Futuristic Medical Devices, LLC, dated
      December 20, 2007 (previously filed as Exhibit on Form 10-KSB/A for the
      year ended September 30, 2007, filed in June 2008).10.24
                  
                  Stock
      Purchase Agreement (sale of Volu-Sol Reagents Corporation shares to
      Futuristic Medical, LLC), dated January 15, 2008, including voting
      agreement (previously filed as Exhibit on Form 10-KSB/A for the year ended
      September 30, 2007, filed in June 2008).31(i)
                  
                  Certification of Chief Executive
      Officer under Section 302 of Sarbanes-Oxley Act of
    200231(ii)
                  
                  Certification of Chief Financial
      Officer under Section 302 of Sarbanes-Oxley Act of
    200232
                  
                  Certifications
      under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section
      1350)
 
  32
  SIGNATURES
 
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
 
 REMOTEMDX,
      INC.Date:
      May 18, 2009
                                                By:
                                                
                                                /s/ David G. DerrickDavid
      G. Derrick,Chief
      Executive Officer(Principal
      Executive Officer)Date:
      May 18, 2009
                                                By:
                                                
                                                /s/ Michael G. ActonMichael
      G. Acton,Chief
      Financial Officer(Principal
      Financial Officer)Date:
      May 18, 2009
                                                By:
                                                
                                                /s/ Chad D. OlsenChad
      D. Olsen,Principal
      Accounting Officer
 
 
 
 33