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
      1934For
      the quarterly period ended June 30,
2008





OR





[  ]
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      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
            (I.R.S.
      Employerof
      incorporation or organization)
            Identification
      No.)


______________________





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. Yes [X]  No [  ]





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


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 [  ]  No
[X]





The
number of shares outstanding of the registrant’s common stock as of August 3,
2008 was 151,036,749.







1


REMOTEMDX,
INC.





FORM
10-Q





For
the Quarterly Period Ended June 30, 2008





INDEX





PagePART
      I. FINANCIAL INFORMATIONItem
      1
            Financial
      Statements (Unaudited)Condensed
      Consolidated Balance Sheets as of June 30, 2008 and September 30,
      2007
            3Condensed
      Consolidated Statements of Operations for the three and nine months ended
      June 30, 2008 and 2007
            4Condensed
      Consolidated Statements of Cash Flows for the nine months ended June 30,
      2008 and 2007
            5Notes
      to Condensed Consolidated Financial Statements
            7Item
      2
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            21Item
      3
            Quantitative
      and Qualitative Disclosures About Market Risk
            29Item
      4
            Controls
      and Procedures
            30PART
      II.     OTHER INFORMATIONItem
      1
            Legal
      Proceedings
            31Item
      1A
            Risk
      Factors
            32Item
      2
            Unregistered
      Sales of Equity Securities and Use of Proceeds.
            32Item
      6
            Exhibits.
            33Signatures
            36












2


PART
I.  FINANCIAL INFORMATION


Item
1.  Financial Statements


REMOTEMDX,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


(Unaudited)


June
      30, 2008
            
            
            September
      30, 2007
              (Restated)AAssetsCCurrent
      assets:Cash
            
            $
            2,807,975
            
            
            $
            5,556,275Accounts
      receivable, net of allowance for doubtful accounts of  $501,500
      and $163,000, respectively
            
            
            3,145,705
            
            
            
            4,498,812Inventory,
      net of reserve of $41,847 and $46,906, respectively
            
            
            49,133
            
            
            
            51,359Prepaid
      expenses and other
            
            
            167,706
            
            
            
            923,369Total current assets
            
            
            6,170,519
            
            
            
            11,029,815Property and equipment,
      net of accumulated depreciation and amortization of $2,192,689 and
      $1,112,018, respectively
            
            
            1,729,297
            
            
            
            1,430,768Monitoring
      equipment, net of accumulated depreciation of $2,523,145 and $1,388,515,
      respectively
            
            
            1,788,052
            
            
            
            3,739,474Goodwill
      and intangible assets, net of amortization
            
            
            4,616,602
            
            
            
            -Other
      assets
            
            
            54,563
            
            
            
            36,632Total assets
            
            $
            14,359,033
            
            
            $
            16,236,689Liabilities
      and Stockholders’ EquityCCurrent
      liabilities:Bank
      line of credit
            
            $
            1,491,352
            
            
            $
            3,858,985Accounts
      payable
            
            
            2,929,517
            
            
            
            3,065,187Accrued
      liabilities
            
            
            2,125,877
            
            
            
            1,324,735Deferred
      revenue
            
            
            229,594
            
            
            
            1,314,247SecureAlert
      Series A Preferred stock redemption obligation
            
            
            3,483,004
            
            
            
            -Current
      portion of long-term debt
            
            
            513,179
            
            
            
            169,676Total current liabilities
            
            
            10,772,523
            
            
            
            9,732,830Related-party
      line of credit
            
            
            21,581
            
            
            
            239,763Long-term
      debt, net of current portion
            
            
            559,665
            
            
            
            -Total liabilities
            
            
            11,353,769
            
            
            
            9,972,593Commitments
      and Contingencies (Note 15)Minority
      interest
            
            
            3,759,785
            
            
            
            1,396,228SecureAlert
      Series A Preferred stock
            
            
            -
            
            
            
            3,590,000Stockholders’
      equity (deficit):Preferred
      stock:Series A 10% dividend, convertible, non-voting, $0.0001 par value:
      40,000 shares designated; 19 shares outstanding (aggregate liquidation
      preference of $588)
            
            
            1
            
            
            
            1Series B convertible,
      $0.0001 par value: 2,000,000 shares designated; 10,999 and 12,999 shares
      outstanding, respectively (aggregate liquidation preference of
      $32,997)
            
            
            1
            
            
            
            1Series C convertible,
      $0.0001 par value: 7,357,144 shares designated; no shares outstanding
      (aggregate liquidation preference of $0)
            
            
            -
            
            
            
            -Common
      stock,  $0.0001 par value: 175,000,000 shares authorized;
      149,996,749 and 127,340,085 shares outstanding,
    respectively
            
            
            15,000
            
            
            
            12,734Additional
      paid-in capital
            
            
            175,959,825
            
            
            
            142,238,576Deferred
      compensation
            
            
            (3,669,560
            )
            
            
            (7,468,998
            )Subscription
      receivable
            
            
            -
            
            
            
            (407,500
            )Accumulated
      deficit
            
            
            (173,059,788
            )
            
            
            (133,096,946
            )Total
      stockholders’ equity (deficit)
            
            
            (754,521
            )
            
            
            1,277,868Total
      liabilities and stockholders’ equity
            
            $
            14,359,033
            
            
            $
            16,236,689




See
accompanying notes to condensed consolidated financial
statements.


3


REMOTEMDX,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)


Three
      months ended
            
            
            Nine
      months endedJune
      30,
            
            
            June
      30,2007
            
            
            
            
            
            20072008
            
            
            (Restated)
            
            
            2008
            
            
            (Restated)Revenues:Products
            
            $
            1,187,477
            
            
            $
            2,003,503
            
            
            $
            2,640,532
            
            
            $
            3,293,192Monitoring
      services
            
            
            2,422,901
            
            
            
            1,149,053
            
            
            
            7,272,006
            
            
            
            2,130,865Total
      revenues
            
            
            3,610,378
            
            
            
            3,152,556
            
            
            
            9,912,538
            
            
            
            5,424,057Cost
      of revenues:Products
            
            
            971,987
            
            
            
            1,493,668
            
            
            
            1,868,755
            
            
            
            2,408,819Monitoring
      services
            
            
            2,538,283
            
            
            
            2,008,893
            
            
            
            7,834,560
            
            
            
            5,193,173Total
      cost of revenues
            
            
            3,510,270
            
            
            
            3,502,561
            
            
            
            9,703,315
            
            
            
            7,601,992Gross
      margin (deficit)
            
            
            100,108
            
            
            
            (350,005
            )
            
            
            209,223
            
            
            
            (2,177,935
            )Operating
      expenses:Selling,
      general and administrative (including $11,923,678, $1,112,713, $19,720,720
      and $4,160,497, respectively, of compensation expense paid in stock or
      stock options / warrants)
            
            
            16,814,431
            
            
            
            3,947,567
            
            
            
            28,911,417
            
            
            
            12,927,336Research
      and development
            
            
            770,697
            
            
            
            731,737
            
            
            
            4,854,420
            
            
            
            3,885,788Loss from operations
            
            
            (17,485,020
            )
            
            
            (5,029,309
            )
            
            
            (33,556,614
            )
            
            
            (18,991,059
            )Other
      income (expense):Gain
      on sale of intellectual property
            
            
            
            
            
            
            
            
            
            
            2,400,000Redemption
      of SecureAlert Series A Preferred
            
            
            48,648
            
            
            
            
            
            
            
            (8,428,520
            )Registration
      payment expense
            
            
            
            
            
            
            (97,500
            )
            
            
            
            
            
            
            (663,000
            )Minority
      interest allocation
            
            
            306,797
            
            
            
            71,590
            
            
            
            692,389
            
            
            
            85,478Interest
      income
            
            
            5,459
            
            
            
            13,718
            
            
            
            48,430
            
            
            
            89,196Interest
      expense
            
            
            (389,838
            )
            
            
            (279,418
            )
            
            
            (1,163,586
            )
            
            
            (836,668
            )Loss
      on sale of asset
            
            
            
            
            
            
            (228,800
            )
            
            
            
            
            
            
            (228,800
            )Other
      income (expense), net
            
            
            11,136
            
            
            
            275,460
            
            
            
            45,059
            
            
            
            298,057Net
      loss
            
            
            (17,502,818
            )
            
            
            (5,274,259
            )
            
            
            (39,962,842
            )
            
            
            (20,246,796
            )Dividends
      on Series A and C Preferred stock
            
            
            (107
            )
            
            
            (51,829
            )
            
            
            (345,246
            )
            
            
            (500,553
            )Net
      loss attributable to common stockholders
            
            $
            (17,502,925
            )
            
            $
            (5,326,088
            )
            
            $
            (40,308,088
            )
            
            $
            (20,747,349
            )Net
      loss per common share, basic and diluted
            
            $
            (0.12
            )
            
            $
            (0.05
            )
            
            $
            (0.30
            )
            
            $
            (0.23
            )Weighted
      average common shares outstanding, basic and diluted
            
            
            146,085,000
            
            
            
            104,583,000
            
            
            
            136,097,000
            
            
            
            89,140,000




See
accompanying notes to condensed consolidated financial
statements.


4


REMOTEMDX,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)


Nine
      Months Ended
              June
      30,20072008
            
            
            (Restated)Cash
      flows from operating activities:Net
      loss
            
            $
            (39,962,842
            )
            
            $
            (20,246,796
            )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
            
            
            1,624,706
            
            
            
            1,762,211Common
      stock issued for services
            
            
            13,833,585
            
            
            
            1,552,631Common stock issued to settle lawsuit
            
            
            1,276,000
            
            
            
            196,800Amortization
      of deferred financing and consulting costs
            
            
            4,472,262
            
            
            
            649,479Registration
      payment arrangement expense
            
            
            -
            
            
            
            663,000Stock
      options and warrants issued during the period for services
            
            
            804,205
            
            
            
            2,011,200Redemption
      of SecureAlert Series A Preferred stock
            
            
            8,477,168
            
            
            
            -Increase
      in related-party line of credit for services
            
            
            497,443
            
            
            
            502,845Impairment
      of monitoring equipment
            
            
            570,948
            
            
            
            1,454,784Loss
      on sale of receivables
            
            
            -
            
            
            
            228,800Minority
      interest expense, net
            
            
            (692,389
            )
            
            
            (85,478
            )Changes
      in operating assets and liabilities:Accounts
      receivable, net
            
            
            2,432,564
            
            
            
            (3,774,016
            )Interest
      receivable (payable)
            
            
            (9,068
            )
            
            
            13,579Inventories
            
            
            2,226
            
            
            
            2,261,148Prepaid
      expenses and other assets
            
            
            777,265
            
            
            
            2,102,940Accounts
      payable
            
            
            (757,434
            )
            
            
            2,265,989Accrued
      liabilities
            
            
            970,570
            
            
            
            616,525Deferred
      revenue
            
            
            (378,309
            )
            
            
            318,533Net
      cash used in operating activities
            
            
            (6,061,100
            )
            
            
            (7,505,826
            )Cash
      flows from investing activities:Purchase
      of property and equipment
            
            
            (287,580
            )
            
            
            (506,323
            )Purchase
      of monitoring equipment
            
            
            (404,123
            )
            
            
            (7,709,275
            )Net
      cash used in investing activities
            
            
            (691,703
            )
            
            
            (8,215,598
            )Cash
      flows from financing activities:Payment
      of accrued SecureAlert Series A Preferred stock dividends
            
            
            -
            
            
            
            (28,452
            )Principal
      payments on related-party line of credit
            
            
            (715,625
            )
            
            
            (455,484
            )Net
      principal reductions in bank line of credit borrowings
            
            
            (2,367,633
            )
            
            
            10,758Principal
      payments on notes payable
            
            
            (257,510
            )
            
            
            -Principal
      payments on notes payable related to acquisitions
            
            
            (2,100,000
            )
            
            
            -Cash
      acquired through acquisitions
            
            
            160,898
            
            
            
            -Proceeds
      from sale of common stock
            
            
            2,000,000
            
            
            
            6,162,000Proceeds
      from issuance and sale of subsidiary stock
            
            
            4,598,333
            
            
            
            1,450,000Proceeds
      from issuance of notes payable
            
            
            27,660
            
            
            
            -Proceeds
      from exercise of options and warrants
            
            
            2,658,380
            
            
            
            4,714,572Net
      cash provided by financing activities
            
            
            4,004,503
            
            
            
            11,853,394Net
      decrease in cash
            
            
            (2,748,300
            )
            
            
            (3,868,030
            )Cash,
      beginning of period
            
            
            5,556,275
            
            
            
            5,872,529Cash,
      end of period
            
            $
            2,807,975
            
            
            $
            2,004,499




See
accompanying notes to condensed consolidated financial statements.




5


REMOTEMDX,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)


(Unaudited)





Nine
      Months Ended
              June
      30,2008
            
            
            2007Cash
      paid for interest
            
            $
            498,254
            
            
            $
            425,812Supplemental
      schedule of non-cash investing and financing activities:Issuance
      of shares of common stock in exchange for shares of Series A PreferredStock
            
            $
            -
            
            
            $
            505Issuance
      of shares of common stock in exchange for shares of Series B PreferredStock
            
            
            2
            
            
            
            35Issuance
      of shares of common stock in exchange for shares of Series C PreferredStock
            
            
            -
            
            
            
            1,729Issuance
      of shares of common stock and warrants in exchange for deferredconsulting
      services and financing costs
            
            
            672,824
            
            
            
            134,757Accrual
      of Series A and C Preferred stock dividends
            
            
            345,246
            
            
            
            470,379SecureAlert
      Series A Preferred stock dividends
            
            
            -
            
            
            
            183,329Issuance
      of common stock in acquisition of Midwest Monitoring & Surveillance,
      Inc.
            
            
            1,668,780
            
            
            
            -Issuance
      of common stock in acquisition of Court Programs, Inc., Court Programsof
      Florida, Inc., and Court Programs of Northern Florida,
Inc.
            
            
            847,500
            
            
            
            -Payment
      of accrued preferred stock dividends through the issuance of Series
      A preferred stock
            
            
            -
            
            
            
            212Payment
      of accrued preferred stock dividends through the issuance of Series C
      preferred stock
            
            
            -
            
            
            
            2Settlement
      of registration payment arrangement
            
            
            -
            
            
            
            1,245,000Options
      exercised for subscription receivable
            
            
            -
            
            
            
            5,673,524Issuance
      of common stock for payment of SecureAlert Series A Preferred
      dividends
            
            
            643,601
            
            
            
            -




See
accompanying notes to condensed consolidated financial
statements.


6


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
June 30, 2008, and results of its operations for the three and nine months ended
June 30, 2008 and 2007.  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-KSB/A for the year
ended September 30, 2007.  The results of operations for the three and
nine months ended June 30, 2008 may not be indicative of the results for the
fiscal year ending September 30, 2008.





Restatements





Restatements
relating to revenues and cost of revenues for the three and nine months ended
June 30, 2007 have been made in order to comply with, among other things, the
requirements of EITF 00-21 and SAB 104 for revenue recognition.  Under
these guidelines, the recognition of certain revenues for deliveries of
monitoring devices is deferred.  In addition, the corresponding cost
of revenues is deferred to future periods.  The impact of these
revisions was to reduce previously reported net revenues for the year ended
September 30, 2007 by 15% and to increase cost of revenues by 55% for the same
period.  These revisions had the following effect on the loss from
operations, net loss, and net loss per common share:





Three
      Months Ended June 30, 2007Previously Reported
            
            
            As RestatedStatement
      of Operations:Revenues
            
            $
            3,118,947
            
            
            $
            3,152,556Cost
      of revenues
            
            $
            2,488,366
            
            
            $
            3,502,561Loss
      from operations
            
            $
            (5,040,024
            )
            
            $
            (5,029,309
            )Net
      loss
            
            $
            (5,284,974
            )
            
            $
            (5,274,259
            )Net
      loss per common share
            
            $
            (0.05
            )
            
            $
            (0.05
            )Nine
      Months Ended June 30, 2007Previously Reported
            
            
            As RestatedStatement
      of Operations:Revenues
            
            $
            5,757,391
            
            
            $
            5,424,057Cost
      of revenues
            
            $
            5,059,608
            
            
            $
            7,601,992Loss
      from operations
            
            $
            (18,886,665
            )
            
            $
            (18,991,059
            )Net
      loss
            
            $
            (20,142,402
            )
            
            $
            (20,246,796
            )Net
      loss per common share
            
            $
            (0.23
            )
            
            $
            (0.23
            )Statement
      of Cashflows:Net
      loss
            
            $
            (20,142,402
            )
            
            $
            (20,246,796
            )Depreciation
      and amortization
            
            $
            1,697,771
            
            
            $
            1,762,211Deferred
      revenue
            
            $
            (14,801
            )
            
            $
            318,533Inventories
            
            $
            2,554,528
            
            
            $
            2,261,148





Changes
to the condensed consolidated financial statements for the three and nine months
ended June 30, 2007 include the following:





·
            During
      the three months ended June 30, 2007, the Company deferred revenues of
      $33,609 and cost of revenues of $22,894 related to sales of devices
      resulting in a decrease in net loss of
$10,715.


7





·
            During
      the three months ended June 30, 2007, the Company reclassified $991,301
      from selling, general and administrative expenses to cost of revenues for
      amortization and communication expenses for non-billable
      devices.





·
            During
      the nine months ended June 30, 2007, the Company deferred revenues of
      $333,334 and cost of revenues of $228,940 related to sales of devices
      resulting in an increase in net loss of
  $104,394.





·
            During
      the nine months ended June 30, 2007, the Company reclassified $2,771,324
      from selling, general and administrative expenses to cost of revenues for
      amortization and communication expenses for non-billable
      devices.





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 exercise of options, 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.




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.





Recently
Issued Accounting Standards





In
September 2006, the Financial Accounting Statements Board (FASB) issued SFAS
No. 157, Fair Value
Measurements.  SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in accordance with accounting
principles generally accepted in the United States of America, and expands
disclosures about fair value measurements.  SFAS No. 157 is
effective for fiscal years beginning after November 15, 2007, with earlier
application encouraged.  Any amounts recognized upon adoption as a
cumulative effect adjustment will be recorded to the opening balance of retained
earnings (accumulated deficit) in the year of adoption.  The Company
has evaluated SFAS No. 157 and has determined that it will not have a material
impact on its consolidated financial statements.





On
February 15, 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities - Including an Amendment of FASB Statement No.
115.  SFAS No. 159 permits an entity to choose to measure
eligible items at fair value at specified election dates.  An entity
will report unrealized gains and losses on items for which the fair value option
has been elected in earnings at each subsequent reporting date.  The
fair value option: (a) may be applied instrument by instrument, with a few
exceptions, such as investments otherwise accounted for by the equity method;
(b) is irrevocable (unless a new election date occurs); and (c) is applied only
to entire instruments and not to portions of instruments.  SFAS No.
159 is effective for fiscal years that begin after November 15,
2007.  The Company has evaluated SFAS No. 159 and has determined that
it will not have a material impact on its consolidated financial
statements.





On June
27, 2007, the FASB ratified EITF 07-3, Accounting for Nonrefundable Advance
Payments for Goods or Services to Be Used in Future Research and Development
Activities, which calls for nonrefundable advance payments for goods or
services to be used in future research and development activities to be deferred
and capitalized until such time as the related goods are delivered or related
services are performed, at which point the amounts are to be recognized as an
expense.  EITF 07-3 is effective for fiscal periods beginning after
December 15, 2007.  The Company has evaluated its research and development
contracts in regard to this new pronouncement and has determined that the effect
of this consensus will not have a material impact on its consolidated financial
statements.


8





In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations, and
SFAS No. 160. Non-controlling
Interests in Consolidated Financial Statements,
an amendment of Accounting Research Bulletin No. 51.  SFAS No.
141R will change how business acquisitions are accounted for and will impact
financial statements both on the acquisition date and in subsequent
periods.  SFAS No. 160 will change the accounting and reporting for
minority interest, which will be recharacterized as non-controlling interests
and classified as a component of equity.  SFAS No. 141R and SFAS No.
160 are effective for fiscal years, and interim periods within those fiscal
years beginning on or after December 15, 2008.  Early adoption is not
permitted.  The Company has not yet evaluated these new pronouncements
to determine if they will have a material impact on its consolidated financial
statements.





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 nine months ended
June 30, 2008 and 2007, the Company disposed of $570,948 and $1,454,784,
respectively, in monitoring equipment that no longer had value.  This
expense was classified as cost of revenues.





Revenue
Recognition





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





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.




9


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.





Medical Diagnostic Stain
Sales


The
Company recognizes medical diagnostic stains revenue when persuasive evidence of
an arrangement with the customer exists, title passes to the customer and the
customer cannot return the products, prices are fixed or determinable (including
sales not being made outside the normal payment terms) and collection is
reasonably assured.





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.




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 and shares issuable upon conversion of preferred stock. As
of June 30, 2008 and 2007, there were 19,123,412 and 19,289,196 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 June 30, 2008,
consisted of 7,178 shares of common stock in which 19 shares of Series A
Preferred stock are convertible, 113,783  shares of common stock in
which 10,999 shares of Series B Preferred Stock are convertible, and 19,002,451
shares underlying options and warrants. Of the 19,002,451 shares underlying
options and warrants, 14,207,451 shares underlie options and warrants which have
vested and 4,795,000 shares underlie options and warrants which have not yet
vested.





10


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 Company granted 1,725,000 stock options to employees
during the nine months ended June 30, 2008. The Company granted 275,000 stock
options to employees during the nine months ended June 30, 2007. The weighted
average fair value of stock options at the date of grant during the nine months
ended June 30, 2008 and 2007 was $1.34 and $1.46, respectively.





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
following are the weighted-average assumptions used for options granted during
the nine months ended June 30, 2008 and 2007, respectively:




June 30, 2008
            
            June 30, 2007Risk
      free interest rate
            
            3.45%
            
            4.54%Expected
      life
            
            5
      years
            
            5
      yearsDividend
      yield
            
            -
            
            -Volatility
            
            139%
            
            145%





A summary
of stock option activity for the nine months ended June 30, 2008, is presented
below:




Shares
              Under
              Option
            
            Weighted
              Average
              Exercise
              Price
            
            Weighted
              Average
              Remaining
              Contractual
              Life
            
            Aggregate
              Intrinsic
              Value




Outstanding
      as of September 30, 2007
            
            
            3,295,000
            
            
            $
            0.64Granted
            
            
            1,725,000
            
            
            $
            1.54Exercised
            
            
            (960,000
            )
            
            $
            0.63Forfeited
            
            
            (45,000
            )
            
            $
            0.86Expired
            
            
            -
            
            
            
            -Outstanding
      as of  June 30, 2008
            
            
            4,015,000
            
            
            $
            1.03
            
            3.58
      years
            
            $
            2,213,150Exercisable
      as of  June 30, 2008
            
            
            486,667
            
            
            $
            1.22
            
            3.58
      years
            
            $
            150,584






(2)           INVENTORIES




Substantially
all items included in inventory are finished goods and consisted of Volu-Sol
diagnostic stains and reagents.  Inventories, net of a reserve for
obsolescence, are $49,133 as of June 30, 2008 and $51,359 as of September 30,
2007.




11


(3)           PROPERTY
AND EQUIPMENT





Property
and equipment as of June 30, 2008 and September 30, 2007, were as
follows:





2008
            
            
            2007Property
      and equipment
            
            $
            3,921,986
            
            
            $
            2,542,786Less:
      accumulated depreciation
            
            
            (2,192,689
            )
            
            
            (1,112,018
            )Total
            
            $
            1,729,297
            
            
            $
            1,430,768





During
the nine months ended June 30, 2008, the Company purchased $287,580 of tooling
and computer equipment.





(4)           MONITORING
EQUIPMENT





Monitoring
equipment as of June 30, 2008 and September 30, 2007, was as
follows:





2008
            
            
            2007Monitoring
      equipment
            
            $
            4,311,197
            
            
            $
            5,127,989Less:
      accumulated depreciation
            
            
            (2,523,145
            )
            
            
            (1,388,515
            )Total
            
            $
            1,788,052
            
            
            $
            3,739,474





Net
monitoring equipment of $1,788,052 includes $137,364 of equipment, net of
amortization, previously sold to customers that has been deferred and will be
recognized in future periods.  The Company has not depreciated the
equipment since the date the devices have been sold.





The
monitoring equipment is depreciated using the straight-line method over the
estimated useful lives of the related assets of three years. This expense is
included in cost of revenues.




(5)           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.  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 midwest,
central and eastern United States.  The total consideration for the
purchase of Midwest was $4,299,423 comprised of notes payable of $1,800,000,
shares of common stock valued at $1,668,780 (438,000 shares valued at $3.81 per
share), transaction costs of $31,497, and long-term liabilities assumed of
$799,146.





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.





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.  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 $1,433,184 delineated as follows: note payable of
$300,000, shares of common stock valued at $848,000 (212,000 shares valued at
$4.00 per share), transaction costs of $45,324, and long-term liabilities
assumed of $239,860.





12


The
RemoteMDx shares issued as part of the consideration for the purchase of Court
Programs were placed in escrow and have not yet been released by the
Company.





In
connection with the acquisitions of Midwest and Court Programs, 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
            
            $
            3,202,709Court
      Programs
            
            
            1,100,893Other
      intangible assets, net of amortizationMidwest
            
            
            209,000Court
      Programs
            
            
            104,000Total
      goodwill and other intangible assets, net of amortization
            
            $
            4,616,602








As of the
date of this report, the Company had not yet completed the purchase price
allocations related to the acquisitions of Midwest and Court
Programs.  However, the Company has identified the following
categories of intangible assets that pertain to the acquisitions: trade name,
non-compete agreements, customer relationships and goodwill.





Supplemental
Pro Forma Results of Operations


The
following tables present the pro forma results of operations for the three and
nine months ended June 30, 2008 and 2007, as though the Midwest and Court
Programs acquisitions had been completed as of the beginning of each period
presented:








Three
      Months Ended
              June
      30,2008
            
            
            2007Revenues:Products
            
            $
            1,187,477
            
            
            $
            2,009,478Monitoring
      services
            
            
            2,422,901
            
            
            
            2,561,810Total
      revenues
            
            
            3,610,378
            
            
            
            4,571,288Cost
      of revenues:Products
            
            
            (971,987
            )
            
            
            (1,498,920
            )Monitoring
      services
            
            
            (2,538,283
            )
            
            
            (2,548,783
            )Total
      cost of revenues
            
            
            (3,510,270
            )
            
            
            (4,047,703
            )Gross
      margin
            
            
            100,108
            
            
            
            523,585Operating
      expenses:Selling,
      general and administrative
            
            
            (16,814,431
            )
            
            
            (5,145,656
            )Research
      and development
            
            
            (770,697
            )
            
            
            (731,737
            )Loss
      from operations
            
            
            (17,485,020
            )
            
            
            (5,353,808
            )Other
      income (expense):Loss
      on revalued registration rights
            
            
            -
            
            
            
            (97,500
            )Loss
      on sale of asset
            
            
            -
            
            
            
            (228,800
            )Redemption
      of SecureAlert Series A Preferred stock
            
            
            48,648
            
            
            
            -Minority
      interest allocation
            
            
            306,797
            
            
            
            71,590Other
      income (loss)
            
            
            11,136
            
            
            
            275,460Interest
      income
            
            
            5,459
            
            
            
            13,733Interest
      expense
            
            
            (389,838
            )
            
            
            (311,432
            )Net
      loss
            
            
            (17,502,818
            )
            
            
            (5,630,757
            )Dividends
      on Series A and C Preferred stock
            
            
            (107
            )
            
            
            (51,829
            )Net loss
      attributable to common stockholders
            
            $
            (17,502,925
            )
            
            $
            (5,682,586
            )Net loss per common
      share – basic and diluted from
            
            $
            (0.12
            )
            
            $
            (0.05
            )Weighted
      average common shares outstanding – basic and diluted
            
            
            146,085,000
            
            
            
            104,583,000





13





Nine
      Months Ended
              June
      30,2008
            
            
            2007Revenues:Products
            
            $
            2,640,532
            
            
            $
            3,307,667Monitoring
      services
            
            
            8,189,945
            
            
            
            6,283,150Total
      revenues
            
            
            10,830,477
            
            
            
            9,590,817Cost
      of revenues:Products
            
            
            (1,868,755
            )
            
            
            (2,420,206
            )Monitoring
      services
            
            
            (8,325,123
            )
            
            
            (7,532,538
            )Total
      cost of revenues
            
            
            (10,193,878
            )
            
            
            (9,952,744
            )Gross
      margin (deficit)
            
            
            636,599
            
            
            
            (361,927
            )Operating
      expenses:Selling,
      general and administrative
            
            
            (29,363,316
            )
            
            
            (15,071,590
            )Research
      and development
            
            
            (4,854,420
            )
            
            
            (3,885,788
            )Loss
      from operations
            
            
            (33,581,137
            )
            
            
            (19,319,305
            )Other
      income (expense):Gain
      on sale of intellectual property
            
            
            2,400,000
            
            
            
            -Loss
      on revalued registration rights
            
            
            -
            
            
            
            (663,000
            )Loss
      on sale of asset
            
            
            -
            
            
            
            (228,800
            )Redemption
      of SecureAlert Series A Preferred stock
            
            
            (8,428,520
            )
            
            
            -Minority
      interest allocation
            
            
            692,389
            
            
            
            85,478Other
      income (loss)
            
            
            45,059
            
            
            
            298,057Interest
      income
            
            
            48,430
            
            
            
            89,211Interest
      expense
            
            
            (1,179,741
            )
            
            
            (924,695
            )Net
      loss
            
            
            (40,003,520
            )
            
            
            (20,663,054
            )Dividends
      on Series A and C Preferred stock
            
            
            (345,246
            )
            
            
            (500,553
            )Net loss
      attributable to common stockholders
            
            $
            (40,348,766
            )
            
            $
            (21,163,607
            )Net loss per common
      share – basic and diluted
            
            $
            (0.30
            )
            
            $
            (0.24
            )Weighted
      average common shares outstanding – basic and diluted
            
            
            136,097,000
            
            
            
            89,140,000








(6)           BANK
LINE OF CREDIT




As of
June 30, 2008, the Company’s outstanding balance under a line of credit with a
bank was $1,491,352. The interest rate is 7% and the line of credit matures on
March 1, 2009. The line of credit of $3,600,000 is secured by letters of credit
for a total of $3,600,000 and SecureAlert’s assets, excluding TrackerPAL
products. The cash available to withdraw from the line of credit as of June 30,
2008 was $2,108,648. The letters of credit were provided as collateral by four
entities. During the nine months ended June 30, 2008, the entities received a
total of 360,000 shares of RemoteMDx common stock and were reimbursed $13,968 in
cash for expenses related to establishing the letters of credit to extend the
line of credit.




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.





14





(7)
            ACCRUED
      LIABILITIES





Accrued
liabilities consisted of the following as of June 30, 2008 and September 30,
2007:





June
      30,
              2008
            
            
            September
      30,
              2007Deposit
      from security purchase
            
            $
            550,000
            
            
            $
            -Accrued
      payroll and employee benefits
            
            
            546,359
            
            
            
            282,350Legal
            
            
            243,350
            
            
            
            146,000Accrued
      bonuses
            
            
            208,145
            
            
            
            30,000Accrued
      dividends
            
            
            -
            
            
            
            298,667Accrued
      manufacturing costs
            
            
            -
            
            
            
            79,415Accrued
      communication costs
            
            
            -
            
            
            
            234,448Accrued
      warranty
            
            
            152,805
            
            
            
            -Accrued
      board of directors fees
            
            
            145,000
            
            
            
            145,000Accrued
      equipment lease
            
            
            85,715
            
            
            
            -Accrued
      outside services
            
            
            69,484
            
            
            
            -Accrued
      interest
            
            
            66,526
            
            
            
            77,940Commissions
            
            
            39,808
            
            
            
            -Other
      accrued expenses
            
            
            18,685
            
            
            
            30,915Total
            
            $
            2,125,877
            
            
            $
            1,324,735




(8)
            DEBT
      OBLIGATIONSDebt
      obligations as of June 30, 2008 and September 30, 2007 consisted of the
      following:




June
      30,
              2008
            September 30,
              2007


Notes payable to a financial institution bearing interest at
      9.00%.  Notes mature in July 2011 and July 2016.  The
      notes are secured by property.
            
            $
            261,375
            
            
            $
            -Note
      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.
            
            
            229,100
            
            
            
            -Notes
      payable for monitoring equipment.  The notes bear interest at
      10.00% and mature October 2008 through January 2009.  The notes
      are secured by  monitoring equipment.
            
            
            167,095
            
            
            
            -Unsecured
      notes payable to former SecureAlert stockholders, with interest at 5.00%,
      payable in installments of $80,000 per month until paid in
      full.  These notes are currently in default, although these
      notes are subject to an offset provision which has never been provided to
      the Company.
            
            
            169,676
            
            
            
            169,676Automobile
      loans with several financial institutions secured by the
      vehicles.  Interest rates range between 4.65% and 15.96%, due
      between November 2008 and November 2011.
            
            
            76,120
            
            
            
            -Notes
      payable to two stockholders of Midwest.  Notes bear interest
      rates between 5.00% and 6.00% maturing on January 2009 and February
      2013.
            
            
            85,779
            
            
            
            -Unsecured
      revolving lines of credit with two banks, with interest rates between 6.60
      % and 13.49%.
            
            
            65,184
            
            
            
            -Unsecured
      notes payable with interest rates between 4.65% and 6.85%.
            
            
            18,515
            
            
            
            -Total
      debt obligations
            
            
            1,072,844
            
            
            
            169,676Less
      current portion
            
            
            (513,179
            )
            
            
            (169,676
            )Long-term
      debt, net of current portion
            
            $
            559,665
            
            
            $
            -




15





(9)
            RELATED-PARTY
      LINE OF CREDIT




As of
June 30, 2008, the Company owed ADP Management, an entity owned and controlled
by two of the Company’s officers and directors, $21,581 under a line of credit
agreement. Outstanding amounts on the line of credit accrue interest at 11% and
are due on August 31, 2009. During the nine months ended June 30, 2008, the net
decrease in borrowings under this line of credit was $218,182. The decrease of
$218,182 consisted of cash repayments of $715,625 offset, in part, by $497,443
of monthly management fees owed to ADP Management, and expenses incurred by ADP
Management that are reimbursable by the Company. Mr. Derrick and, prior to his
resignation June 18, 2008, Mr. Dalton’s respective salaries are paid to ADP
Management which in turn pays Messrs. Derrick and Dalton. If the Company is
unable to pay the management fee and the reimbursable expenses in cash, the
related-party line of credit is increased for the amount owed to ADP
Management.





(10)
            MINORITY
      INTEREST




Volu-Sol Reagents
Corporation


In
January 2007, Messrs. Derrick and Dalton exercised the right (granted in
February 2006) to purchase from RemoteMDx 2,500,000 shares of Volu-Sol Reagents
Corporation (“Volu-Sol”) common stock for cash proceeds of $400,000 or $0.16 per
share.  Prior to the sale, RemoteMDx owned 100% of Volu-Sol common
stock.  The sale decreased RemoteMDx’s ownership of Volu-Sol to
70%.





During
the year ended September 30, 2007, Volu-Sol negotiated a non-exclusive license
agreement with RemoteMDx. Additionally, Volu-Sol issued 3,375,000 shares of
common stock, with a three-year anti-dilution provision, for net cash proceeds
of $1,150,000 or $0.34 per share, to various investors.  These
transactions decreased RemoteMDx’s ownership of Volu-Sol to 50%.





During
the nine months ended June 30, 2008, Volu-Sol issued 5,381,944 shares of its
common stock for net cash proceeds of $2,198,333.  In addition,
Volu-Sol issued 875,000 shares of its common stock for services valued at
$350,000, or $0.40 per share.  As of June 30, 2008, Volu-Sol had a
total of 17,965,277 shares outstanding.  During the three months ended
June 30, 2008, no shares of Volu-Sol common stock were issued.  As of
June 30, 2008, RemoteMDx owned 2,833,333 shares of Volu-Sol’s commons
stock.





At June
30, 2008, RemoteMDx directly controls approximately 16% of the issued and
outstanding voting securities of Volu-Sol.  In accordance with FIN
46(R), Consolidation of
Variable Interest Entities an
Interpretation of ARB No. 51, RemoteMDx must consolidate
Volu-Sol.  The factors that were considered include:  (1)
RemoteMDx has and will continue to absorb the majority of Volu-Sol’s expected
losses, (2) RemoteMDx has funded and will continue to fund Volu-Sol’s working
capital needs, (3) Volu-Sol’s two directors are also directors of RemoteMDx, (4)
Volu-Sol’s Chief Executive Officer is the Co-Chairman for RemoteMDx, (5) the
majority of Volu-Sol’s stockholders are also RemoteMDx stockholders, and (6)
Volu-Sol relies on RemoteMDx’s accounting department to process its financial
information.





Midwest


Effective
December 1, 2007, RemoteMDx acquired 51% ownership of Midwest for $1,800,000 in
notes payable, subsequently paid off in cash, and 438,000 shares of RemoteMDx
common stock.  RemoteMDx has the option to acquire the remaining 49%
of Midwest capital stock. Due to recurring losses by Midwest, minority interest
in Midwest has been reduced to zero.





16


Court
Programs


Effective
December 1, 2007, RemoteMDx acquired 51% ownership of Court Programs for
$300,000 in a note payable, subsequently paid off in cash, and 212,000 shares of
RemoteMDx common stock.  RemoteMDx has the option to acquire the
remaining 49% of Court Programs capital stock. Due to recurring losses by Court
Programs, minority interest in Court Programs has been reduced to
zero.





(11)         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 nine months ended June 30, 2008, no shares of Series A
Preferred stock were converted into common stock.  As of June 30,
2008, there were 19 shares of Series A Preferred stock outstanding, which
represent 7,178 common stock equivalents at a conversion rate of 370 for
1.






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 nine months ended June 30,
2008 and 2007, the Company recorded $313 and $95,843, respectively, in dividends
for Series A Preferred stock.






The
Company may, at its option, redeem up to two-thirds of the total number of
shares of Series A Preferred stock at a redemption price of 133 percent of the
stated value of Series A Preferred stock.  However, the Company may
designate a different and lower redemption price for all shares of Series A
Preferred stock called for redemption by the Company. Through June 30, 2008, the
Company had not exercised its option to redeem shares of Series A Preferred
stock.






Series
B Convertible Preferred Stock




During
the nine months ended June 30, 2008, a total of 2,000 shares of Series B
Convertible Preferred stock were converted into 15,000 shares of common
stock.  As of June 30, 2008, there were 10,999 shares of Series B
Preferred stock outstanding, convertible into approximately 113,783 common
shares.




SecureAlert,
Inc. Preferred Stock




As of
December 31, 2007, there were 3,590,000 shares of SecureAlert Series A Preferred
stock outstanding.  The holders of shares of Series A Preferred stock
were entitled to receive quarterly dividends out of any of SecureAlert’s assets
legally available therefore, prior and in preference to any declaration or
payment of any dividend on the Common Stock of SecureAlert, at the rate of $1.54
per day times the number of SecureAlert’s parolee contracts calculated in days
during the quarter. For example, if there were an average of 10,000 parolee
contracts outstanding during the quarter, the total dividend would be $1,386,000
($1.54 X 90 days X 10,000 contracts) or $.386 per share of Series A Preferred
stock. In no case would a dividend be paid if the gross revenue per contract per
day to SecureAlert averages less than $4.50. Dividends would be paid in cash to
the holders of record of shares of Series A Preferred stock as they appear on
the books and records of SecureAlert on such record dates not less than ten days
nor more than sixty days preceding the payment dates thereof, as may be fixed by
the Board of Directors of SecureAlert. As a group, all SecureAlert Series A
Preferred stock were convertible at the holders’ option at any time into an
aggregate of 20 percent ownership of the common shares of SecureAlert,
Inc.





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
$3,517,782 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.  The redemption value of $8,549,386 combined with the
future contingency payment of $3,517,782 less the initial investment into
SecureAlert Series A Preferred stock of $3,590,000 was recorded as an other
expense as Redemption of SecureAlert Series A Preferred.  During the
nine months ended June 30, 2008, RemoteMDx issued 289,950 shares of common stock
as consideration for dividends due to the former SecureAlert Series A
stockholders through December 31, 2007.


17





From
January 1, 2008, RemoteMDx recorded $177,898 for dividends on SecureAlert Series
A Preferred stock through March 24, 2008. As of June 30, 2008, the Company has
an outstanding liability of $3,483,004 for the estimated future contingency
payments due to the former SecureAlert Series A stockholders.





(12)
            COMMON
      STOCK




During
the nine months ended June 30, 2008, the Company issued 22,656,664 shares of
RemoteMDx common stock as follows:







·
            7,434,249
      shares were issued to redeem all outstanding shares of SecureAlert Series
      A Preferred stock.






·
            3,203,814
      shares were issued on the exercise of warrants providing $2,250,881 in
      cash to the Company.






·
            2,000,000
      shares were issued for $2,000,000 in
cash.






·
            8,025,000
      shares were issued for services performed for a value of
      $14,187,585.






·
            650,000
      shares were issued in connection with two
  acquisitions.






·
            643,601
      shares were issued in payment of dividends on SecureAlert Series A
      Preferred stock.






·
            360,000
      shares were issued to extend the Company’s line of
  credit.






·
            325,000
      shares were issued to settle a lawsuit for a value of
    $572,000






·
            15,000
      shares were issued in connection with Series B Preferred stock
      conversions.






Common
Stock Options and Warrants




As of
June 30, 2008, 14,207,451 of the 19,002,451 outstanding options and warrants
were vested with a weighted average exercise price of $1.89 per share. During
the nine months ended June 30, 2008, the Company granted 1,944,492 options and
warrants with exercise prices ranging from $0.59 to $4.05 per share. Of the
19,002,451 shares underlying options and warrants, 14,207,451 shares underlie
options and warrants which have vested, and 4,795,000 shares underlie options
and warrants which have not vested. During the nine months ended June 30, 2008,
various warrant holders exercised 3,203,814 warrants for cash proceeds of
$2,250,881. Of the 3,203,814 warrants exercised, 960,000 warrants were exercised
by employees providing $601,000 in cash to the Company and 2,243,814 warrants
were exercised by non-employees providing $1,649,881 in cash to the
Company.








(13)
            SEGMENT
      INFORMATION




The
Company is organized into two business segments based primarily on the nature of
the Company's products. The Volu-Sol segment is engaged in the business of
manufacturing and marketing medical diagnostic stains, solutions and related
equipment to hospitals and medical testing labs. The electronic monitoring
segment is engaged in the business of developing, distributing and monitoring
offender tracking devices. Other (unallocated) loss consists of research and
development, and selling, general and administrative expenses related to the
Company's corporate activities, including remote health monitoring and market
and business development activities.





18


The
following tables reflect certain financial information relating to each
reportable segment:


Three
      Months Ended
              June
      30,2008
            
            
            2007Sales
      to external customers:Electronic
      monitoring
            
            $
            3,487,658
            
            
            $
            2,986,086Volu-Sol
            
            
            122,720
            
            
            
            166,470Total
            
            $
            3,610,378
            
            
            $
            3,152,556Loss
      from operations :Electronic
      monitoring
            
            $
            (4,071,769
            )
            
            $
            (4,247,524
            )Volu-Sol
            
            
            (339,118
            )
            
            
            (159,060
            )Other
      (unallocated)
            
            
            (13,074,133
            )
            
            
            (622,725
            )Total
            
            $
            (17,485,020
            )
            
            $
            (5,029,309
            )





Nine
      Months Ended
              June
      30,2008
            
            
            2007Sales
      to external customers:Electronic
      monitoring
            
            $
            9,445,390
            
            
            $
            4,930,631Volu-Sol
            
            
            467,148
            
            
            
            493,426Total
            
            $
            9,912,538
            
            
            $
            5,424,057Loss
      from operations :Electronic
      monitoring
            
            $
            (12,963,935
            )
            
            $
            (12,234,616
            )Volu-Sol
            
            
            (1,270,172
            )
            
            
            (364,655
            )Other
      (unallocated)
            
            
            (19,322,507
            )
            
            
            (6,391,788
            )Total
            
            $
            (33,556,614
            )
            
            $
            (18,991,059
            )





June
      30, 2008
            
            
            September
      30, 2007Identifiable
      assets:Electronic
      monitoring
            
            $
            11,817,568
            
            
            $
            9,933,490Volu-Sol
            
            
            1,500,744
            
            
            
            984,331Other
      (unallocated)
            
            
            1,040,721
            
            
            
            5,318,868Total
      assets
            
            $
            14,359,033
            
            
            $
            16,236,689








19





(12)
            SUBSEQUENT
      EVENTS




Subsequent
to June 30, 2008, the Company entered into the following
transactions:





1)
            The
      Company issued 1,000,000 shares of common stock to an officer in lieu of
      receiving cash consideration for services to be rendered in the future for
      a value of $1,520,000.





2)
            40,000
      shares of common stock were issued upon the exercise of options providing
      $24,000 in cash to the Company.




(13)       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, Inc., Case No. 2-08CV-116: 
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. 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), Case No. CV08-02899,
Central District California:  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.  A Scheduling Conference currently is set for September
8, 2008.  No discovery has taken place at this time.  The
Company intends to vigorously prosecute its claims and defend against the
counterclaim.





Strategic Growth
International, Inc., v. RemoteMDx, Case No. 06-3915, Southern District of
New York.  This action was filed in response to an action previously
filed by the Company against Strategic Growth International, Inc. ("SGI") in
Utah.  The action arises out of a contract between SGI and the Company
for certain investor relations related services to be performed by
SGI.  SGI and its principals' original complaint alleged a single
claim for Breach of Contract seeking recovery of: 1) the balance it claims
remains due under the contract (approximately $80,000); 2) the value of options
to purchase 500,000 shares of restricted RemoteMDx common stock at $0.50 per
share; and 3) the value of one million shares of restricted RemoteMDx common
stock. In its Answer and Counterclaims, the Company denied SGI's allegations and
asserted counterclaims for:  (1) breach of contract; (2) rescission;
and (3) declaratory judgment.  On October 29, 2007, the Company
amended its Answer and Counterclaims to assert an additional claim against SGI
for fraudulent inducement, seeking rescission of its contract with SGI and the
return of amounts the Company paid SGI under the contract.  On
December 31, 2007, the Company filed a motion for summary judgment on its
fraudulent inducement claim.  On January 18, 2008, SGI filed a
cross-motion for partial summary judgment.  On April 17, 2008, SGI
amended its complaint to assert a claim for conversion with respect to the
options and shares which are the subject of SGI's breach of contract
claim.  On May 2, 2008, the Company filed a motion to dismiss the
conversion claim.  On April 23, 2008, SGI sought an order permitting
the attachment of the Company's assets in the State of New York.  The
Court has heard arguments on each of these motions but has not yet issued
rulings on the motions.  Discovery is ongoing solely as to SGI's
conversion claim.  Discovery is to conclude by September 30, 2008 and
a final pretrial conference is scheduled for December 17, 2008.  The
Company intends to vigorously defend itself against SGI's claims and to
vigorously prosecute its counterclaims against SGI.  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.


20





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-KSB/A and elsewhere in this Report, and those described
from time to time in our future reports filed with the Securities and Exchange
Commission.





Item
2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS





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-KSB/A for the year ended September 30, 2007, and our 10-QSB/A,
and Current Reports on Form 8-K that have been filed with the SEC through the
date of this Report.





Restatements





A
restatement of the Company’s financial statements for the year ended September
30, 2007 and the first quarter ended December 31, 2007 was made as discussed in
the notes to the condensed consolidated financial statements that are contained
in this Report.





These
restatements involved the following changes to the 2007 interim information
contained in this Report:




Three
      Months Ended June 30, 2007Previously Reported
            
            
            As RestatedStatement
      of Operations:Revenues
            
            $
            3,118,947
            
            
            $
            3,152,556Cost
      of revenues
            
            $
            2,488,366
            
            
            $
            3,502,561Loss
      from operations
            
            $
            (5,040,024
            )
            
            $
            (5,029,309
            )Net
      loss
            
            $
            (5,284,974
            )
            
            $
            (5,274,259
            )Net
      loss per common share
            
            $
            (0.05
            )
            
            $
            (0.05
            )







Nine
      Months Ended June 30, 2007Previously Reported
            
            
            As RestatedStatement
      of Operations:Revenues
            
            $
            5,757,391
            
            
            $
            5,424,057Cost
      of revenues
            
            $
            5,059,608
            
            
            $
            7,601,992Loss
      from operations
            
            $
            (18,886,665
            )
            
            $
            (18,991,059
            )Net
      loss
            
            $
            (20,142,402
            )
            
            $
            (20,246,796
            )Net
      loss per common share
            
            $
            (0.23
            )
            
            $
            (0.23
            )







21





Nine
      Months Ended June 30, 2007Previously Reported
            
            
            As RestatedStatement
      of Cashflows:Net
      loss
            
            $
            (20,142,402
            )
            
            $
            (20,246,796
            )Depreciation
      and amortization
            
            $
            1,697,771
            
            
            $
            1,762,211Deferred
      revenue
            
            $
            (14,801
            )
            
            $
            318,533Inventories
            
            $
            2,554,528
            
            
            $
            2,261,148





Changes
to the condensed consolidated financial statements for the three and nine months
ended June 30, 2007 include the following:





·
            During
      the three months ended June 30, 2007, the Company deferred revenues of
      $33,609 and cost of revenues of $22,894 related to sales of devices
      resulting in a decrease in net loss of
$10,715.





·
            During
      the three months ended June 30, 2007, the Company reclassified $991,301
      from selling, general and administrative expenses to cost of revenues for
      amortization and communication expenses for non-billable
      devices.





·
            During
      the nine months ended June 30, 2007, the Company deferred revenues of
      $333,334 and cost of revenues of $228,940 related to sales of devices
      resulting in an increase in net loss of
  $104,394.





·
            During
      the nine months ended June 30, 2007, the Company reclassified $2,771,324
      from selling, general and administrative expenses to cost of revenues for
      amortization and communication expenses for non-billable
      devices.




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




SecureAlert’s
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. Our strategy will be accomplished through the deployment of
SecureAlert’s 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-assimilation initiatives. SecureAlert’s exclusive portfolio of products &
services balance the need to dynamically track & monitor offenders with the
opportunity to positively encourage & transform offenders, thus reducing
recidivism through our proprietary C.A.R.E.TM (Correction, Accountability,
Rehabilitation, Empowerment) programs and client-adapted
initiatives.




Critical
Accounting Policies




In Note 2
to the consolidated financial statements for the fiscal year ended September 30,
2007 included in the Company’s Form 10-KSB/A, 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.




22




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




Revenue
Recognition




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




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.





Medical Diagnostic Stain
Sales


The
Company recognizes medical diagnostic stains revenue when persuasive evidence of
an arrangement with the customer exists, title passes to the customer and the
customer cannot return the products, prices are fixed or determinable (including
sales not being made outside the normal payment terms) and collection is
reasonably assured.


23





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.




Impairment
of Long-lived Assets




The
Company reviews its long-lived assets for impairment when events or changes in
circumstances indicate that the book 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, and depreciation of the asset ceases.  During the nine
months ended June 30, 2008 and 2007, the Company impaired $570,948 and
$1,454,784, respectively, in monitoring equipment that no longer had
value.  This expense was classified as cost of revenues.





Accounting
for Stock-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 October 1, 2006, the fair value of each stock option
grant is estimated on the date of grant using the Black-Scholes option pricing
model. The Company granted 1,725,000 stock options to employees during the nine
months ended June 30, 2008. The Company granted 275,000 stock options to
employees during the nine months ended June 30, 2007. The weighted average fair
value of stock options at the date of grant during the nine months ended June
30, 2008 and 2007 was $1.34 and $1.46, respectively.





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
the 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
following are the weighted-average assumptions used for options granted during
the three months ended June 30, 2008 and 2007, respectively:


24





June 30, 2008
            
            June 30, 2007Risk
      free interest rate
            
            3.42%
            
            -Expected
      life
            
            5
      years
            
            -Dividend
      yield
            
            -
            
            -Volatility
            
            131%
            
            -





The
following are the weighted-average assumptions used for options granted during
the nine months ended June 30, 2008 and 2007, respectively:





June 30, 2008
            
            June 30, 2007Risk
      free interest rate
            
            3.45%
            
            4.54%Expected
      life
            
            5
      years
            
            5
      yearsDividend
      yield
            
            -
            
            -Volatility
            
            139%
            
            145%





A summary
of stock option activity for the nine months ended June 30, 2008, is presented
below:





WeightedWeighted
            
            AverageShares
            
            Average
            
            Remaining
            
            AggregateUnder
            
            Exercise
            
            Contractual
            
            IntrinsicOption
            
            Price
            
            Life
            
            ValueOutstanding
      as of  September 30, 2007
            
            
            3,295,000
            
            $
            0.64Granted
            
            
            1,725,000
            
            $
            1.54Exercised
            
            
            (960,000)
            
            $
            0.63Forfeited
            
            
            (45,000)
            
            $
            0.86Expired
            
            
            -
            
            
            -Outstanding
      as of March 31, 2008
            
            
            4,015,000
            
            $
            1.03
            
            3.58
      years
            
            $
            2,213,150Exercisable
      as of March 31, 2008
            
            
            486,667
            
            $
            1.22
            
            3.58
      years
            
            $
            150,584








Results
of Operations





Summary
of Financial Results and Recent Developments





Subsequent
to June 30, 2008, the Company entered into the following
transactions:





·
            The
      Company issued 1,000,000 shares of common stock to an officer in lieu of
      receiving cash consideration for services to be rendered in the future for
      a value of $1,520,000.





·
            40,000
      shares of common stock were issued upon the exercise of options providing
      $24,000 in cash to the Company.





Three
months ended June 30, 2008, compared to three months ended June 30,
2007





Revenues





For the
three months ended June 30, 2008, the Company had revenues of $3,610,378
compared to $3,152,556 for the three months ended June 30, 2007, an increase of
$457,822. The increase in revenues resulted primarily from the monitoring of
offender tracking devices and providing probation services to individuals on
parole.





Previously
the Company deferred $1,400,000 in revenues from the sale of devices to certain
customers and has recognized $1,033,333 of these revenues during the three
months ended June 30, 2008 resulting in a balance of deferred revenues of
$200,000 to be recognized in future periods. Of the $1,400,000, $166,667 was
recognized as revenues in prior periods.


25





SecureAlert
had revenues of $2,097,000 during the three months ended June 30, 2008, compared
to revenues of $2,986,086 for the three months ended June 30, 2007. Although
SecureAlert’s revenue decreased $889,086, the Company recorded revenues from
devices sales of $1,837,033 during the three months ended June 30, 2007 compared
to $1,042,693 during the same period ended June 30, 2008.  Revenues
from monitoring services decreased from $1,149,053 to $1,054,307 for the three
months ended June 30, 2008 over the same period in 2007 because monitoring
service revenue of $162,662 related to Court Programs was not included in the
three months ended June 30, 2008. In addition, monitoring service revenues were
generally flat because the new and improved TrackerPAL device was released near
the end of the quarter.  These revenues in the three months ended June
30, 2008 consisted of $1,042,693 from the sale of offender tracking devices,
$1,035,000 from the monitoring of offender tracking devices, and $19,307 from
home and personal security systems.  Electronic Monitoring Services
accounted for $1,000,000 (48%) of SecureAlert’s revenues and no other customer
accounted for 10% or more of SecureAlert’s revenues.





Volu-Sol
had revenues for the three months ended June 30, 2008 of $122,720, compared to
$166,470 for the three months ended June 30, 2007.  Although revenues
were essentially flat between these periods, the Company anticipates that
Volu-Sol's revenues will decrease in the future as a percentage of total
revenues.  The following significant customers of Volu-Sol accounted
for more than 10% of Volu-Sol’s revenues during the period:  Thermo
Fisher Scientific (previously known as Fisher Scientific) accounted for 21%,
Cardinal Health Medical accounted for 13%, and Richard-Allan Scientific Co.
accounted for 10%.  No other Volu-Sol customer accounted for 10% or
more of Volu-Sol’s revenues.





On
December 1, 2007, the Company acquired Midwest. For the three months ended June
30, 2008, Midwest had revenues of $713,611.  These revenues consisted
of $711,220 from the monitoring of offender tracking devices and $2,391 from the
sale of devices.





On
December 1, 2007, the Company acquired Court Programs. For the three months
ended June 30, 2008, Court Programs had revenues of $677,047 from the monitoring
of offender tracking devices and parolee services.





Cost
of Revenues





For the
three months ended June 30, 2008, cost of revenues was $3,510,270 compared to
$3,502,561 during the three months ended June 30, 2007, an increase of
$7,709.  Cost of revenues increased on a more rapid pace compared to
the increase in revenues for the same period in 2007.  SecureAlert's
cost of revenues totaled $2,520,439, or 120%, of SecureAlert's revenues during
the three months ended June 30, 2008, compared to $3,428,979, or 115%, of
SecureAlert’s revenues during the three months ended June 30, 2007.





SecureAlert’s
cost of revenues for the three months ended June 30, 2008 of $2,520,439 was
comprised of the following:  device costs of $775,047, commissions of
$134,250, communication costs of $747,680, location costs of $13,158, monitoring
center costs of $483,903, amortization of $141,765, warranty expense of
$105,742, impairment of TrackerPAL devices of $7,295, and other TrackerPAL costs
of $111,599.  SecureAlert’s cost of revenues for the three months
ended June 30, 2007 of $3,428,979 was comprised of the
following:  device costs of $1,493,668, communication costs of
$712,230, monitoring center costs of $458,315, amortization of $653,904, and
other TrackerPAL costs of $110,862.





Volu-Sol's
cost of revenues was $120,773, or 98%, of Volu-Sol's revenues during the three
months ended June 30, 2008, compared to $73,582, or 44%, of Volu-Sol's revenues
for the same period during the prior fiscal year. The increase as a percentage
of revenues was primarily due to inventory disposed of during the quarter due to
a fire at the manufacturing facility.  Midwest’s cost of revenues
totaled $359,488, or 50%, of Midwest’s revenues for the three months ended June
30, 2008.  Court Program’s cost of revenues totaled $509,570, or 75%,
of Court Program’s revenues for the three months ended June 30,
2008.





During
the three months ended June 30, 2008, the Company recognized deferred cost of
revenues of $775,047.





26


Research
and Development Expenses





During
the three months ended June 30, 2008 and 2007, research and development expense
was $770,697 and  $731,737, respectively, and consisted primarily of
expenses associated with the development of SecureAlert’s TrackerPAL device and
related services.





Selling,
General and Administrative Expenses





During
the three months ended June 30, 2008, selling, general and administrative
expenses were $16,814,431 compared to $3,947,567 during the three months ended
June 30, 2007.  The net increase of $12,866,864 is made up of
increases in the following expenses:  bad debt of $234,623, consulting
of $11,274,038, depreciation of $29,610, legal of $634,189, office expenses and
supplies of $56,359, payroll and payroll taxes of $544,937, rent of $38,568,
telephone of $29,329, travel of $171,983, and other selling, general and
administrative expenses of $53,888.  These increases were offset in
part, by decreases in the following expenses: contract labor of $79,904, outside
services of $25,733, overhead allocation of $21,000, postage of $28,931, and
other selling, general and administrative expenses of $45,092.  The
increase in consulting of $11,274,038 relates primarily to stock and warrants
issued for services rendered to the Company and severance given to an officer
for service as President.





Interest
Expense





During
the three months ended June 30, 2008, interest expense totaled $389,838 compared
to $279,418 in the three months ended June 30, 2007. The increase of $110,420
resulted primarily from the debt obligations acquired from Midwest and Court
Programs.





Nine
months ended June 30, 2008, compared to nine months ended June 30,
2007





Revenues





For the
nine months ended June 30, 2008, the Company had revenues of $9,912,538 compared
to $5,424,057 for the nine months ended June 30, 2007, an increase of
$4,488,481. The increase in revenues resulted primarily from increased
monitoring of offender tracking devices and additional revenues received through
the Midwest and Court Programs acquisitions.





Previously
the Company deferred $1,400,000 in revenues from the sale of devices to certain
customers and has recognized $1,100,000 of these revenues during the nine months
ended June 30, 2008 resulting in a balance of deferred revenues of $200,000 to
be recognized in future periods. Of the $1,400,000, $100,000 was recognized as
revenue in prior periods.





SecureAlert
had revenues of $6,014,884 during the nine months ended June 30, 2008, compared
to revenues of $4,930,631 for the nine months ended June 30, 2007. The increase
in SecureAlert’s revenues of $1,084,253 resulted primarily from increased
monitoring services. SecureAlert’s monitoring services for the nine months ended
June 30, 2008 and 2007 were $3,854,570 and $2,083,455,
respectively.  Revenues of $6,014,884 for the nine months ended June
30, 2008 consisted of $3,854,570 from monitoring services, $2,100,000 from
offender tracking device sales, and $60,314 from home and personal security
systems.  The following significant customers of SecureAlert accounted
for more than 10% of SecureAlert’s revenues during the
period:  Electronic Monitoring Services accounted for $2,000,000
(33%), QuestGuard accounted for $826,160 (14%).





Volu-Sol
had revenues for the nine months ended June 30, 2008 of $467,148, compared to
$493,426 for the nine months ended June 30, 2007.  The decrease in
Volu-Sol’s revenues of $26,278 resulted primarily from a reduction in hemotology
sales.  The Company anticipates that Volu-Sol's revenues will decrease
in the future as a percentage of total revenues.  The following
significant customers of Volu-Sol accounted for more than 10% of Volu-Sol’s
revenues during the period:  Thermo Fisher Scientific (previously
known as Fisher Scientific) accounted for 25% and Cardinal Health Medical
accounted for 13%.  No other Volu-Sol customer accounted for 10% or
more of Volu-Sol’s revenues.





On
December 1, 2007, the Company acquired Midwest. For the seven months ended June
30, 2008, Midwest had revenues of $1,872,536.  These revenues
consisted of $1,828,185 from the monitoring of offender tracking devices and
$44,351 from the sale of devices.





27


On
December 1, 2007, the Company acquired Court Programs. For the seven months
ended June 30, 2008, Court Programs had revenues of $1,557,970 from the
monitoring of offender tracking devices and parolee services.





Cost
of Revenues





For the
nine months ended June 30, 2008, cost of revenues was $9,703,315 compared to
$7,601,992 for the nine months ended June 30, 2007, an increase of
$2,101,323.  Cost of revenues increased as revenues increased for the
same period.  SecureAlert's cost of revenues totaled $7,312,805, which
was 122% of SecureAlert's revenues for the nine months ended June 30, 2008,
compared to $7,322,708, which was 149% of SecureAlert’s revenues for the nine
months ended June 30, 2007.





SecureAlert’s
cost of revenues for the nine months ended June 30, 2008 of $7,312,805 was
comprised of the following:  device costs of $1,502,900, commissions
of $357,399, communication costs of $2,112,866, location costs of $38,298,
monitoring center costs of $1,465,989, amortization of $628,547, warranty
reserve expense of $105,742, impairment of TrackerPAL devices of $570,948, lease
equipment of $54,724, freight of $242,688, and other TrackerPAL costs of
$232,704.  SecureAlert’s cost of revenues for the nine months ended
June 30, 2007 of $7,322,708 was comprised of the following:  device
costs of $2,385,632, communication costs of $1,829,056, monitoring center costs
of $1,288,787, amortization of $1,495,686, commissions of $96,139, and other
TrackerPAL costs of $227,408.





Volu-Sol's
cost of revenues was $365,855, or 78%, of Volu-Sol's revenues during the nine
months ended June 30, 2008, compared to $279,284, or 57%, of Volu-Sol's revenues
for the same period during the prior year. The increase as a percentage of
revenues was primarily due to inventory disposed of during the nine months ended
due to a fire at the manufacturing facility.  Midwest’s cost of
revenues totaled $1,080,653 for the seven months ended June 30,
2008.  Court Programs’ cost of revenues totaled $944,002 for the seven
months ended June 30, 2008.





During
the nine months ended June 30, 2008, the Company recognized deferred cost of
revenues totaling $68,682.





Research
and Development Expenses





During
the nine months ended June 30, 2008 and 2007, research and development expense
was $4,854,420 and  $3,885,788, respectively, and consisted primarily
of expenses associated with the development of SecureAlert’s TrackerPAL device
and related services. Of the $3,885,788 of research and development, $2,555,285
was from 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 nine months ended June 30, 2008, selling, general and administrative
expenses were $28,911,417 compared to $12,927,336 during the nine months ended
June 30, 2007.  The net increase of $15,984,081 relates primarily to
increases in the following expenses:  advertising of $68,337,
automobile of $64,638, bad debt of $246,085, consulting of $12,953,833,
depreciation of $117,854, insurance of $72,138, legal of $564,508, payroll and
payroll taxes of $1,689,570, rent of $76,077, telephone of $101,425, travel of
$795,389 and utilities of $26,723, and other increase in selling, general and
administrative expenses of $168,560.  These increases were offset, in
part, by decreases in the following expenses: contract labor of $114,105, lease
of $30,045, overhead allocation of $247,000, outside services of $288,047,
postage of $194,116, and other selling, general and administrative expenses of
$87,743.  The increase in consulting of $12,953,833 results primarily
from stock and warrants issued for services rendered to the Company and
severance given to an officer for service as President.





Interest
Expense





For the
nine months ended June 30, 2008, interest expense totaled $1,163,586 compared to
$836,668 for the nine months ended June 30, 2007. The increase of $326,918
resulted primarily from the debt obligations acquired from Midwest and Court
Programs.




28


Liquidity
and Capital Resources





The
Company is presently unable to finance its business solely from cash flows from
operating activities. During the nine months ended June 30, 2008, the Company
financed its business primarily from the sale and issuance of common stock of
the Company for proceeds of $2,000,000, sale and issuance of the Company’s
subsidiary, Volu-Sol for proceeds of $4,598,333 and the exercise of warrants for
the purchase of common stock of the Company for net proceeds of
$2,658,380.





As of
June 30, 2008, the Company had unrestricted cash of $2,807,975 and working
capital deficit of $4,602,004, compared to unrestricted cash of $5,556,275 and
working capital of $1,296,985 as of September 30, 2007.  The cash
available to withdraw from the line of credit as of June 30, 2008 was $2,108,648
compared to $141,015 as of September 30, 2007. For the nine months ended June
30, 2008, the Company's operating activities used cash of $6,061,100, compared
to $7,505,826 of cash used in operating activities for the nine months ended
June 30, 2007.





The
Company used cash of $691,703 for investing activities during the nine months
ended June 30, 2008, compared to $8,215,598 of cash used in investing activities
for the nine months ended June 30, 2007.





The
Company's financing activities for the nine months ended June 30, 2008, provided
cash of $4,004,503 compared to $11,853,394 for the nine months ended June 30,
2007. For the nine months ended June 30, 2008, the Company had net proceeds of
$2,000,000 from the sale of common stock, $4,598,333 net proceeds from the sale
of equity securities by the Company’s subsidiary, Volu-Sol, $2,658,380 from the
exercise of warrants, $27,660 of proceeds from the issuance of notes payable,
and $160,898 of cash acquired through the purchase of Midwest and Court
Programs.  Cash decreased by $2,367,633 due to net payments on the
bank line of credit, $715,625 in net payments on the related-party line of
credit, $2,100,000 in payments on notes payable related to acquisitions and
$257,510 in payments on notes payable.  Cash provided by financing
activities was used to fund operating activities and purchase monitoring
equipment.





The
Company incurred a net loss of $39,962,842 for the nine months ended June 30,
2008 and a loss from operations of $33,556,614.  In addition, the
Company has an accumulated deficit of $173,059,788.  These factors, as
well as the risk factors set out in the Company's annual report on Form 10-KSB/A
for the year ended September 30, 2007 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.





Contingencies





TrackerPAL
Revisions and Enhancements




During
the year ended September 30, 2007, the Company discovered several problems with
the TrackerPAL device. These problems included:  1) water ingression
into the device; 2) battery and charger life and functionality; 3) GPS signal
strength; and 4) device becoming aesthetically damaged while removing it from an
offender.  The Company has implemented a plan and is continuing to
correct these issues and enhance the reliability of the device.




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 10% and 17% of our total revenues for the nine months ended June 30,
2008 and 2007, 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.


29





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 June 30, 2008, we had $1,491,352 of borrowings
outstanding on a line of credit with a weighted-average interest rate of
18%.  In addition, we had $65,184 of borrowings outstanding on a line
of credit with two banks with a weighted average interest rate of
10.05%.  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





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





As
required by Rule 13a-15(b) under the Exchange Act, we conducted an evaluation,
under the supervision of our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of our disclosure controls and procedures as of
September 30, 2007.  In our evaluation, we identified deficiencies
that existed in the tracking of leased equipment, revenue recognition, expense
classification, and design or operation of our internal control over financial
reporting that we and our independent registered public accounting firm
considered to be material weaknesses.  A material weakness is a
significant deficiency or combination of significant deficiencies that results
in more than a remote likelihood that a material misstatement of the annual or
interim financial information will not be prevented or detected.





The
deficiencies in our internal control over financial reporting were detected in
the evaluation process and are being appropriately recorded and disclosed going
forward.  We are in the process of improving our internal control over
financial reporting in an effort to resolve these deficiencies and improve the
supervision and training of our staff.  Additional effort is needed to
fully remedy these deficiencies.  Our management, audit committee, and
directors will continue to work with our auditors and outside advisors to ensure
that our controls and procedures are adequate and effective.





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





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





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





Section 404
Assessment. Section 404 of the Sarbanes-Oxley Act of 2002 requires
management’s annual review and evaluation of our internal controls and an
attestation of the effectiveness of these controls by our independent registered
public accounting firm beginning with our Form 10-K for the fiscal year ending
September 30, 2008. We plan to dedicate significant resources, including
management time and effort, in connection with our Section 404 assessment. The
evaluation of our internal controls will be conducted under the direction of our
senior management. We will continue to work to improve our controls and
procedures, and to educate and train our employees on our existing controls and
procedures in connection with our efforts to maintain an effective controls
infrastructure at our Company.


30





PART
II.   OTHER INFORMATION





Item
1.   LEGAL PROCEEDINGS





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, Inc., Case No. 2-08CV-116: 
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. 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), Case No. CV08-02899,
Central District California:  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.  A Scheduling Conference currently is set for September
8, 2008.  No discovery has taken place at this time.  The
Company intends to vigorously prosecute its claims and defend against the
counterclaim.





Strategic Growth
International, Inc., v. RemoteMDx, Case No. 06-3915, Southern District of
New York.  This action was filed in response to an action previously
filed by the Company against Strategic Growth International, Inc. ("SGI") in
Utah.  The action arises out of a contract between SGI and the Company
for certain investor relations related services to be performed by
SGI.  SGI and its principals' original complaint alleged a single
claim for Breach of Contract seeking recovery of: 1) the balance it claims
remains due under the contract (approximately $80,000); 2) the value of options
to purchase 500,000 shares of restricted RemoteMDx common stock at $0.50 per
share; and 3) the value of one million shares of restricted RemoteMDx common
stock. In its Answer and Counterclaims, the Company denied SGI's allegations and
asserted counterclaims for:  (1) breach of contract; (2) rescission;
and (3) declaratory judgment.  On October 29, 2007, the Company
amended its Answer and Counterclaims to assert an additional claim against SGI
for fraudulent inducement, seeking rescission of its contract with SGI and the
return of amounts the Company paid SGI under the contract.  On
December 31, 2007, the Company filed a motion for summary judgment on its
fraudulent inducement claim.  On January 18, 2008, SGI filed a
cross-motion for partial summary judgment.  On April 17, 2008, SGI
amended its complaint to assert a claim for conversion with respect to the
options and shares which are the subject of SGI's breach of contract
claim.  On May 2, 2008, the Company filed a motion to dismiss the
conversion claim.  On April 23, 2008, SGI sought an order permitting
the attachment of the Company's assets in the State of New York.  The
Court has heard arguments on each of these motions but has not yet issued
rulings on the motions.  Discovery is ongoing solely as to SGI's
conversion claim.  Discovery is to conclude by September 30, 2008 and
a final pretrial conference is scheduled for December 17, 2008.  The
Company intends to vigorously defend itself against SGI's claims and to
vigorously prosecute its counterclaims against SGI.  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.





31


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; its relationship with stockholders; and the
Company’s 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 most recent fiscal quarter ended June 30,
2008.





Item
1A.               RISK
FACTORS





We
attempt to identify, manage and mitigate the risks and uncertainties that are
associated with our business to the extent practical.  However, some
level of risk and uncertainty will always be present.  Our Annual
Report for the fiscal year ended September 30, 2007, as amended, describes some
of the risks and uncertainties that are associated with our
business.  These risks and uncertainties have the potential to
materially affect our business, financial condition, results of operations, cash
flows, projected results and future prospects.  In addition, we note
the following:





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





Item
2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS





The
Company did not repurchase any of its own shares during the nine months ended
June 30, 2008.





During
the quarter ended June 30, 2008, the Company issued shares of common stock in
connection with the conversion of preferred stock, the exercise of warrants, and
in payment of dividends and in other transactions not involving a public sale or
offering of such shares, and without registration under the Securities Act of
1933, as amended (the “Securities Act”), as follows:




·
            7,025,000
      shares were issued for services performed for a value of
      $10,972,750.  The shares were issued without registration under
      the Securities Act in reliance on Section 4(2) of the Securities Act and
      the rules and regulations promulgated
  thereunder.




·
            325,000
      shares were issued to settle a lawsuit for a value of
      $572,000.




As
indicated above, the recipients of the shares in the above transactions were
current stockholders, affiliates, employees, or service providers to the
Company.  Each had a pre-existing relationship with the Company and
was provided with the information available in the Company’s public
filings.  The transactions described above did not involve any public
solicitation or similar activity by the Company and each transaction was a
private transaction in which the recipient was advised that the shares issued
were restricted shares, not freely transferable, and subject to the restrictions
against resale of federal and applicable state securities laws.  The
certificates issued representing the shares in each case contained a restrictive
legend, advising that the resale of the securities was subject to registration
under the Securities Act or an exemption from the registration provisions of
such act.  In entering into these transactions the Company relied on
exemptions available for offers and sales of securities not involving a public
offering, including, without limitation, the exemptions from the registration
requirements provided under Section 4(2) of the Securities Act and rules and
regulations promulgated thereunder, including, without limitation Regulation
D.




In
addition to the sales of unregistered securities reported above, the Company
issued 177,898 shares of common stock during the quarter ended June 30, 2008
from SecureAlert Series A Preferred stock dividends.




32


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)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)




33




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).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).




34




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)




















35


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:
      August 15, 2008
            By:
            /s/ David G.
      DerrickDavid G.
      Derrick,Chief Executive
      OfficerDate:
      August 15, 2008
            By:
            /s/
      Blake T.
      RigbyBlake T.
      Rigby,Principal
      Accounting Officer















36