UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 ______________________
  FORM
10-Q
  (Mark
One)
 [X]
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
                
                For the
      quarterly period ended March 31,
2008
  OR
 
 [  
      ]
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
                
                For the
      transition period from ___________ to
  ____________
 
 Commission
file number: 0-21116
 ______________________
 
 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 June 1, 2008
was 146,568,851.
 
 
 
 REMOTEMDX,
INC.
 
 FORM
10-Q
 
 For
the Quarterly Period Ended March 31, 2008
 
 INDEX
 
 PagePART
      I. FINANCIAL INFORMATIONItem
      1
              Financial
      Statements (Unaudited)Condensed
      Consolidated Balance Sheets as of March 31, 2008 and September 30,
      2007
              3Condensed
      Consolidated Statements of Operations for the three and six months ended
      March 31, 2008 and 2007
              4Condensed
      Consolidated Statements of Cash Flows for the six months ended March 31,
      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)
  March
      31, 2008
              
              
              September
      30, 2007AssetsCurrent
      assets:Cash
              
              $
              5,121,666
              
              
              $
              5,556,275Accounts
      receivable, net of allowance for doubtful accounts of  $337,500
      and $163,000, respectively
              
              
              3,213,928
              
              
              
              4,498,812Inventory,
      net of reserve of $41,757 and $46,906, respectively
              
              
              46,210
              
              
              
              51,359Prepaid
      expenses and other
              
              
              206,673
              
              
              
              923,369Total
      current assets
              
              
              8,588,477
              
              
              
              11,029,815Property
      and equipment, net of accumulated depreciation and amortization of
      $2,024,034 and $1,112,018, respectively
              
              
              1,716,527
              
              
              
              1,430,768Monitoring
      equipment, net of accumulated depreciation of $3,008,348 and $1,388,515,
      respectively
              
              
              2,630,423
              
              
              
              3,739,474Goodwill
      and intangible assets, net of amortization
              
              
              4,625,602
              
              
              
              -Other
      assets
              
              
              53,395
              
              
              
              36,632Total
      assets
              
              $
              17,614,424
              
              
              $
              16,236,689Liabilities
      and Stockholders’ EquityCurrent
      liabilities:Bank
      line of credit
              
              $
              735,949
              
              
              $
              3,858,985Accounts
      payable
              
              
              3,035,521
              
              
              
              3,065,187Accrued
      liabilities
              
              
              2,717,500
              
              
              
              1,324,735Deferred
      revenue
              
              
              1,261,730
              
              
              
              1,314,247SecureAlert
      Series A Preferred stock redemption obligation
              
              
              3,517,782
              
              
              
              -Current
      portion of long-term debt
              
              
              554,847
              
              
              
              169,676Total
      current liabilities
              
              
              11,823,329
              
              
              
              9,732,830Related-party
      line of credit
              
              
              38,860
              
              
              
              239,763Long-term
      debt, net of current portion
              
              
              600,668
              
              
              
              -Total
      liabilities
              
              
              12,462,857
              
              
              
              9,972,593Commitments
      and Contingencies (Note 15)Minority
      interest
              
              
              4,066,583
              
              
              
              1,396,228SecureAlert
      Series A Preferred stock
              
              
              -
              
              
              
              3,590,000Stockholders’
      equity:Preferred
      stock:Series
      A 10% dividend, convertible, non-voting, $0.0001 par value: 40,000 shares
      designated; 19 shares outstanding (aggregate liquidation preference of
      $450)
              
              
              1
              
              
              
              1Series
      B convertible, $0.0001 par value: 2,000,000 shares designated; 10,999
      shares outstanding (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;
      142,468,851 and 127,340,085 shares outstanding,
    respectively
              
              
              14,247
              
              
              
              12,734Additional
      paid-in capital
              
              
              163,609,325
              
              
              
              142,238,576Deferred
      compensation
              
              
              (4,981,620
              )
              
              
              (7,468,998
              )Subscription
      receivable
              
              
              (2,000,000
              )
              
              
              (407,500
              )Accumulated
      deficit
              
              
              (155,556,970
              )
              
              
              (133,096,946
              )Total
      stockholders’ equity
              
              
              1,084,984
              
              
              
              1,277,868Total
      liabilities and stockholders’ equity
              
              $
              17,614,424
              
              
              $
              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
                March
      31,
              
              
              Six
      months ended
                March
      31,2007
              
              
              
              
              
              20072008
              
              
              (Restated)
              
              
              2008
              
              
              (Restated)Revenues:Products
              
              $
              214,084
              
              
              $
              1,136,835
              
              
              $
              1,453,055
              
              
              $
              1,289,689Monitoring
      services
              
              
              2,449,198
              
              
              
              546,429
              
              
              
              4,849,105
              
              
              
              981,812Total
      revenues
              
              
              2,663,282
              
              
              
              1,683,264
              
              
              
              6,302,160
              
              
              
              2,271,501Cost
      of revenues:Products
              
              
              203,725
              
              
              
              821,667
              
              
              
              896,768
              
              
              
              915,151Monitoring
      services
              
              
              3,132,313
              
              
              
              1,347,099
              
              
              
              5,296,277
              
              
              
              3,184,280Total
      cost of revenues
              
              
              3,336,038
              
              
              
              2,168,766
              
              
              
              6,193,045
              
              
              
              4,099,431Gross
      margin (deficit)
              
              
              (672,756
              )
              
              
              (485,502
              )
              
              
              109,115
              
              
              
              (1,827,930
              )Operating
      expenses:Selling,
      general and administrative (including $2,373,097, $1,469,554, $3,965,757
      and $3,214,991, respectively, of compensation expense paid in stock or
      stock options / warrants)
              
              
              7,779,757
              
              
              
              3,782,843
              
              
              
              12,096,986
              
              
              
              8,979,769Research
      and development
              
              
              3,043,276
              
              
              
              1,934,392
              
              
              
              4,083,723
              
              
              
              3,154,051Loss
      from operations
              
              
              (11,495,789
              )
              
              
              (6,202,737
              )
              
              
              (16,071,594
              )
              
              
              (13,961,750
              )Other
      income (expense):Gain
      on sale of intellectual property
              
              
              -
              
              
              
              -
              
              
              
              2,400,000
              
              
              
              -Redemption
      of SecureAlert Series A Preferred
              
              
              (8,477,168
              )
              
              
              -
              
              
              
              (8,477,168
              )
              
              
              -Registration
      payment expense
              
              
              -
              
              
              
              (618,000
              )
              
              
              -
              
              
              
              (565,500
              )Minority
      interest allocation
              
              
              220,012
              
              
              
              13,888
              
              
              
              385,592
              
              
              
              13,888Interest
      income
              
              
              9,782
              
              
              
              23,957
              
              
              
              42,971
              
              
              
              75,478Interest
      expense
              
              
              (398,238
              )
              
              
              (272,965
              )
              
              
              (773,748
              )
              
              
              (557,250
              )Other
      income (expense), net
              
              
              23,321
              
              
              
              22,241
              
              
              
              33,923
              
              
              
              22,597Net
      loss
              
              
              (20,118,080
              )
              
              
              (7,033,616
              )
              
              
              (22,460,024
              )
              
              
              (14,972,537
              )Dividends
      on Series A and C Preferred stock
              
              
              (178,002
              )
              
              
              (210,868
              )
              
              
              (345,139
              )
              
              
              (448,724
              )Net
      loss attributable to common stockholders
              
              $
              (20,296,082
              )
              
              $
              (7,244,484
              )
              
              $
              (22,805,163
              )
              
              $
              (15,421,261
              )Net
      loss per common share, basic and diluted
              
              $
              (0.15
              )
              
              $
              (0.08
              )
              
              $
              (0.17
              )
              
              $
              (0.18
              )Weighted
      average common shares outstanding, basic and diluted
              
              
              132,661,000
              
              
              
              90,618,000
              
              
              
              131,131,000
              
              
              
              86,699,000
  See
accompanying notes to condensed consolidated financial statements.
  4
 
 REMOTEMDX,
INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
  Six
      Months Ended
                March
      31,20072008
              
              
              (Restated)Cash
      flows from operating activities:Net
      loss
              
              $
              (22,460,024
              )
              
              $
              (14,972,537
              )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
              
              
              1,191,741
              
              
              
              1,124,546Common
      stock issued for services
              
              
              3,564,835
              
              
              
              595,050Common
      stock issued to settle lawsuit
              
              
              -
              
              
              
              196,800Amortization
      of deferred financing and consulting costs
              
              
              2,890,578
              
              
              
              411,941Registration
      payment arrangement expense
              
              
              -
              
              
              
              565,500Stock
      options and warrants issued during the period for services
              
              
              445,117
              
              
              
              2,011,200Redemption
      of SecureAlert Series A Preferred stock
              
              
              8,477,168
              
              
              
              -Increase
      in related-party line of credit for services
              
              
              375,060
              
              
              
              302,870Impairment
      of monitoring equipment
              
              
              563,653
              
              
              
              1,414,244Minority
      interest expense, net
              
              
              (385,592
              )
              
              
              (13,888
              )Changes
      in operating assets and liabilities:Accounts
      receivable, net
              
              
              2,364,341
              
              
              
              (1,266,429
              )Interest
      receivable (payable)
              
              
              (9,068
              )
              
              
              8,837Inventories
              
              
              5,149
              
              
              
              979,542Prepaid
      expenses and other assets
              
              
              739,466
              
              
              
              1,995,517Accounts
      payable
              
              
              (651,430
              )
              
              
              2,735,227Accrued
      liabilities
              
              
              1,419,182
              
              
              
              467,395Deferred
      revenue
              
              
              (115,363
              )
              
              
              351,851Net
      cash used in operating activities
              
              
              (1,585,187
              )
              
              
              (3,092,334
              )Cash
      flows from investing activities:Purchase
      of property and equipment
              
              
              (106,156
              )
              
              
              (426,254
              )Purchase
      of monitoring equipment
              
              
              (214,698
              )
              
              
              (8,015,371
              )Net
      cash used in investing activities
              
              
              (320,854
              )
              
              
              (8,441,625
              )Cash
      flows from financing activities:Payment
      of accrued SecureAlert Series A Preferred stock dividends
              
              
              -
              
              
              
              (268,839
              )Principal
      payments on related-party line of credit
              
              
              (575,963
              )
              
              
              (99,461
              )Net
      principal reductions in bank line of credit borrowings
              
              
              (3,123,036
              )
              
              
              (28,452
              )Principal
      payments on notes payable
              
              
              (170,590
              )
              
              
              -Principal
      payments on notes payable related to acquisitions
              
              
              (2,100,000
              )
              
              
              -Cash
      acquired through acquisitions
              
              
              160,898
              
              
              
              -Proceeds
      from sale of common stock
              
              
              -
              
              
              
              6,162,000Proceeds
      from issuance of subsidiary stock
              
              
              4,598,333
              
              
              
              400,000Proceeds
      from issuance of notes payable
              
              
              23,410
              
              
              
              -Proceeds
      from exercise of options and warrants
              
              
              2,658,380
              
              
              
              4,355,464Net
      cash provided by financing activities
              
              
              1,471,432
              
              
              
              10,520,712Net
      decrease in cash
              
              
              (434,609
              )
              
              
              (1,013,247
              )Cash,
      beginning of period
              
              
              5,556,275
              
              
              
              5,872,529Cash,
      end of period
              
              $
              5,121,666
              
              
              $
              4,859,282
   Cash
      paid for interest
              
              $
              239,113
              
              
              $
              387,393
  See
accompanying notes to condensed consolidated financial statements.
  5
 REMOTEMDX,
INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
 (Unaudited)
  Six
      Months Ended
                March
      31,2008
              
              
              2007Supplemental
      schedule of non-cash investing and financing activities:Issuance
      of shares of common stock in exchange for shares of Series A Preferredstock
              
              $
              -
              
              
              $
              345Issuance
      of shares of common stock in exchange for shares of Series B Preferredstock
              
              
              2
              
              
              
              35Issuance
      of shares of common stock and warrants in exchange for deferredconsulting
      services and financing costs
              
              
              403,200
              
              
              
              134,757Accrual
      of Series A and C Preferred stock dividends
              
              
              344,933
              
              
              
              448,724Issuance
      of common stock for payment of SecureAlert Series A Preferred
      dividends
              
              
              465,703
              
              
              
              99,088Issuance
      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
              
              
              
              -
  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
March 31, 2008, and results of its operations for the three and six months ended
March 31, 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 December 31, 2007.  The results of operations for the three and
six months ended March 31, 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 six months ended
March 31, 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
      March 31, 2007Statement of
      Operations:
              
              Previously
      Reported
              
              
              As
      RestatedRevenues
              
              $
              1,649,931
              
              
              $
              1,683,264Cost of
      revenues
              
              $
              2,145,872
              
              
              $
              2,168,766Loss
      from operations
              
              $
              (6,213,176
              )
              
              $
              (6,202,737
              )Net
      loss
              
              $
              (7,044,055
              )
              
              $
              (7,033,616
              )Net
      loss per common share
              
              $
              (0.08
              )
              
              $
              (0.08
              )
   Six Months Ended
      March 31, 2007Statement of
      Operations:
              
              Previously
      Reported
              
              
              As
      RestatedRevenues
              
              $
              2,638,168
              
              
              $
              2,271,501Cost of
      revenues
              
              $
              4,351,265
              
              
              $
              4,099,431Loss
      from operations
              
              $
              (13,846,917
              )
              
              $
              (13,961,750
              )Net
      loss
              
              $
              (14,857,704
              )
              
              $
              (14,972,537
              )Net
      loss per common share
              
              $
              (0.18
              )
              
              $
              (0.18
              )
  Statement of
      Cashflows:Net
      loss
                
                $
                (14,857,704
                )
                
                $
                (14,972,537
                )Depreciation and amortization
                
                $
                1,060,106
                
                
                $
                1,124,546Deferred revenue
                
                $
                (14,816
                )
                
                $
                351,851Inventories
                
                $
                1,295,816
                
                
                $
                979,542
  7
 Changes
to the condensed consolidated financial statements for the three and six months
ended March 31, 2007 include the following:
  ·
              During
      the three months ended March 31, 2007, the Company recorded $33,333 in
      revenues and $22,894 in cost of revenues related to the sales of devices
      previously deferred resulting in a decrease in net loss of
      $10,439.
 
 ·
              During
      the six months ended March 31, 2007, the Company deferred revenues of
      $366,667 and deferred cost of revenues of $251,834 related to sales of
      devices resulting in an increase in net loss of
  $114,833.
 
 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 six months ended
March 31, 2008 and 2007, the Company disposed of $563,653 and $1,414,244,
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, the conversion of the convertible debentures and related
accrued interest, and shares issuable upon conversion of preferred stock. As of
March 31, 2008 and 2007, there were 17,455,912 and 43,266,137 outstanding common
stock equivalents, respectively, that were not included in the computation of
diluted net loss per common stock as their effect would be anti-dilutive. The
common stock equivalents outstanding as of March 31, 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 17,334,951 shares underlying
options and warrants. Of the 17,334,951 shares underlying options and warrants,
13,324,951 shares underlie options and warrants which have vested and 4,010,000
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 25,000 stock options to an employee
during the six months ended March 31, 2008. The Company granted 275,000 stock
options to employees during the six months ended March 31, 2007. The weighted
average fair value of stock options at the date of grant during the six months
ended March 31, 2008 and 2007 was $0.91 and $1.44, 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 six months ended March 31, 2008 and 2007, respectively:
  March 31, 2008
              
              March 31, 2007Risk
      free interest rate
              
              2.23%
              
              4.54%Expected
      life
              
              5
      years
              
              5
      yearsDividend
      yield
              
              -
              
              -Volatility
              
              151%
              
              145%
 
 A summary
of stock option activity for the six months ended March 31, 2008, is presented
below:
  Shares
                Under
                Option
              
              
              Weighted
                Average
                Exercise
                Price
              
              Weighted
                Average
                Remaining
                Contractual
                Life
              
              Aggregate
                Intrinsic
                ValueOutstanding
      as of September 30, 2007
              
              
              3,295,000
              
              
              $
              0.64Granted
              
              
              25,000
              
              
              $
              1.00Exercised
              
              
              (960,000
              )
              
              $
              0.63Forfeited
              
              
              (45,000
              )
              
              $
              0.86Expired
              
              
              -
              
              
              
              -Outstanding
      as of  March 31, 2008
              
              
              2,315,000
              
              
              $
              0.65
              
              3.64
      years
              
              $
              2,300,150Exercisable
      as of  March 31, 2008
              
              
              196,667
              
              
              $
              1.51
              
              3.58
      years
              
              $
              115,384
  (2) INVENTORIES
  Substantially
all items included in inventory are finished goods and consisted of Volu-Sol
diagnostic stains and reagents.  Inventories are net of a reserve for
obsolescence of $46,210 as of March 31, 2008 and $51,359 as of September 30,
2007.
  11
 (3) PROPERTY AND
EQUIPMENT
 
 Property
and equipment as of March 31, 2008 and September 30, 2007, were as
follows:
 
 2008
              
              
              2007Property
      and equipment
              
              $
              3,740,561
              
              
              $
              2,542,786Less:
      accumulated depreciation
              
              
              (2,024,034
              )
              
              
              (1,112,018
              )Total
              
              $
              1,716,527
              
              
              $
              1,430,768
 
 During
the six months ended March 31, 2008, the Company purchased $106,156 of tooling
and computer equipment.
 
 (4) MONITORING
EQUIPMENT
 
 Monitoring
equipment as of March 31, 2008 and September 30, 2007, was as
follows:
 
 2008
              
              
              2007Monitoring
      equipment
              
              $
              5,638,771
              
              
              $
              5,127,989Less:
      accumulated depreciation
              
              
              (3,008,348
              )
              
              
              (1,388,515
              )Total
              
              $
              2,630,423
              
              
              $
              3,739,474
 
 Net
monitoring equipment of $2,630,423 includes $906,553 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.  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 a 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 were released by the Company in March
2008.
 
 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 amortization
 
 GoodwillMidwest
              
              $
              3,202,709Court
      Programs
              
              
              1,100,893Other
      intangible assets, net of amortizationMidwest
              
              
              215,000Court
      Programs
              
              
              107,000Total
      goodwill and other intangible assets, net of amortization
              
              $
              4,625,602
  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.
 
 Three
      Months EndedMarch
      31,2008
              
              
              2007Revenues:Products
              
              $
              214,084
              
              
              $
              1,145,335Monitoring
      services
              
              
              2,449,198
              
              
              
              2,027,256Total
      revenues
              
              
              2,663,282
              
              
              
              3,172,591Cost
      of revenues:Products
              
              
              (203,725
              )
              
              
              (827,802
              )Monitoring
      services
              
              
              (3,132,313
              )
              
              
              (2,191,833
              )Total
      cost of revenues
              
              
              (3,336,038
              )
              
              
              (3,019,635
              )Gross
      margin (deficit)
              
              
              (672,756
              )
              
              
              152,956Operating
      expenses:Selling,
      general and administrative
              
              
              (7,779,757
              )
              
              
              (4,129,125
              )Research
      and development
              
              
              (3,043,276
              )
              
              
              (1,934,392
              )Loss
      from operations
              
              
              (11,495,789
              )
              
              
              (5,910,561
              )Other
      income (expense):Loss
      on revalued registration rights
              
              
              -
              
              
              
              (618,000
              )Redemption
      of SecureAlert Series A Preferred stock
              
              
              (8,477,168
              )
              
              
              -Minority
      interest allocation
              
              
              220,012
              
              
              
              13,888Other
      income (loss)
              
              
              23,321
              
              
              
              22,241Interest
      income
              
              
              9,782
              
              
              
              23,957Interest
      expense
              
              
              (398,238
              )
              
              
              (297,627
              )Total
      other income (expense), net
              
              
              (8,622,291
              )
              
              
              (855,541
              )Net
      loss
              
              
              (20,118,080
              )
              
              
              (6,766,102
              )Dividends
      on Series A and C Preferred stock
              
              
              (178,002
              )
              
              
              (210,868
              )Net
      loss attributable to common stockholders
              
              $
              (20,296,082
              )
              
              $
              (6,976,970
              )Net
      loss per common share – basic and diluted
              
              $
              (0.15
              )
              
              $
              (0.08
              )Weighted
      average common shares outstanding – basic and diluted
              
              
              132,661,000
              
              
              
              90,618,000
 
 13
 
 Supplemental
Pro Forma Results of Operations
 The
following tables present the pro forma results of operations for the three and
six months ended March 31, 2008 and 2007, as though the Midwest and Court
Programs acquisitions had been completed as of the beginning of each period
presented:
 
 Six
      Months EndedMarch
      31,2008
              
              
              2007Revenues:Products
              
              $
              1,453,055
              
              
              $
              1,298,189Monitoring
      services
              
              
              5,767,044
              
              
              
              3,721,340Total
      revenues
              
              
              7,220,099
              
              
              
              5,019,529Cost
      of revenues:Products
              
              
              (896,768
              )
              
              
              (921,286
              )Monitoring
      services
              
              
              (5,786,840
              )
              
              
              (4,983,755
              )Total
      cost of revenues
              
              
              (6,683,608
              )
              
              
              (5,905,041
              )Gross
      margin (deficit)
              
              
              536,491
              
              
              
              (885,512
              )Operating
      expenses:Selling,
      general and administrative
              
              
              (12,548,885
              )
              
              
              (9,925,934
              )Research
      and development
              
              
              (4,083,723
              )
              
              
              (3,154,051
              )Loss
      from operations
              
              
              (16,096,117
              )
              
              
              (13,965,497
              )Other
      income (expense):Gain
      on sale of intellectual property
              
              
              2,400,000
              
              
              
              -Loss
      on revalued registration rights
              
              
              -
              
              
              
              (565,500
              )Redemption
      of SecureAlert Series A Preferred stock
              
              
              (8,477,168
              )
              
              
              -Minority
      interest allocation
              
              
              385,592
              
              
              
              13,888Other
      income
              
              
              33,923
              
              
              
              22,597Interest
      income
              
              
              42,971
              
              
              
              75,478Interest
      expense
              
              
              (789,903
              )
              
              
              (613,263
              )Total
      other income (expense), net
              
              
              (6,404,585
              )
              
              
              (1,066,800
              )Net
      loss
              
              
              (22,500,702
              )
              
              
              (15,032,297
              )Dividends
      on Series A and C Preferred stock
              
              
              (345,139
              )
              
              
              (448,724
              )Net
      loss attributable to common stockholders
              
              $
              (22,845,841
              )
              
              $
              (15,481,021
              )Net
      loss per common share – basic and diluted
              
              $
              (0.17
              )
              
              $
              (0.18
              )Weighted
      average common shares outstanding – basic and diluted
              
              
              131,131,000
              
              
              
              86,699,000
 
 14
 
 (6) BANK LINE OF
CREDIT
 
 As of
March 31, 2008, the Company’s outstanding balance under a line of credit with a
bank was $735,949. The interest rate is 7% and the line of credit matures on
March 1, 2009. The line of credit is secured by letters of credit for a total of
$3,600,000 and SecureAlert’s assets, excluding TrackerPAL products. The letters
of credit were provided as collateral by four entities. During the three months
ended March 31, 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.
  (7) ACCRUED
LIABILITIES
  Accrued
liabilities consisted of the following as of March 31, 2008 and September 30,
2007:
 
 March
      31, 2008
              
              
              September
      30, 2007Accrued
      lawsuit settlement
              
              $
              1,276,000
              
              
              $
              -Accrued
      bonuses
              
              
              231,301
              
              
              
              30,000Accrued
      payroll and employee benefits
              
              
              353,929
              
              
              
              282,350Legal
              
              
              179,313
              
              
              
              146,000Accrued
      dividends
              
              
              178,301
              
              
              
              298,667Accrued
      manufacturing costs
              
              
              -
              
              
              
              79,415Accrued
      communication costs
              
              
              121,922
              
              
              
              234,448Accrued
      warranty
              
              
              105,742
              
              
              
              -Accrued
      board of directors fees
              
              
              85,000
              
              
              
              145,000Accrued
      interest
              
              
              64,535
              
              
              
              77,940Accrued
      equipment lease
              
              
              50,000
              
              
              
              -Accrued
      outside services
              
              
              48,226
              
              
              
              -Other
      accrued expenses
              
              
              23,231
              
              
              
              30,915Total
              
              $
              2,717,500
              
              
              $
              1,324,735
  (8) DEBT OBLIGATIONS
    March 31,
      2008
              
              
              September
      30,
                2007Notes
      payable to a financial institution bearing interest at
      9.00%.  Notes mature in July 2011 and July 2016.  The
      notes are secured by property.
              
              $
              293,588
              
              
              $
              -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.
              
              
              177,197
              
              
              
              -
  15
  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.
              
              
              116,469
              
              
              
              -Notes
      payable to two stockholders of Midwest.  Notes bear interest
      between 5.00% and 6.00% maturing on January 2009 and February
      2013.
              
              
              97,291
              
              
              
              -Unsecured
      revolving line of credit with a bank, with interest at
    13.49%.
              
              
              39,194
              
              
              
              -Unsecured
      revolving line of credit with a bank, with interest at
    6.85%.
              
              
              33,000
              
              
              
              -Total
      debt obligations
              
              
              1,155,515
              
              
              
              169,676Less
      current portion
              
              
              (554,847
              )
              
              
              (169,676
              )Long-term
      debt, net of current portion
              
              $
              600,668
              
              
              $
              -
 
 (9) RELATED-PARTY
LINE OF CREDIT
 As of
March 31, 2008, the Company owed ADP Management, an entity owned and controlled
by two of the Company’s officers and directors, $38,860 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 six months ended March 31, 2008, the net
decrease in borrowings under this line of credit was $200,903. The decrease of
$200,903 consisted of cash repayments of $575,963 offset, in part, by $375,060
of monthly management fees owed to ADP Management, and expenses incurred by ADP
Management that are reimbursable by the Company. Mr. Derrick and 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 six months ended March 31, 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 March 31, 2008, Volu-Sol had a
total of 17,965,277 shares outstanding.  During the three months ended
March 31, 2008, RemoteMDx sold 3,000,000 shares of Volu-Sol common stock for
$2,400,000 in cash, reducing its direct ownership of Volu-Sol to 2,833,333
shares at the end of the period.
  16
  At March
31, 2008, RemoteMDx directly or indirectly controls approximately 47% 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 three directors are also directors of RemoteMDx,
(4) Volu-Sol has several officers in common with RemoteMDx, (5) All of
Volu-Sol’s stockholders are also RemoteMDx stockholders, (6) Volu-Sol relies on
RemoteMDx’s accounting department to process its financial information, and (7)
Volu-Sol owes RemoteMDx approximately $900,000 as of March 31,
2008.
 
 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.
 
 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.
 
 The
schedule below shows the allocation of the minority interest among the
entities:
  Minority
      Interest
              
              March
      31, 2007
              
              
              September
      30, 2007Volu-Sol
              
              $
              5,918,461
              
              
              $
              1,396,228Midwest
              
              
              20,122
              
              
              
              -Total
              
              $
              5,938,583
              
              
              $
              1,396,228
  (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 six months ended March 31, 2008, no shares of Series A
Preferred stock were converted into common stock.  As of March 31,
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 six months ended March 31,
2008 and 2007, the Company recorded $206 and $92,486, 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 March 31, 2008,
the Company had not exercised its option to redeem shares of Series A Preferred
stock.
  Series
B Convertible Preferred Stock
  During
the six months ended March 31, 2008, a total of 2,000 shares of Series B
Convertible Preferred stock were converted into 15,000 shares of common
stock.  As of March 31, 2008, there were 10,999 shares of Series B
Preferred stock outstanding, convertible into approximately 113,783 common
shares.
  17
 
 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 has 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
six months ended March 31, 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.  During the three months ended
March 31, 2008, RemoteMDx accrued $177,898 for dividends on SecureAlert Series A
Preferred stock through March 24, 2008.
  (12) COMMON
STOCK
  During
the six months ended March 31, 2008, the Company issued 15,128,766 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.  As of March 31,
      2008, this was recorded as a subscription receivable, the cash was
      subsequently received by the Company in April
  2008.
  ·
              1,000,000
      shares were issued for services performed for a value of
      $3,214,735.
  ·
              650,000
      shares were issued in connection with two
  acquisitions.
  ·
              465,703
      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.
  ·
              15,000
      shares were issued in connection with Series B Preferred stock
      conversions.
  Common
Stock Options and Warrants
  As of
March 31, 2008, 13,324,951 of the 17,334,951 outstanding options and warrants
were vested with a weighted average exercise price of $1.89 per share. During
the six months ended March 31, 2008, the Company granted 244,492 options and
warrants with exercise prices ranging from $0.59 to $4.05 per share. Of the
17,334,951 shares underlying options and warrants, 13,324,951 shares underlie
options and warrants which have vested, and 4,010,000 shares underlie options
and warrants which have not vested. During the six months ended March 31, 2008,
various warrant holders exercised 3,203,814 warrants for cash proceeds of
$2,250,881.
 
 18
  (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 SecureAlert 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.
 
 The
following tables reflect certain financial information relating to each
reportable segment:
  Three
      Months Ended
                March
      31,2008
              
              
              2007Sales
      to external customers:Electronic
      monitoring
              
              $
              2,488,446
              
              
              $
              1,509,162Volu-Sol
              
              
              174,836
              
              
              
              174,102Total
              
              $
              2,663,282
              
              
              $
              1,683,264Loss
      from operations :Electronic
      monitoring
              
              $
              (6,758,301
              )
              
              $
              (3,161,404
              )Volu-Sol
              
              
              (646,808
              )
              
              
              (138,873
              )Other
      (unallocated)
              
              
              (4,090,680
              )
              
              
              (2,902,460
              )Total
              
              $
              (11,495,789
              )
              
              $
              (6,202,737
              )
 
 Six
      Months Ended
                March
      31,2008
              
              
              2007Sales
      to external customers:Electronic
      monitoring
              
              $
              5,957,732
              
              
              $
              1,944,545Volu-Sol
              
              
              344,428
              
              
              
              326,956Total
              
              $
              6,302,160
              
              
              $
              2,271,501Loss
      from operations :Electronic
      monitoring
              
              $
              (8,892,166
              )
              
              $
              (7,987,092
              )Volu-Sol
              
              
              (931,054
              )
              
              
              (205,595
              )Other
      (unallocated)
              
              
              (6,248,374
              )
              
              
              (5,769,063
              )Total
              
              $
              (16,071,594
              )
              
              $
              (13,961,750
              )
  March
      31, 2008
              
              
              September
      30, 2007Identifiable
      assets:Electronic
      monitoring
              
              $
              13,601,870
              
              
              $
              9,933,490Volu-Sol
              
              
              1,592,372
              
              
              
              984,331Other
      (unallocated)
              
              
              2,420,182
              
              
              
              5,318,868Total
      assets
              
              $
              17,614,424
              
              
              $
              16,236,689
 
 19
  (14) SUBSEQUENT
EVENTS
  Subsequent
to March 31, 2008, the Company entered into the following
transactions:
 
   1)
              The
      Company issued 3,375,000 shares of common stock to officers for services
      rendered valued at $5,231,250.2)
              The
      Company issued 400,000 shares of common stock for services rendered valued
      at $704,000.3)
              The
      Board of Directors authorized the issuance of 4,000,000 shares of the
      Company’s common stock for cash to provide working
  capital.
 4)
              The
      Company issued 325,000 shares of common stock to settle the Onxy
      Consulting Group, LLC lawsuit.
  (15) 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 ("'122 patent"), in which the Company holds all rights and
interests.  The complaint seeks damages according to proof, treble
damages, injunctive relief enjoining the infringement, and costs and attorney's
fees.  STOP has filed a motion to dismiss the complaint, and an answer
and counterclaim.  The Company has filed an opposition to STOP's
motion to dismiss, which is set to be heard on June 30, 2008.  STOP's
counterclaim is for declaratory relief and seeks a declaration that STOP has not
infringed the '122 patent and that the '122 patent is invalid.  The
Company response to the counterclaim is due on June 24, 2008.  A
Scheduling Conference has been set for August 4, 2008.  No discovery
has taken place at this time.  The Company intends to vigorously
prosecute its claims and defend the against the counterclaim.
 
 Onyx Consulting Group, LLC
v. RemoteMDx.  The dispute arises out of an agreement between
Onyx Consulting Group, LLC (“Onyx”) and the Company pursuant to which Onyx
agreed to provide investor relations related services to the
Company.  On October 9, 2007, Onyx served its Statement of Claim, in
which it asserted a claim for breach of contract, seeking as damages the value
of 750,000 shares of restricted RemoteMDx common stock it claims it is due under
the agreement.  On May 19, 2008, the Company settled this matter by
issuing 325,000 restricted shares of the Company's common stock to
Onyx.
 
 Strategic Growth
International, Inc., v. RemoteMDx,, This action was filed in response to
an action previously filed by the Company against Strategic Growth
International, Inc. ("SGI") in Utah.  The 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.  The
court heard arguments on the motions on April 23, 2008 but has not yet issued a
decision.  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, which is scheduled to be
argued on May 28, 2008.  On April 23, 2008, SGI sought an order
permitting the attachment of the Company's assets in the State of New
York.  The Court heard argument on the motion on April 30, 2008 but
has not yet issued a ruling.  Discovery is ongoing and a final
pretrial conference is set for September 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
      March 31, 2007Statement of
      Operations:
                
                Previously
      Reported
                
                
                As
      RestatedRevenues
                
                $
                1,649,931
                
                
                $
                1,683,264Cost of
      revenues
                
                $
                2,145,872
                
                
                $
                2,168,766Loss
      from operations
                
                $
                (6,213,176
                )
                
                $
                (6,202,737
                )Net
      loss
                
                $
                (7,044,055
                )
                
                $
                (7,033,616
                )Net
      loss per common share
                
                $
                (0.08
                )
                
                $
                (0.08
                )
   Six Months Ended
      March 31, 2007Statement of
      Operations:
                
                Previously
      Reported
                
                
                As
      RestatedRevenues
                
                $
                2,638,168
                
                
                $
                2,271,501Cost of
      revenues
                
                $
                4,351,265
                
                
                $
                4,099,431Loss
      from operations
                
                $
                (13,846,917
                )
                
                $
                (13,961,750
                )Net
      loss
                
                $
                (14,857,704
                )
                
                $
                (14,972,537
                )Net
      loss per common share
                
                $
                (0.18
                )
                
                $
                (0.18
                )
  21
  Statement of
      Cashflows:Net
      loss
                  
                  $
                  (14,857,704
                  )
                  
                  $
                  (14,972,537
                  )Depreciation and amortization
                  
                  $
                  1,060,106
                  
                  
                  $
                  1,124,546Deferred revenue
                  
                  $
                  (14,816
                  )
                  
                  $
                  351,851Inventories
                  
                  $
                  1,295,816
                  
                  
                  $
                  979,542
 Changes
to the condensed consolidated financial statements for the three and six months
ended March 31, 2007 include the following:
  ·
              During
      the three months ended March 31, 2007, the Company recorded $33,333 in
      revenues and $22,894 in cost of revenues related to the sales of devices
      previously deferred resulting in a decrease in net loss of
      $10,439.
 
 ·
              During
      the six months ended March 31, 2007, the Company deferred revenues of
      $366,667 and deferred cost of revenues of $251,834 related to sales of
      devices resulting in an increase in net loss of
  $114,833.
  General
  RemoteMDx
and subsidiaries (collectively, the “Company”) market, monitor and sell the
TrackerPAL device.  The TrackerPAL is used to monitor convicted
offenders that are on probation or parole in the criminal justice
system.  The TrackerPAL device utilizes GPS and cellular technologies
in conjunction with a monitoring center that is staffed 365 days a
year.   The Company believes that its technologies and services
benefit law enforcement officials by allowing them to respond immediately to a
problem involving the monitored offender.  The parole and probation
population consists of approximately 4.9 million adults in the United States of
America criminal justice system at any given time. The TrackerPAL is targeted to
meet the needs of this market as well as the international market.
  Strategy
  Our goal
is to establish the Company as a provider of leading technology and services to
a significant portion of the parolee and probation market
population.
  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.
  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.
  22
  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.
 
 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.
  23
 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 six
months ended March 31, 2008 and 2007, the Company impaired $563,653 and
$1,414,244, 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 25,000 stock options to an employee during the six
months ended March 31, 2008. The Company granted 275,000 stock options to
employees during the six months ended March 31, 2007. The weighted average fair
value of stock options at the date of grant during the six months ended March
31, 2008 and 2007 was $0.91 and $1.44, 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 March 31, 2008 and 2007, respectively:
 
 March 31, 2008
              
              March 31, 2007Risk
      free interest rate
              
              2.23%
              
              4.46%Expected
      life
              
              5
      years
              
              5
      yearsDividend
      yield
              
              -
              
              -Volatility
              
              151%
              
              145%
 
 The
following are the weighted-average assumptions used for options granted during
the six months ended March 31, 2008 and 2007, respectively:


24
  March 31, 2008
              
              March 31, 2007Risk
      free interest rate
              
              2.23%
              
              4.54%Expected
      life
              
              5
      years
              
              5
      yearsDividend
      yield
              
              -
              
              -Volatility
              
              151%
              
              145%
 
 A summary
of stock option activity for the six months ended March 31, 2008, is presented
below:
  Shares
                Under
                Option
              
              
              Weighted
                Average
                Exercise
                Price
              
              Weighted
                Average
                Remaining
                Contractual
                Life
              
              Aggregate
                Intrinsic
                ValueOutstanding
      as of September 30, 2007
              
              
              3,295,000
              
              
              $
              0.64Granted
              
              
              25,000
              
              
              $
              1.00Exercised
              
              
              (960,000
              )
              
              $
              0.63Forfeited
              
              
              (45,000
              )
              
              $
              0.86Expired
              
              
              -
              
              
              
              -Outstanding
      as of  March 31, 2008
              
              
              2,315,000
              
              
              $
              0.63
              
              3.64
      years
              
              $
              2,300,150Exercisable
      as of  March 31, 2008
              
              
              196,667
              
              
              $
              1.51
              
              3.58
      years
              
              $
              115,384
  Results
of Operations
 
 Summary
of Financial Results and Recent Developments
 
 During
the six months ended March 31, 2008, the Company entered into several important
transactions:
 
 1)
              The
      sale of one patent for total
      consideration of $2,400,000.Payment in full was received inDecember2007.
 
 2)
              The
      acquisition of 51% of the issued andoutstanding capital stock of Midwest,
      together with the option, exercisable after January 1, 2009, and prior to
      March 31, 2009, to acquire the remaining 49% of Midwest’s capital stock.
      The consideration for the initial purchase of 51% of the outstanding
      Midwest shares was $3,468,780, consisting of $1,800,000 ofnotes payable and 438,000 shares of the
      Company’s common stock(valued at $3.81 per
      share, the quoted market value on the date of the
      transaction).  The RemoteMDx sharesissued
      as part of the consideration for the Midwest shares were placed in escrow,
      and were released by the Company in March
      2008.3)
              The
      acquisition of Court Programs for $1,147,500, payable by delivery of a note payable of $300,000 and 212,000
      shares of the Company’s common stock, released by the Company in March
      2008.  We also acquired an option to purchase the remaining
      outstanding shares of Court Programs
      on or before March 1, 2009.
  Three
months ended March 31, 2008, compared to three months ended March 31,
2007
 
 Revenues
 
 For the
three months ended March 31, 2008, the Company had revenues of $2,663,282
compared to $1,683,264 for the three months ended March 31, 2007, an increase of
$980,018. The increase in revenues resulted primarily from the monitoring of
offender tracking devices and providing probation services to individuals on
parole.
  25
  Previously
the Company deferred $1,400,000 in revenues from the sale of devices to certain
customers and has recognized $33,333 of these revenues during the three months
ended March 31, 2007 resulting in a balance of deferred revenues of $1,233,334
to be recognized in future periods.
 
 SecureAlert
had revenues of $1,009,494 during the three months ended March 31, 2008,
compared to revenues of $1,509,162 for the three months ended March 31, 2007.
Although SecureAlert’s revenue decreased $499,668, the Company recorded revenues
from devices sales of $962,133 during the three months ended March 31, 2007
compared to $33,333 during the same period ended March 31,
2008.  Revenues from monitoring services increased from $546,429 to
$955,060 for the three months ended March 31, 2008 over the same period in 2007.
These revenues in the three months ended March 31, 2008 consisted of $33,333
from the sale of offender tracking devices, $955,060 from the monitoring of
offender tracking devices, and $21,101 from home and personal security
systems.  No SecureAlert customer accounted for 10% or more of
SecureAlert’s revenues.
 
 Volu-Sol
had revenues for the three months ended March 31, 2008 of $174,836, compared to
$174,102 for the three months ended March 31, 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 27%,
Cardinal Health Medical accounted for 12%, and Esbe Scientific accounted for
11%.  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 March
31, 2008, Midwest had revenues of $807,342.  These revenues consisted
of $801,427 from the monitoring of offender tracking devices and $5,915 from the
sale of devices.
 
 On
December 1, 2007, the Company acquired Court Programs. For the three months
ended March 31, 2008, Court Programs had revenues of $671,610 from the
monitoring of offender tracking devices and parolee services.
 
 Cost
of Revenues
 
 For the
three months ended March 31, 2008, cost of revenues was $3,336,038 compared to
$2,168,766 during the three months ended March 31, 2007, an increase of
$1,167,272.  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 $2,361,108, or 234%, of
SecureAlert's revenues during the three months ended March 31, 2008, compared to
$2,056,548, or 136%, of SecureAlert’s revenues during the three months ended
March 31, 2007.
 
 SecureAlert’s
cost of revenues for the three months ended March 31, 2008 of $2,361,108 was
comprised of the following:  device costs of $28,752, commissions of
$106,736, communication costs of $663,053, location costs of $13,700, monitoring
center costs of $516,730, amortization of $221,662, warranty reserve expense of
$105,742, impairment of TrackerPAL devices of $550,200, and other TrackerPAL
costs of $154,533.  SecureAlert’s cost of revenues for the three
months ended March 31, 2007 of $2,056,548 was comprised of the
following:  device costs of $821,667, communication costs of $221,979,
monitoring center costs of $418,118, amortization of $469,293, and other
TrackerPAL costs of $125,491.
 
 Midwest’s
cost of revenues totaled $549,107, or 68%, of Midwest’s revenues for the three
months ended March 31, 2008.  Court Program’s cost of revenues totaled
$294,962, or 44%, of Court Program’s revenues for the three months ended March
31, 2008.  Volu-Sol's cost of revenues was $130,861, or 75%, of
Volu-Sol's revenues during the three months ended March 31, 2008, compared to
$112,218, or 64%, 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 an
increase in material, shipping and labor costs.
 
 During
the three months ended March 31, 2008, the Company recognized deferred cost of
revenues of $22,894.
 
 Research
and Development Expenses
 
 During
the three months ended March 31, 2008 and 2007, research and development expense
was $3,043,276 and  $1,934,392, respectively, and consisted primarily
of expenses associated with the development of SecureAlert’s TrackerPAL device
and related services.  Of the $3,043,276 of research and development,
$2,128,000 was from the issuance 745,000 shares of common stock (valued at an
average of $2.86 per share) for software and engineering associated with the
development of the TrackerPAL device.
  26
  Selling,
General and Administrative Expenses
 
 During
the three months ended March 31, 2008, selling, general and administrative
expenses were $7,779,757 compared to $3,782,843 during the three months ended
March 31, 2007.  The net increase of $3,996,914 is made up of
increases in the following expenses:  advertising of $40,631,
consulting of $2,024,991, depreciation of $43,019, insurance of $51,000, lawsuit
settlement of $572,000, legal of $152,903, payroll and payroll taxes of
$917,395, rent of $31,993, telephone of $30,862, travel of $245,033, and other
selling, general and administrative expenses of $32,022.  These
increases were offset in part, by decreases in the following expenses: contract
labor of $6,420, lease equipment of $15,681, outside services of $77,443,
postage of $12,987, repairs and maintenance of $10,316, and other selling,
general and administrative expenses of $22,088.  The increase in
consulting of $2,024,991 relates primarily to stock and warrants issued for
services rendered to the Company.
 
 Interest
Income and Expense
 
 During
the three months ended March 31, 2008, interest expense totaled $398,238
compared to $272,965 in the three months ended March 31, 2007. The increase of
$125,273 resulted primarily from the debt obligations acquired from Midwest and
Court Programs.
 
 Six
months ended March 31, 2008, compared to six months ended March 31,
2007
 
 Revenues
 
 For the
six months ended March 31, 2008, the Company had revenues of $6,302,160 compared
to $2,271,501 for the six months ended March 31, 2007, an increase of
$4,030,659. The increase in revenues resulted primarily from increased
monitoring of offender tracking devices.
 
 Previously
the Company deferred $1,400,000 in revenues from the sale of devices to certain
customers and has recognized $66,666 of these revenues during the six months
ended March 31, 2007 resulting in a balance of deferred revenues of $1,233,334
to be recognized in future periods.
 
 SecureAlert
had revenues of $3,917,884 during the six months ended March 31, 2008, compared
to revenues of $1,944,545 for the six months ended March 31, 2007. The increase
in SecureAlert’s revenues of $1,973,339 resulted primarily from increased
monitoring services. SecureAlert’s monitoring services for the six months ended
March 31, 2008 and 2007 were $2,831,544 and $981,812,
respectively.  Revenues of $3,917,884 for the six months ended March
31, 2008 consisted of $2,831,544 from monitoring services, $1,066,666 from
offender tracking device sales, and $19,674 from home and personal security
systems.  No SecureAlert customer accounted for 10% or more of
SecureAlert’s revenues.
 
 Volu-Sol
had revenues for the six months ended March 31, 2008 of $344,428, compared to
$326,956 for the six months ended March 31, 2007.  Although revenues
were essentially flat for the period, 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 26%,
Cardinal Health Medical accounted for 13%, and Esbe Scientific accounted for
11%.  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 four months ended March
31, 2008, Midwest had revenues of $1,158,925.  These revenues
consisted of $1,116,964 from the monitoring of offender tracking devices and
$41,961 from the sale of devices.
 
 On
December 1, 2007, the Company acquired Court Programs. For the four months ended
March 31, 2008, Court Programs had revenues of $880,923 from the monitoring of
offender tracking devices and parolee services.
 
 27
  Cost
of Revenues
 
 For the
six months ended March 31, 2008, cost of revenues was $6,193,045 compared to
$4,099,431 for the six months ended March 31, 2007, an increase of
$2,093,614.  Cost of revenues increased as revenues increased for the
same period.  SecureAlert's cost of revenues totaled $4,792,366, which
was 122% of SecureAlert's revenues for the six months ended March 31, 2008,
compared to $3,893,729,which was 200% of SecureAlert’s revenues for the six
months ended March 31, 2007.
 
 SecureAlert’s
cost of revenues for the six months ended March 31, 2008 of $4,792,366 was
comprised of the following:  device costs of $727,653, commissions of
$226,913, communication costs of $1,365,186, location costs of $25,140,
monitoring center costs of $973,047, amortization of $486,782, warranty reserve
expense of $105,742, impairment of TrackerPAL devices of $563,653, lease
equipment of $36,483, repairs of $34,392, freight of $110,765, and other
TrackerPAL costs of $136,610.  SecureAlert’s cost of revenues for the
six months ended March 31, 2007 of $3,893,729 was comprised of the
following:  device costs of $985,157, communication costs of
$1,116,826, monitoring center costs of $830,472, amortization of $841,782, and
other TrackerPAL costs of $119,492.
 
 Midwest’s
cost of revenues totaled $723,022 for the four months ended March 31,
2008.  Court Programs’ cost of revenues totaled $432,575 for the four
months ended March 31, 2008.  Volu-Sol's cost of revenues was
$245,082, or 71%, of Volu-Sol's revenues during the six months ended March 31,
2008, compared to $205,702, or 63%, of Volu-Sol's revenues for the same period
during the prior year. The increase as a percentage of revenues was primarily
due to an increase in material, shipping and labor costs.
 
 During
the six months ended March 31, 2008, the Company recognized deferred cost of
revenues totaling $45,788.
 
 Research
and Development Expenses
 
 During
the six months ended March 31, 2008 and 2007, research and development expense
was $4,083,723 and  $3,154,051, respectively, and consisted primarily
of expenses associated with the development of SecureAlert’s TrackerPAL device
and related services. Of the $4,083,723 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 six months ended March 31, 2008, selling, general and administrative
expenses were $12,096,986 compared to $8,979,769 during the six months ended
March 31, 2007.  The net increase of $3,117,217 relates primarily to
increases in the following expenses:  advertising of $72,855,
consulting of $1,253,993, depreciation of $88,243, insurance of $76,064, lawsuit
settlement of $572,000, payroll and payroll taxes of $1,146,494, rent of
$37,510, telephone of $72,171, and travel of $604,975, and other increase in
selling, general and administrative expenses of $199,122.  These
increases were offset, in part, by decreases in the following expenses: contract
labor of $34,201, investor relations of $146,197, lease equipment of $20,961,
legal of $75,296, overhead allocation of $226,000, outside services of $262,326,
and other selling, general and administrative expenses of
$241,229.  The increase in consulting of $1,253,993 results primarily
from stock and warrants issued for services rendered to the
Company.
 
 Interest
Income and Expense
 
 For the
six months ended March 31, 2008, interest expense totaled $773,748 compared to
$557,250 for the six months ended March 31, 2007. The increase of $216,498
resulted primarily from the debt obligations acquired from Midwest and Court
Programs.
 
 Liquidity
and Capital Resources
 
 The
Company is presently unable to finance its business solely from cash flows from
operating activities. During the six months ended March 31, 2008, the Company
financed its business primarily from the sale and issuance of common stock 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.
  28
  As of
March 31, 2008, the Company had unrestricted cash of $5,121,666 and working
capital deficit of $3,234,852, compared to unrestricted cash of $5,556,275 and
working capital of $1,296,985 as of September 30, 2007.  For the six
months ended March 31, 2008, the Company's operating activities used cash of
$1,585,187, compared to $3,092,334 of cash used in operating activities for the
six months ended March 31, 2007.
 
 The
Company used cash of $320,854 for investing activities during the six months
ended March 31, 2008, compared to $8,441,625 of cash used in investing
activities for the six months ended March 31, 2007.
 
 The
Company's financing activities for the six months ended March 31, 2008, provided
cash of $1,471,432 compared to $10,520,712 for the six months ended March 31,
2007. For the six months ended March 31, 2008, the Company had net proceeds of
$4,598,333 from the sale of equity securities by the Company’s subsidiary,
Volu-Sol, $2,658,380 from the exercise of warrants, $23,410 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 $3,123,036 due to
payments on the bank line of credit, $575,963 in net payments on the
related-party line of credit, and $2,270,590 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 $22,460,024 for the six months ended March 31,
2008 and a loss from operations of $16,071,594.  In addition, the
Company has an accumulated deficit of $155,556,970.  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 to correct these issues
and expects it to be complete by June 30, 2008.
  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 16% and 35% of our total revenues for the six months ended March 31,
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
the these international sales.  Changes in currency exchange rates
affect the relative prices at which we sell our products.  Given the
uncertainty of exchange rate fluctuations, we cannot estimate the effect of
these fluctuations on our future business, product pricing, results of
operations, or financial condition.
 
 We do not
use foreign currency exchange contracts or derivative financial instruments for
trading or speculative purposes.  To the extent foreign sales become a
more significant part of our business in the future, we may seek to implement
strategies which make use of these or other instruments in order to minimize the
effects of foreign currency exchange on our business.
  29
  Interest Rate
Risks.  As of March 31, 2008, we had $735,949 of borrowings
outstanding on a line of credit with a weighted-average interest rate of
18%.  In addition, we had $72,194 of borrowings outstanding on a line
of credit with two banks with a weighted average interest rate of
10.17%.  The interest rates on these lines of credit are subject to
change from time to time based on changes in an independent index which is the
Prime Rate as published in The Wall Street Journal.
 
 Item
4.CONTROLS AND
PROCEDURES
 
 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 ("'122 patent"), in which the Company holds all rights and
interests.  The complaint seeks damages according to proof, treble
damages, injunctive relief enjoining the infringement, and costs and attorney's
fees.  STOP has filed a motion to dismiss the complaint, and an answer
and counterclaim.  The Company has filed an opposition to STOP's
motion to dismiss, which is set to be heard on June 30, 2008.  STOP's
counterclaim is for declaratory relief and seeks a declaration that STOP has not
infringed the '122 patent and that the '122 patent is invalid.  The
Company response to the counterclaim is due on June 24, 2008.  A
Scheduling Conference has been set for August 4, 2008.  No discovery
has taken place at this time.  The Company intends to vigorously
prosecute its claims and defend the against the counterclaim.
 
 Onyx Consulting Group, LLC
v. RemoteMDx.  The dispute arises out of an agreement between
Onyx and the Company pursuant to which Onyx agreed to provide investor relations
related services to the Company.  On October 9, 2007, Onyx served its
Statement of Claim, in which it asserted a claim for breach of contract, seeking
as damages the value of 750,000 shares of restricted RemoteMDx common stock it
claims it is due under the agreement.  On May 19, 2008, the Company
settled this matter by issuing 325,000 restricted shares of RemoteMDx common
stock to Onyx.
 
 Strategic Growth
International, Inc. v. RemoteMDx, This action was filed in response to an
action previously filed by the Company against Strategic Growth International,
Inc. ("SGI") in Utah.  The 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 pricipals' 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.  The
court heard arguments on the motions on April 23, 2008 but has not yet issued a
decision.  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, which is scheduled to be
argued on May 28, 2008.  On April 23, 2008, SGI sought an order
permitting the attachment of the Company's assets in the State of New
York.  The Court heard argument on the motion on April 30, 2008 but
has not yet issued a ruling.  Discovery is ongoing and a final
pretrial conference is set for September 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.
 
 Informal
Inquiry.  During the fiscal quarter ended March 31, 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
are disclosing voluntarily this inquiry and we are cooperating fully with the
SEC.
  31
 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 six months ended
March 31, 2008.
 
 During
the six months ended March 31, 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:
  ·
              7,434,249
      shares were issued to redeem all outstanding shares of SecureAlert Series
      A Preferred stock.  The holders of the SecureAlert Series A
      Preferred stock were accredited investors as defined in Rule 501 under the
      Securities Act.
  ·
              3,203,814
      shares were issued on the exercise of warrants providing $2,250,881 in
      cash to the Company.  The holders of these warrants were
      accredited investors.  The securities 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.
  ·
              2,000,000
      shares were issued for $2,000,000 in cash.  As of March 31,
      2008, this was recorded as a subscription receivable, the cash was
      subsequently received by the Company in April 2008.  The
      purchasers of these shares were accredited investors.  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.
  ·
              1,000,000
      shares were issued for services performed for a value of
      $3,214,735.  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.
  ·
              650,000
      shares were issued in connection with two acquisitions as reported in the
      Company’s report on Form 10-KSB/A for the year ended September 30,
      2007.
  ·
              465,703
      shares were issued in payment of dividends on SecureAlert Series A
      Preferred stock.  The shares were issued without registration
      under the Securities Act in reliance on Sections 3(a)(9) and 4(2) of the
      Securities Act and the rules and regulations promulgated
      thereunder.  The recipients of the common shares were accredited
      investors and were already security holders of the Company.  The
      common shares were issued pursuant to the terms of the rights and
      preferences of the preferred class of securities that were converted, and
      there was no public offering of securities.  In addition, no
      general solicitation or general advertising was made or done in connection
      with these issuances.
  ·
              360,000
      shares were issued to extend the Company’s line of
  credit.
  ·
              15,000
      shares were issued in connection with Series B Preferred stock
      conversions.  The shares were issued without registration under
      the Securities Act in reliance on Sections 3(a)(9) and 4(2) of the
      Securities Act and the rules and regulations promulgated
      thereunder.  The recipients of the common shares were accredited
      investors and were already security holders of the Company.  The
      common shares were issued pursuant to the terms of the rights and
      preferences of the preferred class of securities that were converted, and
      there was no public offering of securities.  In addition, no
      general solicitation or general advertising was made or done in connection
      with these issuances.
  32
  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.
  Item
6.EXHIBITS
 
 (a)Exhibits Required by Item
601 of Regulation S-K
   Exhibit
      Number
                
                3(i)(1)
              Title
      of Document
                
                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)
  33
  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)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)
  34
  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)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:
      June 18, 2008
                By:
                /s/ David G. DerrickDavid G. Derrick,Chief Executive OfficerDate:
      June 18, 2008
                By:
                /s/ Michael G. ActonMichael G. ActonPrincipal Accounting Officer
     36