Annual Assessment

A Note From the Chairman

At this time of year as we all look back and review our accomplishments of 2006, I could not be more pleased with the progress that has taken place at RemoteMDx/SecureAlert under the leadership of Jim Dalton (President of RemoteMDx) and Randy Olshen (President of SecureAlert).   The management team has truly exceeded all expectations.   In January of 2006 the TrackerPAL device was still in research and development; the monitoring center had 11 employees and total Company employees was 26 people; the Company had no sales to speak of; no distributors; software that was in its infancy; and on top of this the Company had in excess of $8.5 million in debts.

By mid year the Company had been able to remove all of its debts except for trade payables; it had produced its first production units; had field trials of the new product; it had 5,000 orders in the sales pipeline; had created software and firmware that could support the Company's new TrackerPAL product; it had established twelve distributors throughout the country; and had received FCC approval on its device.  

Now by year's end where do we stand?   We have a total of nearly 100 employees, 60 of them in the monitoring center; we are manufacturing not less than 400 units per day, 6 days per week; have driven the unit costs down from $550 per unit to $400 per unit; have over 38,000 orders in the sales pipeline; and as of December 12th have deployed over 10,000 units to customers with that number growing at the rate of 500 per day, 5 days per week.   We are currently working with over 340 agencies nationwide in 24 states plus two foreign countries; our monitoring center is bilingual as we handle both Spanish and English speaking offenders; have created a customer support and Quality Assurance team that deals with problems even before they are identified by the parole officer; software/firmware and monitoring staff that can currently handle up to 20,000 offenders and is scalable with only a modest additional investment; and the filing of 4 additional patents.  

The Company has unequivocally grown beyond expectations.   It has not been an easy battle.   We are truly pioneering a new industry and have experienced the learning curves associated with creating a new business.  

Even though we are often compared to the electronic monitoring business which had its genesis with home arrest, we do not regard ourselves as part of this industry that puts the majority of the burden upon the supervising officer.   Rather, we have focused our product as a service that relieves the supervising officer and makes him more efficient and effective in dealing with his case responsibilities.   The monitoring center truly allows him to manage his load while providing a methodology to reform the lives of offenders and save millions of dollars to tax payers.

As we attempt a paradigm shift in the criminal justice system, we have invested in the Company over $17,000,000 during the past year.   We have had to balance resources with market demand, understand the difficulty of educating a bureaucratic industry; achieve manufacturability and reliable devices; and work through the idiosyncrasies of the criminal justice system.  

At each stage of this growth curve we have had to learn, adjust, revise and move forward.   In many cases it was difficult to anticipate problems until we got to that phase.   For example, the difficulties associated with manufacturing could not have been fully anticipated until we were manufacturing.   That process took us until mid to late October before fully being worked out.   Then once we had manufactured units that were reliable the next problem that arose was deployment.   Deployment is done through 12 regional distributors throughout the country who deliver and maintain the accounts for the over 125 agencies to whom we have deployed units.   Even though these distributors have been effective in getting the units to our customer/agencies, we have found that they have not been as effective in educating the agencies and supervising officers as we would like nor are they capable of doing it. We have discovered that it takes an extensive focus to train supervising officers on how to use the software, how to setup an offender into the system and instructions on how to use the TrackerPAL device. Currently there is up to a 60 day period between when a unit is deployed into the field and when it is actually monitoring an offender and is revenue producing. As an example, out of the 10,000 units that have been deployed as of December 12th, 2006 there will be approximately 2,000 units on offenders that are revenue producing by the end of December. (Even though we will have thousands more units deployed by year's end, we are finding that many agencies do not want to focus on putting them on offenders until after the holidays.) We have been working on this problem diligently over the past several weeks and are in the process of implementing various solutions. First, we have revised our contracts with the agencies wherein we will automatically bill them within 21 days of them receiving a unit or when that unit is monitoring an offender, whichever is sooner. Second, we have concluded that we will need more Company personnel in the field to educate supervising officers on the system and service. To that extent the Company is in the process of hiring 10 new field agents that will work directly with agencies and supervision officers in educating them to the technical aspects of the TrackerPAL service and unit. We believe that by the end of the first quarter of 2007 that we should be able to shorten the 60 day time period to under 30 days.

Optimistically, as we now know better our costs, manufacturing, deployment and monitoring systems and as we continue to resolve problems as effectively as we have in the past, we are in a position to have an extremely profitable year.   The fruits of our labors will become evident in 2007 since for every 10,000 units the Company places in the field on offenders generates nearly $30 million of annualized revenues.

Business is the art of solving problems.   I have been impressed by the culture that Jim Dalton as President has brought to the Company in solving problems.   He is constantly seeking those who are better at doing things than him and his management team.   With that approach we feel confident that we will continue to paint a masterpiece in 2007 and lead the way in creating a paradigm shift in the criminal justice system.

I want to thank you for your continued support and faith.

Sincerely,

David Derrick

Chairman

"We have nearly 100 employees, 60 of them in the Monitoring Center"

"Monitoring Center features a bilingual staff."

"As of December 12th the Company has deployed over 10,000 units to customers growing at a rate of 500 units per day."

"We are currently working with over 340 agencies nationwide in 24 states plus two foreign countries."

"We have 38,000 orders in the sales pipeline"

"We currently have 7 patents issued, 6 patents pending."

"We are manufacturing not less than 400 units per day, 6 days per week."

"We have driven the unit costs down from $550 per unit to $400 per unit"

"The Monitoring Center is scallable and at current levels can track 20,000 offenders."