UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

[X]  Annual report under section 13 or 15(d) of the  Securities  Exchange Act of
     1934 For the fiscal year ended September 30, 2002

[ ] Transition  report under section 13 or 15(d) of the  Securities  Exchange
     Act of 1934 For transition period from          to         .
                                           ---------   ---------

Commission file number 0-23153

                                 REMOTEMDX, INC.
                 (Name of small business issuer in its charter)

           UTAH                                       87-0543981
(State or other jurisdiction of                     (IRS Employer
incorporation or organization)                   Identification No.)

5095 West 2100 South
Salt Lake City, Utah                               84120
 (Address of principal executive offices)          (Zip Code)

 Issuer's telephone number: (801) 974-9474

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

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

 Check whether the issuer (1) filed all reports required to be filed by Section
 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
 period that the registrant was required to file such reports), and (2) has been
 subject to such filing requirements for the past 90 days. Yes No X

 Check if there is no disclosure of delinquent filers in response to Item 405 of
 Regulation S-B contained in this form, and no disclosure will be contained, to
 the best of the registrant's knowledge, in definitive proxy or information
 statements incorporated by reference in Part III of this Form 10-KSB or any
 amendment to this Form 10-KSB. [ ]

 Issuer's revenues for the fiscal year ended September 30, 2002 were
$11,013,147.

Registrant's common stock has not traded and there is no market for the common
stock at this time. Based solely on the price per share of $1.50 paid in recent
sales of shares by the registrant in the past 60 days, it is estimated that the
aggregate market value of the voting and non-voting common equity held by
non-affiliates is approximately $10,437,090.

 There were 25,256,975 shares of common stock of the registrant outstanding as
of October 15, 2003. This report is filed November 3, 2003.

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




<PAGE>

<TABLE>
<CAPTION>
                                                                                                              Page
                                                                                                               No.

PART I.


<S>        <C>                                                                                                   <C>
Item 1.    Description of Business................................................................................3

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

Item 3.    Legal Proceedings.....................................................................................12

Item 4.    Intentionally Omitted

PART II.

Item 5.    Market for Common Equity and Related Stockholder Matters..............................................12

Item 6.    Management's Discussion and Analysis or Plan of Operation.............................................15

Item 7.    Financial Statements..................................................................................30

Item 8.    Changes In and Disagreement With Accountants on Accounting and Financial Disclosure...................30

Item 8A.   Controls and Procedures...............................................................................31

PART III

Item 9.    Directors, Executive Officers, Promoters and Control Persons;
           Compliance with Section 16(a) of the Exchange Act.....................................................32

Item 10.   Executive Compensation................................................................................34

Item 11.   Security Ownership of Certain Beneficial Owners and Management and
           Related Stockholder Matters...........................................................................37

Item 12.   Certain Relationships and Related Transactions........................................................40

Item 13.   Exhibits and Reports on Form 8-K......................................................................41

Item 14.   Principal Accountant Fees and Services................................................................42

Signatures        ...............................................................................................44
</TABLE>



<PAGE>



                                     PART I

 Item 1.    Description of Business


Caution Regarding Forward-looking Statements


Certain statements contained in this document, as well as statements in other
Company communications, which are not historical facts, are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 that involve risks and uncertainties. The terms "anticipate", "believe",
"estimate", "expect", "objective", "plan", "might," "should," "may," "project,"
and similar expressions are intended to identify forward-looking statements.
These forward-looking statements are subject to inherent risks and uncertainties
that may cause actual results or events to differ materially from those
contemplated by the forward-looking statements. In addition to the assumptions
and other factors referred to specifically in connection with these statements,
factors that may cause actual results or events to differ materially from those
contemplated by the forward-looking statements include, without limitation,
general economic conditions, market conditions in the companies existing and
intended markets and related industries, market acceptance of existing and new
products, successful integration of acquisitions, competitive product and
pricing pressures, interest rate risk, our ability to access capital markets and
other factors that may be referred to in our reports filed with the Securities
and Exchange Commission from time to time.


When used in this report, the terms "RemoteMDx," "Remote" and the "Company"
refer to RemoteMDx, Inc. and its subsidiaries and other entities, unless the
context requires otherwise.


General


RemoteMDx is a technology-based remote personal safety, medical, health
monitoring and diagnostic services company. We specialize in creating solutions
for real-time monitoring of personal safety, security, and health needs. We are
developing technologies and systems that provide personal security and health
monitoring products and services. Our products and services are designed to meet
the needs of a growing elderly population. The RemoteMDx(TM) family of products
and services manufactured by our equity and technology partner Matsushita
Electric Works Ltd. ("MEW") features wireless products that are among the first
to utilize global positioning satellite ("GPS") technology and unobtrusive vital
sign monitoring in conjunction with a monitoring center that can locate persons
in distress and dispatch the closest emergency service to their location.


Although our products are subject to limitations that are peculiar to the
technologies they incorporate, we expect this technology and service to
revolutionize healthcare; they allow care providers immediate response and in
some cases, advance notice of an acute medical event. Our customers will be able
to better monitor and manage their own chronic disease and medical conditions,
giving peace of mind to them and their loved ones and care providers.


We derive our revenues from the following sources:

o    Consumer Electronics - we sell consumer electronics, including security and
     personal  emergency  response  system  ("PERS")  devices  to a  variety  of
     channels.

o    Medical  Diagnostic Stains -we sell medical diagnostic stains and equipment
     to laboratories throughout the United States.

o    Monitoring  Activation  - we lease  our  MobilePAL(TM)devices  as part of a
     monitoring contract, with prepaid activation charges.

o    Monitoring Services - Following  activation,  our MobilePAL customers pay a
     monthly  monitoring  fee and fees for  additional  services  offered by our
     contract providers or us.

o    Royalties - we derive  royalty  revenues from a license  agreement with MEW
     and  from  sales  of  telematics  products  and  services  under  marketing
     agreements.


Our Strategy


Our goal is to establish the Company as a leading marketer and distributor of
leading technology and services we have developed for the mobile personal
emergency and health monitoring industry. Until the beginning of calendar 2003,
most of our revenues were provided by the distribution of consumer electronics
through a wholly owned subsidiary, SecureAlert, Inc. We acquired Knoxville-based


                                       3
<PAGE>

SecureAlert and its business in July 2001. With our decision to refocus our
business and product development efforts on the mobile health and emergency
monitoring industry which previously comprised a smaller part of our business,
we are in the process of establishing and will expect to establish and manage
our primary business from our sales and marketing office in Salt Lake City.


Background


We have been engaged in our original business of manufacturing and marketing
medical diagnostic stains, solutions and related equipment for over 10 years.
Since 1997 this business is conducted through a wholly owned subsidiary,
Volu-Sol Reagents Corporation. Our remote health monitoring and diagnostic
business is conducted under the names "Remote Medical Diagnostics" and
"RemoteMDx." In July 2001, we acquired and now operate the business formerly
conducted by SecureAlert II, Inc. through a wholly owned subsidiary,
SecureAlert, Inc. SecureAlert's business involves manufacturing and marketing
mobile emergency and personal health monitoring systems, and consumer
electronics products.


Our primary founders and owners were David Derrick ("Derrick") and James Dalton
("Dalton"). After examining other potential markets, in April 2000, we entered a
research agreement with Battelle Memorial Institute, a large research and
development firm, to assist us to develop our technology for remote monitoring
and personal medical diagnostics.


In July 2001, we acquired SecureAlert and added its patents and technology to
our business plan. In October 2001, we began developing our telematic monitoring
center in conjunction with Bishop Engineering, an innovator in telematic and GPS
technologies. By July of 2002 this collaboration culminated in the development
of a monitoring center jointly operated with Aradiant. This service center is
one of the largest in the United States with over 600 operators, 24x7 coverage,
and the capacity to handle up to 200 million calls per year. This center enables
our PAL Services Network to offer location, concierge services, medical triage
advice, emergency response, call switching and health monitoring to our
subscribers.


In April 2002, we entered into a manufacturing and product development agreement
with MEW, one of the largest corporations in the world. The strategic alliance
included an equity investment by MEW and an arrangement under which MEW was
designated our preferred manufacturer and we will act as MEW's preferred
worldwide service provider for GPS products. Working with MEW and another
manufacturer, Uniden, we successfully designed and are now marketing products
that combine cellular technology, including our patented single-button emergency
feature, and GPS, allowing the two systems to work simultaneously in the single
unit.


 We specialize in developing technologies and systems that provide personal
 security and health monitoring products and services that meet the needs of a
 growing elderly population. Our RemoteMDx family of products and services,
 primarily manufactured by MEW, features wireless products that are among the
 first to utilize GPS technology and unobtrusive vital sign monitoring in
 conjunction with a world-class monitoring center that can locate persons in
 distress and dispatch the closest emergency service to their location. Our
 products are subject to basic limitations on cellular and GPS technology.
 Cellular coverage is not uniform throughout the United States and other
 countries and calls can be dropped or fail to connect. GPS technology relies on
 line-of-sight access to signals from satellites; those signals are used to
 provide the location information to the monitoring center. GPS is less
 effective and sometimes not effective at all when the user is located in the
 lower floors of high-rise buildings, below ground or in other places that
 prevent communication with the required satellite signals. However, despite
 these limitations we believe that the combination of these two technologies
 into a single easy-to-use device is a powerful tool for providing personal
 security and safety, particularly to our targeted elderly market.


Marketing


Over the past three years, we have developed our menu of services and core
technology, which we refer to as the Personal Assistant Link ("PAL(TM)")
Services Network. Gross revenues for the year ended September 30, 2002 were
approximately $11 million. We estimate that gross revenues for the year ending
September 30, 2003 will be approximately $4 million as we have outsourced
distribution of our consumer electronics and telematics products to focus on our
medical products and services. We look to expand our distribution network of
these products and services by implementing a sales and marketing program
developed through market tests over the past year. Currently approximately 13%
of our revenues are derived from the sale of PAL products and services. We
expect to see this percentage increase as we pursue our revised business plan to
emphasize this product line. This sales and marketing plan is focused on
duplicating the success of the homebound Personal Emergency Response System
(PERS) industry. This industry is 25 years old and markets a service through the
medical channel for the elderly who live alone and who suffer from an acute or


                                       4
<PAGE>

chronic illness that requires them to be homebound. The service allows them to
contact a monitoring center whenever in need of help, in case of a medical
emergency or a fall from which they cannot get up.


Devices and services in the PERS industry are marketed primarily through the
home healthcare medical channel. Sales representatives create relationships with
the approximate 7,000 home healthcare agencies and medical facilities in the
United States. According to industry sources, each of these agencies sees on
average approximately 120 new patients each month or 840,000 per month for the
entire industry. Of this amount only 23 patients per month for each agency (or
approximately 161,000 per month for all agencies) meet the criteria for
homebound PERS. By comparison, approximately 54 of the 120 patients per month
(or an estimated 378,000 patients per month for all agencies) would fit the
profile for our products and services.


We have developed and are beginning to implement a direct-to-consumer marketing
strategy to enter this market. This campaign will employ a variety of media
including radio, print, online marketing and direct mail to reach our target
customers. Our target market is the estimated 35 million Americans that are over
the age of sixty-five. Of these 35 million seniors, we estimate that
approximately 9.7 million currently live alone. However, in most cases, we
anticipate that the senior customer will not personally make the purchase of our
product and service menu for himself or herself. Instead, we believe it is
important to target our campaign to the children or caregivers of these seniors.
Our primary target market is the children, friends and spouses of the homebound
senior who will more than likely be female, since women are more likely to make
decisions regarding the care of their parents than men.


We believe that our planned direct-to-consumer marketing approach contains an
excellent mix of messages, implementing several media to reach our targeted
audience. By breaking up this marketing plan into phases we expect to be able to
closely monitor each channel and make any necessary adjustments at the lowest
possible cost to us. If we feel one channel is outperforming the other, we
believe this approach will allow us to push more resources to that channel and
move away from channels that are not performing to our standards.


Our marketing and distribution plan is managed from our sales and marketing
office in Salt Lake City. For marketing purposes, we have divided North America
into seven regional territories, six regions within the United States and one
region in Canada. We are in the process of hiring regional sales representatives
who possess deep experience in the PERS industry with personal contacts with
home healthcare agencies in their region. We have allocated each regional
representative a controlled travel and entertainment budget and we have budgeted
for a monthly advertising and seminar program to be conducted in different
cities throughout North America. These seminars will be focused primarily on
educating nurses in home healthcare agencies about our products and services and
ways to improve nursing care for the elderly using those products and services.


Under our marketing plan, patients do not own our devices. The patient rents a
device on a month-to-month contract. The patient can terminate the service by
simply returning the device to us. We charge the patient a one-time activation
fee and a monthly monitoring fee for as long as the patient keeps the device. We
might also pay a monthly fee to the home healthcare agency for each contract
originating with that agency.


To further expand the viability of our distribution and marketing plan, we are
working with state Medicaid agencies and insurance companies, pursuing
reimbursement for our products and services. The MobilePAL product is
Medicaid-approved in Colorado and we hope to replicate this success in other
states. In addition, we are working with insurers to obtain private
reimbursement approval.


Research and Development Program


The PAL Products


In 2000, as a direct result of our strategic relationship with Battelle Memorial
Institute, we began our efforts to develop a mobile solution to the PERS market.
We eventually determined that combining cellular and GPS technologies could
expand the PERS market from approximately 1.3 million homebound patients to more
than 10 million seniors living alone in the United States. We began by reviewing
patents and products previously developed that might be utilized in this market.
Our research led us to SecureAlert, owner of patents and circuitry that we
believed could help accelerate our move into the market. We acquired SecureAlert
and have developed a technological base of products and services utilizing
cellular and GPS that now includes five patents issued, five patents pending,
and four in the process of being filed. There is no assurance that any or all of
the applications now pending or filed will result in the issuance of patents or
that the patents ultimately issued will include all of the claims now contained
in the applications.




                                       5
<PAGE>

Our first product line utilizing these patents was MobilePAL, a cellular-based
emergency and concierge device with one-button access to our PAL Services
Operators. The first version of the MobilePAL unit was an analog cell device
developed and manufactured by Uniden. We used analog technology because of its
more expansive coverage in North America. Our first unit could be configured to
call 911 Emergency only, or could accept a Mobile Identification Number (MIN)
and make outbound calls to either of two predetermined phone numbers. In the 911
emergency-only mode the device was programmed with a MIN, which according to FCC
regulations was required to be routed to the Public Safety Access Point (PSAP)
local to the cellular tower. In the concierge mode, the device is programmed to
call the PAL Services Center and contains a standard cellular MIN; it operates
like a normal cellular phone. The design of this model does not permit receiving
incoming calls; the unit is only powered when the user is testing it or using it
to make an outbound call. This results in a considerable savings on the power
requirements and allows for us of ordinary alkaline batteries.


Our second version of the MobilePAL device incorporates GPS technology. GPS
technology utilizes the highly accurate clocks on 24 satellites orbiting the
earth owned and operated by the U.S. Department of Defense. These satellites are
designed to transmit their identity, orbital parameters and the correct time to
earthbound GPS receivers at all times. Supporting the satellites are several
radar-ranging stations maintaining exact orbital parameters for each satellite
and transmitting that information to the satellites for rebroadcast at
frequencies between 1500 and 1600 MHz.


A GPS receiver (or engine) scans the frequency range for GPS satellite
transmissions. If the receiver can detect three satellites, the algorithms
within the engine deduce its location, usually in terms of longitude and
latitude, on the surface of the earth as well as the correct time. If the
receiver can detect four or more GPS satellite transmissions, it can also deduce
its own elevation above sea level. GPS satellites are designed only to output a
continuous stream of identification, orbital parameters, and clock values. They
are not able to receive any signals from GPS receivers on the earth. The entire
calculation for determining location takes place within the GPS engine itself.
The effectiveness of GPS technology is limited by obstructions and therefore
service can be interrupted or may not be available at all if the user is located
in the lower floors of high-rise buildings or underground.


With the assistance of Uniden and MEW, we succeeded in resolving conflicts and
interference that typically results from the simultaneous use of cellular and
GPS technologies and we reduced the size of our GPS receiver from that of a back
pack to that of a small matchbox; these developments made us among the first
companies to offer a GPS unit incorporated into a handheld cell phone.


The GPS1000 includes a speakerphone is sensitive enough for the PAL Services
Operator to hear a customer from within a quiet room. This change in hardware
allows for hands-free use of the device at any time.


Shortly after commencing sales of the new GPS-enabled MobilePAL, MEW began
working with us to develop an improved MobilePAL phone complete with an improved
GPS engine, speakerphone, and cellular chipset. The result was the RemoteMDx
GPS2000. The GPS2000 has several advantages over the earlier versions. First is
the improved quality of the GPS engine. MEW partnered with Sirf, a leading GPS
technology company, to create a new, smaller GPS device with acquisition times
of less than one minute, and greater sensitivity. The GPS2000 is able to use the
GPS engine concurrently with the cellular circuitry in the device unlike the
GPS1000 that temporarily drops the cellular signal during the time that the GPS
engine is operating and then automatically redials the PAL Services Center once
the location data has been obtained. Using the GPS2000, the PAL Services Center
operators are able to continuously communicate with the subscriber while
simultaneously determining the caller's location.


Use of a different power source in the GPS2000 increased talk time to two hours,
which is two to three times that of the earlier versions. The new batteries also
withstand greater temperature extremes, have reduced power leak rates, and do
not physically deteriorate like their alkaline equivalents. The enhanced
speakerphone on the GPS2000 allows for much clearer, better quality than the
GPS1000, making it more useful as a PERS device. A recent software improvement
corrected a problem that caused undesired levels of battery drain on the device.
We are in the process of voluntarily recalling and replacing these units with
the upgraded devices. The recalled devices can be reprogrammed and sold as new
devices after the upgrade.


Our most recent addition to the RemoteMDx product line is TravelPAL. Designed
with the same chip set as the speakerphone and GPS engine in the RemoteMDx GPS
2000, the TravelPAL has constant power supplied by a cord connected to a car's
power supply through the cigarette lighter or auxiliary power port. The device
sits on the car's dash and is always programmed in the "on" mode.




                                       6
<PAGE>

Development of PAL Services Network


As we developed the MobilePAL product line, we simultaneously worked to create
the PAL Services Center. In contrast to a typical PERS monitoring center, the
PAL Services Center is equipped with hardware and software that pinpoints the
location of the incoming caller by utilizing GPS technology. This capability is
referred to as telematics; the operator's computer screen must identify the
caller as well as locate the caller's precise location on a detailed map. In
addition, the computer must be able to give directions to various sites from the
caller's location, such as directions to the nearest hospital, police station,
or service and also be able to guide emergency services to the caller's
location.


Our PAL Services Center is located in a facility owned and operated by a
division of Aradiant Corporation. Designed to handle several hundred million
calls per year, this center has full redundancy and security capabilities. The
hardware is maintained around the clock and operators are able to field any
anticipated surges in service. We own all telephony hardware required to service
the PAL Services customers at this center and maintain the hardware jointly with
Aradiant.


With the MobilePAL products developed and the PAL Services Center in place, we
now have the ability to offer the following services:

o    24/7 nationwide one-button access to a live Personal Assistant

o    Mobile access to immediate dispatch of police, fire or ambulance services

o    Access and dispatch of roadside assistance such as tow trucks, etc.

o    Location of nearest hospital and veterinary services

o    Auto-accident  assistance  including  direct  connection  to  the  client's
     insurance company

o    Nurse triage service in case of medical questions or concerns

o    Personal  calling  to any phone  number of  customer's  choosing  including
     family, friends, caregivers, etc.

o    Mobile directory assistance to any U.S. phone number

o    Step-by-step  driving  instructions  to  virtually  anywhere  in the United
     States

o    Location services

o    Medical Data Link stores customer's  critical personal medical  information
     and communicates your needs to emergency personnel

o    Daily  monitoring of  chronically  ill customers  with data and  compliance
     information forwarded to care providers and loved ones

o    Location of lost, kidnapped or injured loved ones

o    Ability to immediately  notify insurers and care providers during a medical
     emergency

o    Ability of monitoring  center to initiate a call to the subscriber in order
     to see how the subscriber is feeling that particular day

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

o    Ability to track device online


MobilePAL Development


The next generation of MobilePAL products is anticipated to revolutionize the
PERS market. This next generation product further miniaturizes the technology


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<PAGE>

making MobilePAL a wearable device (such as a watch). While the capabilities of
MobilePAL will grow with each development cycle, all models of future
generations of MobilePAL will have the following features:

o    Wearable  watch with an emergency  button for  contacting  the PAL Services
     Operator regardless of the location of the wearer.

o    GPS engine for locating the subscriber.

o    Fall detection that will alert the service in the event of a fall.

o    Access to PAL Services Center.

o    Dual band cellular technology utilizing GSM and AMPS.

o    Rechargeable units.


We have designed a watch-type device that contains a single button and fall
detection mechanism that communicates with a pager-size companion device.
Activated manually by pushing a button on the watch or automatically by sensing
a sudden movement such as a fall, the watch immediately transmits an RF signal
that is picked up by the companion device that then triggers a call to the
monitoring center. From there the wearer can talk to the center on the
speakerphone while the GPS system pinpoints his or her location.


The research and development of this next generation of MobilePAL is currently
underway. In addition to GPS capability, speakerphone and other features found
in our earlier PAL products, this watch-size product will include the following
features:

o    Watch with emergency button and fall detection

o    Communicates  with small pager size device that talks to the  customer  and
     the PAL Services Center

o    Cradle to recharge companion device

o    Dual band AMPS and GSM

o    Alarm when not in proximity of base unit


WatchPAL Development Program


We are working to combine remote health monitoring services with mobile
communication and security services by launching the WatchPAL line of products.


Each WatchPAL product is specifically designed to monitor a specific chronic
illness. The first chronic disease we have targeted for the WatchPAL product is
designed to monitor diabetes. This WatchPAL product is designed to monitor
diabetic patients remotely and unobtrusively. The patient wears a watch that
will not only act as a fall detection device, but will also monitor on a
preprogrammed basis the glucose level of the patient. This is done unobtrusively
and without the patient's participation. The information is then transmitted to
the monitoring center. If the monitoring center detects that the glucose reading
is outside of that patient's given parameters, it will immediately contact the
patient or care provider. If there is an emergency the monitoring center can
locate the user and respond by sending assistance.


Other WatchPAL products will focus on monitoring disease indications such as
heart disease.


Intellectual Property


We own five patents and we have five patents pending and four applications in
process to be filed. The following table contains information regarding our
patents and patent applications; there is no assurance that the applications
will be granted or that they will, if granted, contain all of the claims
currently included.



                                       8
<PAGE>


<TABLE>
<CAPTION>
              Application /Patent Number
                     Patent Title                                              Filing / Issue Dates             Status
Panic Button Phone                                       6,044,257                   3/28/2000                   Issued
--------------------------------------------------- ------------------------- ------------------------- --------------------------
<S>                                                 <C>                       <C>                       <C>
Emergency Phone for Automatically                      6,226,510 B1                   5/1/2001                   Issued
Summoning Multiple Emergency
Response Services
--------------------------------------------------- ------------------------- ------------------------- --------------------------
Combination Emergency Phone and Personal
Audio Device                                             6,285,867                    9/4/2001                   Issued
--------------------------------------------------- ------------------------- ------------------------- --------------------------
Remotely Controllable Thermostat                          6,260,765                  7/17/2001                    Issued
--------------------------------------------------- ------------------------- ------------------------- --------------------------
Radiotelephone for Emergency Use Only (Design)           D440,954 S                  4/24/2001                    Issued
--------------------------------------------------- ------------------------- ------------------------- --------------------------
Interference Structure for Emergency
Response System Wristwatch                               09/651,523                  8/29/2000            Awaiting Office Action
--------------------------------------------------- ------------------------- ------------------------- --------------------------
Emergency Phone with Single-Button Activation            09/538,364                  3/29/2000           Awaiting Office Action
--------------------------------------------------- ------------------------- ------------------------- --------------------------
Emergency Phone with Alternate Number
Calling Capability                                       09/684,831                  10/10/2000          Awaiting Office Action
--------------------------------------------------- ------------------------- ------------------------- --------------------------
Emergency Phone with Single-Button
Activation                                              PCT/US0109871                3/28/2001            Awaiting Office Action
--------------------------------------------------- ------------------------- ------------------------- --------------------------
Emergency Medicine and Acute Care                        VOL 0001 MA                 8/13/2001            Awaiting Office Action
Diagnostic Input Method and System
</TABLE>

Strategic Relationships


We believe one of our strengths as a company is the high quality of our
strategic alliances. The primary alliances are described below.


Battelle Memorial Institute


Our first significant strategic alliance was forged in 2000 with Battelle, a
not-for-profit research organization located in Columbus, Ohio, initially for
assistance in the research and development of remote health monitoring and
diagnostic systems. We selected Battelle because of its extensive medical
diagnostic experience, as well as its experience in electronic information
capture and transfer technologies. This relationship was key to the development
of the WatchPAL prototype and related technologies.


Matsushita Electric Works, Ltd


MEW grew out of a company founded by Konosuke Matsushita in 1918. This
forerunner of MEW was incorporated as a public company in 1935, as the successor
of the wiring device business initiated by the original firm. MEW shares the
same origin with Matsushita Electric Industrial Co., Ltd., its sister company
which owns the Panasonic brand name. According to its published reports, MEW's
annual sales are approximately $10 billion. The Matsushita Group of companies is
recognized as one of the world's largest corporate groups.


We entered into an alliance with MEW in April 2002. At that time, MEW invested
$3,000,000 and acquired shares of our Series B preferred stock. In addition, we
entered into a license agreement with MEW at that time under which MEW has the
right to use our patents in consideration of payment of royalties. The agreement
also names MEW as our preferred manufacturer and RemoteMDx as MEW's preferred
service provider worldwide. Under our agreement with MEW, MEW has the right to
appoint a member to our board of directors, which it has to date declined to
exercise.


Royal Philips Electronics


According to its published reports, Philips is the third largest consumer
electronics manufacturer in the world with revenues in the United States of
approximately $2 billion and worldwide revenues in excess of $35 billion. As the
owner of the Magnavox brand and the creator of some of the security products we
market through SecureAlert, Philips has played a supportive role in the early
development of our security products. We pay Philips royalty of 4.5% on the cost
of those items we market under the Magnavox brand. Philips also provides quality


                                       9
<PAGE>

control and logistic services for those products, providing us with greater
resources in that area than normally would be found in a company of our size.


Aradiant Corp.


Aradiant, formerly known as the National Dispatch Center (NDC), is one of the
largest communications messaging centers in the United States, handling in
excess of 180,000,000 calls per year and generating over $40 million in
revenues. It is estimated that Aradiant controls approximately 85% of the
communications messaging market. Designed by John MacLeod, a former NASA
executive, Aradiant has numerous back-up and redundancy systems from two
separate monitoring centers, thus insuring constant monitoring no matter what
catastrophe may happen.


The alliance between Aradiant and the Company has been forged in the unified
development of a monitoring center specializing in telematics (the ability to
locate the caller). We are enthusiastic about this alliance because it gives us
the capability to move forward in developing the PAL Services Network without
incurring the infrastructure costs of developing, equipping, staffing and
operating our own message center at this time.


Competition


We have identified several companies that we believe to be developing products
and services that in time could affect, or compete in, the same developing areas
of the PERS industry targeted by RemoteMDx. As these products and services take
hold, we expect our competition will likely rise and intensify. We believe that
we can maintain some advantages over our competition due in large part to our
alliance with MEW and other strategic partners. In addition, we believe that
several components in our product family might enjoy significant intellectual
property protection from competition.


We believe our primary competitors are as follows:

o    Lifeline  Systems,  Inc. - We believe that Lifeline may be the largest PERS
     company in the United States, reporting over 350,000 subscribers.  Lifeline
     claims that at the touch of a button, the customer can be connected to help
     24 hours a day from their home or yard.  Lifeline is a public  company that
     operates its own monitoring facility, reportedly handling over 10,000 calls
     per day. Unlike us, however,  Lifeline  markets solely to the non-mobile or
     homebound customer,  limiting its potential customer base. In addition,  it
     does not appear that  Lifeline  has any ongoing  research  and  development
     leading to new products.

o    Card Guard Scientific Survival Ltd. - This company was originally organized
     in 1990 and has been  focused  on  developing  telemedicine  systems  using
     state-of-the-art  technology to provide a solution for  healthcare  service
     providers seeking to deliver  high-quality care in face of rising costs and
     declining  budgets for healthcare  services.  Two recent  acquisitions  now
     provide Card Guard access to the cardiac  telemedicine  monitoring  market.
     Unlike us,  Card Guard  appears to be narrowly  focused on cardiac  patient
     follow-up and providing  information  to the patient's  cardiologist.  Card
     Guard  patients  must be able to take their own vitals and then  upload the
     information to the monitoring center. These relays are not as sophisticated
     as our real-time monitoring and monitoring center communication.

o    Digital  Angel  Corporation  - Digital  Angel claims to enable  collection,
     organization, analysis, warehousing, and dissemination of information for a
     wide variety of customers,  including commercial  operations,  governments,
     and  individual  consumers  worldwide.  Digital Angel  technology  offers a
     watch-sized device, accompanied by a pager-sized companion that is equipped
     with GPS, heart rate and  temperature  monitoring,  fall  detection,  and a
     "911" panic  button.  Patient  location is available  through a web-enabled
     computer or wireless device in real time. By comparison, our products offer
     voice communication, which results in dramatically increased speed of care.
     Digital  Angel  relies  heavily  on the user to locate  the  person in need
     instead of trained  emergency  personnel  dispatched by a monitoring center
     like ours.  In  addition,  the current  version of the Digital  Angel watch
     device and pager  companion is large and bulky in comparison to the product
     we are now developing.

o    SHL Telemedicine  Ltd. - SHL Telemedicine was originally  organized in 1989
     under  the name  Shahal  and was  primarily  in the  business  of  Personal
     Emergency  Response Systems until SHL Telemedicine was formed in late 1997.
     Since 1997, SHL  Telemedicine  has  specialized in developing and marketing
     advanced  personal  telemedicine  systems  as  well  as  providing  medical
     monitoring center services to subscribers. The subscriber transmits medical
     data via  telephone  line to a 24-hour  medical  monitoring  center,  which
     provides immediate guidance and consultation based on that data and


                                       10
<PAGE>

     the patient's medical history.  In contrast to our business,  SHL's primary
     focus is on cardiac  patient  follow-up  as well as patients  with  chronic
     obstructive  pulmonary  disease  and in home PERS that is  combined  with a
     chronic  disease  monitor.  SHL's device  requires the patient to be near a
     phone in an emergency  situation  and then be able to dial a phone and then
     hold the device to the phone to  transmit  the vital sign  information.  By
     comparison,  our products transmit  information in real time and wirelessly
     at the touch of a single red button.


Dependence on Major Customers


During the fiscal year 2001, two customers accounted for more than 10% of sales.
Fleetwood Homes accounted for approximately 17% ($212,000) of sales and Oakwood
Homes accounted for approximately 10% ($125,000) of sales in fiscal year 2001.


In fiscal year 2002, Fleetwood accounted for approximately 54% ($5,952,000),
Oakwood accounted for approximately 16% ($1,756,000) and Champion Homebuilders
accounted for approximately 15% ($1,632,000) of our net sales.


The loss of one or more of these customers would result in lower revenues and
limit the cash available to grow our business and to achieve profitability. We
have no arrangements or contracts with these customers that would require them
to purchase a specific amount of product from us.


Dependence on Major Suppliers


We purchase a significant amount of inventory of consumer electronics products
annually from Philips. In addition, under our agreement with MEW, we purchase
most of our mobile and cellular phone products from MEW. During the fall of
2001, we entered into a cellular switching access agreement under which we
purchase substantially all of our cellular access requirements. That agreement
expires in 2004. If any of these significant suppliers were to cease providing
product or services to us, we would be required to seek alternative sources.
There is no assurance that alternate sources could be located or that the delay
or additional expense associated with locating alternative sources for these
products or services would not materially and adversely affect our business and
financial condition.


Employees


As of June 30, 2003, we had 12 employees and full-time equivalents compared to
24 at September 30, 2002. None of our employees is represented by a labor union
or subject to a collective bargaining agreement. We have never experienced a
work stoppage and we believe that our relations with employees are good.


Item 2.    Description of Property


Our headquarters are located in leased premises consisting of approximately
11,500 square feet of laboratory and office facilities located at 5095 West 2100
South, West Valley City, Utah. These premises also serve as the manufacturing,
warehouse and shipping facilities for Reagents. The lease expires in November
2005 with monthly base rent of $5,550, subject to annual adjustments according
to changes in the Consumer Price Index.


SecureAlert operates out of leased premises located at 10406 Jackson Oaks Way,
Knoxville, Tennessee 37922. The lease is on a month-to-month basis with monthly
base rent of $5,000, subject to annual adjustments according to changes in the
Consumer Price Index.


We believe the facilities described above are adequate to accommodate presently
expected growth and needs of our operations. As we continue to grow, additional
facilities or the expansion of existing facilities will likely be required.


Item 3.    Legal Proceedings


We are not a party to, and none of our property is subject to, any pending or
threatened legal proceedings, which, in the opinion of management, are likely to
have a material adverse impact on our financial condition, results of operations
or cash flows. SecureAlert is party to litigation incidental to its distribution
business. However, we do not believe the potential liability, if any, of
SecureAlert, or the costs incurred in connection with those matters will be
material.




                                       11
<PAGE>

                                     PART II


Item 5.    Market for Common Equity and Related Stockholder Matters


Market. There is presently no market for the common stock and there is no
assurance that a market will ever develop. Our securities are not listed for
trading on any exchange and there can be no assurance that we will ever be able
to satisfy the listing criteria or that an application for inclusion or listing
on the Nasdaq Stock Market or any other securities exchange would be accepted.


Holders. As of October 15, 2003, there were approximately 879 holders of record
of the common stock and approximately 25,256,975 shares of common stock
outstanding; we also have 23,568 shares of Series A preferred stock outstanding,
convertible into a minimum of approximately 8,720,075 shares of common stock, as
well as 1,835,824 shares of Series B preferred stock outstanding that are
convertible into 1,835,824 shares of common stock. We also have granted options
and warrants for the purchase of 7,202,343 shares of common stock. We may be
required to issue additional shares of preferred stock to pay accrued dividends
or to comply with anti-dilution adjustments to the conversion rights of the
preferred shareholders.


Dividends. Since incorporation, we have not declared any dividend on the common
stock. We do not anticipate declaring a dividend on the common stock for the
foreseeable future. The Series A Preferred Stock accrues dividends at the rate
of 10% annually, which may be paid in cash or additional shares of preferred
stock at our option. To date all such dividends have been paid by issuance of
preferred stock. We do not pay dividends with respect to the Series B Preferred
Stock.


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


In addition to shares initially issued to Biomune shareholders at the time of
the spin-off in October 1997, we agreed with the NASD to issue additional shares
of common stock in connection the distribution to those Biomune shareholders of
record on February 11, 1998. We have issued additional shares of common stock
under this agreement from time to time since February 1998. No shares were
issued under this agreement in fiscal years 2001 or 2002.


The issuance of any shares of common stock for any reason will result in
dilution of the equity and voting interests of existing shareholders.


Transfer Agent and Registrar. The transfer agent and registrar for our common
stock is American Stock Transfer & Trust Company, 40 Wall Street, New York City,
NY 10005.


Recent Sales of Unregistered Securities


The following information sets forth certain information for all securities we
have sold during the past three years without registration under the Securities
Act.


Fiscal Year 2000


During fiscal year 2000, we sold 1,330 shares of Series A Preferred Stock for
cash proceeds totaling $266,000. All sales were to accredited investors. In
addition, we issued 1,293 shares of Series A Preferred Stock as a stock dividend
to holders of the Series A Preferred Stock and 1,100 shares of Series A
Preferred Stock to certain employees, officers, directors, and consultants as
compensation for services rendered.


During the year ended September 30, 2000, we sold 1,900,000 shares of common
stock for $1,500,000. We also issued a total of 425,000 shares of common stock
for services. The offer and sale of these securities were exempt from
registration under the federal securities and state "blue sky" laws and
regulations pursuant to exemptions promulgated under those laws relating to
offers and sales made to accredited investors. These shares were restricted
shares and their sale or transfer by these investors is subject to restrictions
under applicable federal and state securities laws, including the registration
requirements of those laws.




                                       12
<PAGE>

In addition, during fiscal year 2000, we issued 72,000 shares of common stock
upon conversion of 288 shares of Series A Preferred.


During the year ended September 30, 2000, we issued 1,746 shares of common stock
as additional distribution shares under the agreement with the NASD. The shares
issued in the distribution were not registered under the Securities Act in
reliance upon exemptions from registration under the Securities Act relating to
transactions not involving a sale of securities as described in Staff Legal
Bulletin No. 4 issued by the SEC and specifically addressing shares issued in
spin-off transactions.


Fiscal Year 2001


We issued 669,000 shares of common stock for services and 60,000 shares as
inducement for conversion of debentures in fiscal year 2001. We also issued
3,475 shares of Series A Preferred Stock to two directors for services. From
December 2000 through March 2001, we sold debentures convertible to common stock
in a principal amount of $545,000. The holders of debentures with a face amount
of $450,000 converted their notes during the fiscal year ended September 30,
2001, and we issued 160,001 shares of common stock in connection with those
conversions.


We issued 1,433,333 shares of common stock in connection with the acquisition of
SecureAlert in July 2001.


In July and August 2001, we sold 700,001 shares of Series B Preferred Stock in a
private placement to accredited investors for gross proceeds of $2,100,000. The
Series B Preferred Stock is convertible into common stock on a share-for-share
basis.


The offer and sale of these securities were exempt from registration under the
federal securities and state "blue sky" laws and regulations pursuant to
exemptions promulgated under those laws relating to offers and sales made to
accredited investors. The securities were restricted and their sale or transfer
by these investors are subject to restrictions under applicable federal and
state securities laws, including the registration requirements of those laws.


During fiscal year 2001, we issued 707,384 shares of common stock upon
conversion of 1,911 shares of Series A Preferred Stock. We also issued 1,682,000
shares of common stock upon the exercise of stock options held by officers and
directors whereby the exercise price was paid through the extinguishment of
$1,682,000 in borrowings under the line of credit. We also issued 2,675 shares
of Series A Preferred Stock upon conversion of borrowings under a related-party
line of credit and 1,801 shares of Series A Preferred Stock upon a cashless
exercise of warrants under the same line of credit.


The offer and sale of these securities were undertaken in reliance upon
exemptions from registration under the Securities Act as described above.


We issued 2,003 shares of Series A Preferred Stock as dividends on outstanding
shares of the same series.


During the year ended September 30, 2001, we issued 188,621 shares of common
stock as additional distribution shares under the agreement with the NASD. The
shares issued in the distribution were not registered under the Securities Act
in reliance upon exemptions from registration under the Securities Act relating
to transactions not involving a sale of securities as described in Staff Legal
Bulletin No. 4 issued by the SEC and specifically addressing shares issued in
spin-off transactions.


Fiscal Year 2002


During the year ended September 30, 2002, we issued shares of common stock
without registration of the offer and sale of the securities under the
Securities Act of 1933, as amended, as follows:

o    32,000 redeemable common shares were issued for cash proceeds of $96,000

o    35,735 shares were exchanged for debt and accrued interest of $107,314

o    40,000 shares were issued in connection with the redemption and exchange of
     redeemable common stock

o    1,712,844  shares  were  issued  upon  exercise of options for cash and for
     reduction in related-party debt



                                       13
<PAGE>

o    145,000  shares  were  issued  in  connection  with  discounts  related  to
     outstanding debt

o    303,885 shares were issued for services rendered or to be rendered

o    2,537,486  shares were issued upon the conversion of 6,872 shares of Series
     A Preferred Stock


We also sold 1,135,823 shares of voting convertible Series B preferred stock,
convertible on a one-for-one share basis into common stock.


In each of these transactions the securities were issued to individuals or
entities that were "accredited investors" as that term is used in Rule 501 under
Regulation D of the Securities Act or the issuance of the securities was
accomplished without registration under the Securities Act in reliance on the
exemptions from the registration requirements of the Securities Act afforded by
Section 4(2), including Rule 506 of Regulation D under the Securities Act.


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


The following discussion should be read in conjunction with our consolidated
financial statements and notes thereto included elsewhere in this Report.


The following table summarizes our results of operations for the last three
completed fiscal years and for the nine months ended September 30, 2003. Interim
operating data are not audited.


               Summary Consolidated Statements of Operations Data
<TABLE>
<CAPTION>
                                                                                                  Nine Months Ended June 30,
                                                    Year Ended September 30,                              (Unaudited)
                                            2002               2001              2000              2003                2002
                                     ------------------- ----------------- ----------------- ------------------ -------------------

<S>                                   <C>                <C>               <C>               <C>                <C>
Net sales                             $      11,013,147  $      1,247,633  $        496,211  $       3,555,543  $        7,919,434
Cost of goods sold                            9,558,264           959,167           291,213          3,009,169           6,711,146
                                     ------------------- ----------------- ----------------- ------------------ -------------------

   Gross profit                               1,454,883           288,466           204,998            546,374           1,208,288

Research and development expenses               514,329           960,969         2,069,231            193,572             399,329
Impairment of goodwill and inventory          4,314,987               -                 -                  -                   -
Selling, general, and
        administrative expenses              26,847,767         5,237,648         1,596,601          4,106,015          24,383,601
                                     ------------------- ----------------- ----------------- ------------------ -------------------

   Loss from operations                     (30,222,200)       (5,910,151)       (3,460,834)        (3,753,213)        (23,574,642)
                                     ------------------- ----------------- ----------------- ------------------ -------------------

Other income (expenses):
  Interest and other income                       9,987             9,238            15,482              1,764               9,398
  Interest expense                           (3,263,653)       (2,619,184)              -             (663,388)         (3,540,671)
                                     ------------------- ----------------- ----------------- ------------------ -------------------

   Net loss                           $     (33,475,866) $     (8,520,097) $     (3,445,352) $      (4,414,837) $      (27,105,915)
                                     =================== ================= ================= ================== ===================
</TABLE>



Fiscal Year Ended September 30, 2002 Compared to Fiscal Year Ended September 30,
2001


Results of Operations


Net Sales


In the fiscal year ended September 30, 2002, we had net sales of $11,013,147
compared to net sales of $1,247,633 for the fiscal year ended September 30,
2001, an increase of $9,765,514. During the year ended September 30, 2002, sales
at SecureAlert provided net sales of $10,470,970, compared to net sales of
$744,826 from the date of acquisition (July 2001) through September 30, 2001.
Sales of consumer electronics products provided approximately 49% of our total
net sales in 2001 and approximately 89% of total net sales in fiscal year 2002.


                                       14
<PAGE>

Reagents net sales for the fiscal year ended September 30, 2002 were $542,177
compared to $502,807 in fiscal year 2001, an increase of approximately 7%. As
our focus continues to shift to our remote health monitoring and diagnostics
business, we anticipate that Reagents' sales will decrease in the future as a
percentage of total sales.


Cost of Goods Sold


In the fiscal year ended September 30, 2002, cost of goods sold totaled
$9,558,264, compared to cost of goods sold in 2001 of $959,167. This increase is
due primarily to the increase in sales. SecureAlert's cost of goods sold totaled
$9,210,536, or 88% of its net sales in 2002, compared to $632,230, or 85% of net
sales from the date of acquisition through September 30, 2001. Reagents' cost of
goods sold totaled $347,729 in 2002, compared to $326,937 for the year ended
September 30, 2001, an increase of $20,792 or approximately 6% from the prior
fiscal year. The increase was primarily due to increased wages and related
benefits and rent. Reagents' overall gross margin for the fiscal year ended
September 30, 2002 was approximately 36%, compared to 35% of revenues in fiscal
year 2001.


Research and Development Expenses


In the fiscal year ended September 30, 2002, we incurred research and
development expenses of $514,329, compared to similar expenses in 2001 totaling
$960,969. We anticipate higher research and development expenses in the future
due to ongoing research and development related to our WatchPAL products.


Selling, General and Administrative Expenses


In the fiscal year ended September 30, 2002, our selling, general and
administrative expenses totaled $26,847,767, compared to $5,237,648 for the
fiscal year ended September 30, 2001. This increase relates primarily to the
recording of $20,326,882 in non-cash compensation expense in connection with the
grant of options and issuance of shares in lieu of cash compensation to
consultants and employees, including officers and directors of the Company,
based on the estimated value of $3.00 per share of the underlying equity
securities under the Black Scholes Option Pricing Model. Similar expenses are
not anticipated after June 30, 2003.


Interest Income and Expense


In the fiscal year ended September 30, 2002, interest expense was $3,263,653,
compared to $2,619,184 in fiscal year 2001. This amount consists primarily of
expense allocated to interest from non-cash consideration (including preferred
stock and stock purchase options) issued in lieu of cash to reduce or repay debt
to related and to third parties. Cash paid for interest was approximately
$322,500 in fiscal year 2002. We had interest income of $5,562 and other income
of $4,425 during fiscal year 2002.


Net Loss


We had a net loss applicable to common shareholders in the year ended September
30, 2002 totaling $33,976,866, compared to a net loss applicable to common
shareholders of $13,193,471 in fiscal year 2001. The increase in net loss in
fiscal year 2002 was due primarily to higher selling, general and administrative
expenses ($26,847,767, including non-cash compensation and consulting expense of
$20,326,882), an increase in interest expense ($3,263,653, including non-cash
compensation allocated to interest totaling $2,776,465), and the impairment of
goodwill ($4,207,045) and inventory ($107,942). The use of non-cash compensation
at similar levels is not anticipated in future periods.


Selling general and administrative expenses during fiscal year 2002 are
described in detail above.


Goodwill is not amortized but is subject to an impairment test, which is
performed at least annually. We originally booked goodwill of $7,776,209 related
to the acquisition of SecureAlert in July 2001 under applicable accounting
standards. During the year ended September 30, 2002 we tested goodwill for
impairment by comparing the carrying value of the assets of SecureAlert acquired
in the transaction, to their estimated fair value. The fair value of SecureAlert
was determined using an income approach of estimated future cash flows. The
estimated future cash flows include those primarily related from mobile medical
alert devices. The carrying amount of SecureAlert, including goodwill was
determined to exceed the estimated fair value by $4,207,045. Accordingly, during
the year ended September 30, 2002, we recognized an impairment of $4,207,045 of
its goodwill.




                                       15
<PAGE>

We record inventories at the lower of cost or market, on a first-in, first-out
method. We also reserve against obsolescence and excess inventories. From time
to time, we are required to make provisions to reduce excess and obsolete
inventories to their estimated net realizable values. During the year ended
September 30, 2002, we increased this reserve.


Liquidity and Capital Resources


September 30, 2002


We have not historically financed operations entirely from cash flows from
operating activities. During the year ended September 30, 2002, we supplemented
cash flows with borrowings from a related party and the sale of equity
securities.


At September 30, 2002, we had cash of $51,390, compared to cash of $59,977 at
September 30, 2001. We had a working capital deficit of $5,150,881, compared to
a working capital deficit of $2,865,119 at September 30, 2001. The increase in
working capital deficit is the result of the increased operating losses incurred
in 2002.


During fiscal year 2002, our operating activities used cash of $7,382,894,
compared to $2,612,483 cash used in 2001.


Investing activities for the year ended September 30, 2002 used cash of
$101,118, compared to $459,590 of cash used by investing activities in the year
ended September 30, 2001. Cash used in 2002 was expended primarily for property
and equipment purchases.


Financing activities for the year ended September 30, 2002 provided $7,475,425
of cash compared to $2,853,629 of cash provided from those activities in the
year ended September 30, 2001. Of this amount in 2002, $96,000 was provided by
the issuance of common stock, $3,366,273 was provided through the sale and
issuance of Series B preferred stock, net of offering expenses paid in cash.


Borrowings from related parties provided cash of $1,860,224 in fiscal year 2002;
short-term borrowings during the year ended September 30, 2002 totaled
$4,249,695. During the year ended September 30, 2001, we received cash of
$1,862,003 from the issuance of Series B preferred stock, $545,000 from the sale
and issuance of convertible debentures and $2,233,000 from borrowings from a
related party. Cash in 2001 was decreased by $200,000 for payments on
obligations related to the SecureAlert purchase agreement and by $1,586,374
related to payments on a line of credit with SunTrust Bank.


In fiscal year 2002, we incurred a net loss of $33,475,866 and negative cash
flows from operating activities of $7,382,894, compared to a net loss of
$8,520,097and negative cash flow of $2,612,483 for the year ended September 30,
2001. As of September 30, 2002, our working capital deficit was $5,150,881 and
we had a net tangible stockholders' deficit of $5,326,555 and accumulated
deficit of $55,183,957.


These factors, as well as the risk factors set out elsewhere in this memorandum
raise substantial doubt about our ability to continue as a going concern. The
financial statements included in this memorandum do not include any adjustments
that might result from the outcome of this uncertainty. Our plans with respect
to this uncertainty include the conversion of a significant portion of our
outstanding debt and other obligations, as well as raising capital from the sale
of our common stock and other debt and equity securities.


The following chart includes principal balances and interest rates applicable to
short-term and long-term borrowings as of September 30, 2001 and 2002. As a
result of the restructuring agreement and related transactions entered into from
April through June 2003, the outstanding debt of the Company has been
significantly reduced, as follows:




                                       16
<PAGE>





<TABLE>
<CAPTION>
             Description of Obligation           Annual Interest          Maturity Date        Amount Owing at     Amount Owing at
                                                                                                                       6/30/03
                                                      Rate                                         9/30/02           (unaudited)

<S>                                            <C>                  <C>                        <C>               <C>
      Line of Credit with ADP Management         Prime Rate (1)         December 31, 2002         $ 951,290      $         0 (2)
      ---------------------------------------- -------------------- -------------------------- ----------------- ------------------
                                                LIBOR plus 2.15%
      Bank Line of Credit                              (3)               March 15, 2003           $1,100,000     $         0 (4)
      ---------------------------------------- -------------------- -------------------------- ----------------- ------------------
      Bank Line of Credit                        Prime plus .25%         March 11, 2004            N/A (5)       $   551,475
      ---------------------------------------- -------------------- -------------------------- ----------------- ------------------
      Note to Shareholder (6)                          5%                  March 2004             $ 250,000      $   201,310
      ---------------------------------------- -------------------- -------------------------- ----------------- ------------------
      Note to Shareholder (6)                          5%                  March 2004             $ 250,000      $   201,310
      ---------------------------------------- -------------------- -------------------------- ----------------- ------------------
      Promissory Note                                  12%               March 31, 2003           $ 100,720      $         0 (7)
      ---------------------------------------- -------------------- -------------------------- ----------------- ------------------
      Note to Related Party                            12%                   Demand                $ 25,000      $         0 (8)
      ---------------------------------------- -------------------- -------------------------- ----------------- ------------------
      Promissory Note                                 22.5%            September 30, 2002         $ 800,000      $         0 (7)
      ---------------------------------------- -------------------- -------------------------- ----------------- ------------------
      Promissory Note                                  18%             September 30, 2002         $ 600,000      $   600,000 (9)
      ---------------------------------------- -------------------- -------------------------- ----------------- ------------------
      Promissory Note                                 14.5%               June 30, 2003           $ 350,000      $         0 (7)
      ---------------------------------------- -------------------- -------------------------- ----------------- ------------------
      Promissory Note                                  10%              December 31, 2002         $ 270,795      $   116,496
      ---------------------------------------- -------------------- -------------------------- ----------------- ------------------
      Promissory Note                                  18%             September 30, 2002         $ 200,000      $         0 (10)
      ---------------------------------------- -------------------- -------------------------- ----------------- ------------------
      Promissory Note                                  18%             September 30, 2002         $ 150,000      $         0 (11)
      ---------------------------------------- -------------------- -------------------------- ----------------- ------------------
      Promissory Note                                  18%             September 30, 2002          $ 50,000      $         0 (12)
      ---------------------------------------- -------------------- -------------------------- ----------------- ------------------
      Promissory Note                                  18%             September 30, 2002          $ 50,000      $    25,000
      ---------------------------------------- -------------------- -------------------------- ----------------- ------------------
      Promissory Note                                  20%               March 22, 2004              N/A         $    66,446
      ---------------------------------------- -------------------- -------------------------- ----------------- ------------------
      Totals                                           N/A                     N/A                $5,147,805     $ 1,762,037
</TABLE>



(1)  The prime rate at September 30, 2002 was 4.75%.

(2)  By  agreement  dated  April  2,  2003,  ADP  Management  Corporation  ("ADP
     Management"),  an entity  owned  and  controlled  by  Derrick  and  Dalton,
     converted all amounts owing under this obligation into common stock.

(3)  At September 30, 2002 this rate was 4.75%.

(4)  This note was  refinanced  by a note at another  bank (next entry in table)
     subsequent to September 30, 2002.

(5)  This note was  entered  into after  September  30,  2002 to  refinance  the
     original bank line of credit described in the preceding entry on the table.

(6)  This note was subsequently replaced by a note entered into in December 2002
     with monthly  payments of $40,000 until paid in full  commencing  March 11,
     2003. The Company paid $75,000 toward the note after September 30, 2002.

(7)  This obligation was assumed by ADP Management in June 2003 and converted to
     common stock.

(8)  The Company paid this obligation in full in November 2002.

(9)  Derrick  and Dalton  guarantee  this note  personally.  In June  2003,  ADP
     Management  agreed to assume this note and will pay it off on behalf of the
     Company.  The note is secured by a lien on the assets,  including inventory
     and  accounts  receivable,  of the  Company.  The  lender has not agreed to
     release the Company as a primary obligor under the note. Under the April 2,
     2003 agreement,  ADP Management and Derrick and Dalton released the Company
     from any liability for


                                       17
<PAGE>

     their  assumption of this  obligation  and converted  into common stock the
     amounts that would  otherwise  be payable to them for their  payment of the
     note.  Notwithstanding  the assumption of this note by Messrs.  Derrick and
     Dalton and their  affiliate ADP  Management,  in the event they fail to pay
     the note on our behalf the lender retains its rights to proceed  against us
     and our assets as a secured  creditor to satisfy any amount  outstanding on
     the note, as well as the costs of collection.

(10) On June 30, 2003,  this lender  converted all amounts owing under this note
     into 151,334 shares of common stock as payment in full.

(11) On June 30, 2003,  this lender  converted all amounts owing under this note
     into 113,500 shares of common stock as payment in full.

(12) On June 30, 2003,  this lender  converted all amounts owing under this note
     into 37,834 shares of common stock as payment in full.


Recent Developments


Agreements with former Employees and Consultants


After determining that we would focus our business on remote medical and
personal security monitoring products and services, we entered into an agreement
with Brian Boling, Tim Welch, Jim Steinmeyer and Ron Bishop and their respective
affiliates to provide for the termination of employment and consulting
agreements, the assignment of property and other rights. Under this agreement,
effective January 1, 2003, these parties agreed to terminate their respective
employment and consulting agreements with the Company and its affiliates,
returned 400,000 shares of common stock issued in the acquisition of
SecureAlert, forfeited payments under the merger agreement totaling $300,000,
and forfeited accrued vacation and sick pay. We transferred to a newly formed
entity owned and controlled by these former employees and consultants, equipment
and inventory and we assigned accounts receivable to cover assumed liabilities
in connection with the distribution of product under a distribution agreement
described below.


Bishop Agreement


Effective December 31, 2002, we entered into an agreement with a consultant, Ron
Bishop, to terminate consulting agreements pursuant to which he had agreed to
assist in the development of GPS and monitoring technology and related services.
We agreed to issue 65,000 restricted shares of common stock and we granted an
option to Mr. Bishop for the purchase of 20,000 common shares at $3.00 per
share. Bishop agreed to complete programming on product interfaces and other
products for the Company and granted the Company a perpetual royalty-free
license to certain software used in the Company's GPS products and monitoring
centers.


Natale Agreement


On February 28, 2003, we entered into an agreement with Tom Natale, who had been
serving as our President. Under the terms of the agreement, which was
subsequently amended and extended through October 2003, Mr. Natale and the
Company mutually agreed to terminate Mr. Natale's employment contract. Mr.
Natale will be paid a monthly consulting fee of $5,000 and receive health
benefits from the Company through November 2003. A bonus payment of $30,000 is
payable in October 2003. Mr. Natale also entered into a nondisclosure and
confidentiality agreement relating to the Company's technology, including trade
secrets and other intellectual property. In a separate agreement entered into
June 30, 2003, Mr. Natale assigned to the Company a $100,000 certificate of
deposit previously pledged as collateral for the Company's line of credit at a
bank. In consideration of the assignment, the Company agreed to release and
indemnify Mr. Natale from further liability under the line of credit and agreed
to pay back interest of $8,000 and to issue to Mr. Natale 7,500 shares of common
stock and warrants to purchase 7,500 shares of common stock at a price of $3.00
per share. Mr. Natale also received a $100,000 promissory note payable to him
jointly and severally by Derrick, Dalton, and ADP Management. ADP Management has
assumed all obligations to Mr. Natale and the Company is under no further
obligation.


Liady Agreement


In an agreement entered into June 30, 2003, Ms. Liady assigned to the Company a
$100,000 certificate of deposit previously pledged as collateral for the
Company's line of credit at a bank. In consideration of the assignment, the
Company agreed to release and indemnify Ms. Liady from further liability under
the line of credit and agreed to pay back interest of $2,500 and to issue to Ms.


                                       18
<PAGE>

Liady 5,000 shares of common stock and warrants to purchase 5,000 shares of
common stock at a price of $3.00 per share. Ms. Liady also received a $100,000
promissory note payable to her jointly and severally by Derrick, Dalton, and ADP
Management. ADP Management assumed the liability associated with this note and
the Company is under no further obligation to Ms. Liady.


Consumer Electronics Distribution


On January 1, 2003, the Company entered into an agreement with SecureAlert
Entertainment LLC ("SAE") granting it exclusive distribution rights to the
Company's consumer electronics products to the manufactured homes marketing
channel in North America. In consideration of the grant of exclusive rights in
the agreement, SAE agreed to make all payments to Mr. Bishop under his several
agreements with the Company and to purchase inventory from the Company. In
addition, former SecureAlert II shareholders waived their right to and returned
to the Company for cancellation 400,000 shares of common stock issued in the
merger of SecureAlert II. SAE is barred from marketing or distributing products
to the PERS and home medical or personal health monitoring markets and is bound
by a five-year post-termination covenant against competing with the Company in
any market. The agreement was subsequently amended in June 2003 to clarify the
pricing of products as well as policies regarding the Company's responsibility
for warranty service, returns, and delivery of product; purchases are made only
by submission of orders to the Company and title to products passes upon
shipment. The agreement expires December 31, 2003. If the agreement expires
without extension or if a new distributor is not engaged, the Company expects
revenues from the sale of consumer electronics products to decline substantially
after December 31, 2003.


Telematics Distribution


The Company entered into an agreement with SecureAlert Telematics Corporation
for the distribution of the Company's telematics and mobile GPS products. In
connection with this agreement, the Company acknowledged Mr. Bishop's role in
the development of the underlying GPS technology included in the MobilePAL
products and agreed to assign a patent application relating to that technology
to Mr. Bishop (Patent App. 10/202,769). SecureAlert Telematics will pay the
Company a royalty in the amount of 10% of net revenue from all customer sales
and services for a period of seven years from the date of activation of all
products and services sold by SecureAlert Telematics during the three-year term
of the agreement. The parties also agreed that during the first six months of
the agreement SecureAlert Telematics would have use of the Company's monitoring
center without additional charge and that the parties would share in the cost of
the monitoring center thereafter during the balance of the term of the agreement
until such time as SecureAlert Telematics could establish its own center. The
products that are subject to this agreement are the MobilePAL and TravelPAL
products sold to specific channels identified by the agreement. SecureAlert
Telematics is barred from selling in the PERS and personal and home health
monitoring markets.


Related Party Debt Restructuring


During the quarter ended June 30, 2003, the Audit Committee of the board of
directors approved a debt-restructuring package proposed by ADP Management,
Derrick and Dalton. By agreement dated April 2, 2003, the Company and ADP
Management, Derrick and Dalton agreed to the following primary terms:

o    Derrick and Dalton agreed to negotiate  with  significant  creditors of the
     Company to restructure outstanding debt.

o    We would issue a total of 8,900,000  shares of common stock for the purpose
     of restructuring debt under this package.

o    The preferred method of  restructuring  the debt would be the conversion of
     the debt into common  shares at prices  negotiated on behalf of the Company
     by Derrick and Dalton.

o    If and to the extent that ADP  Management,  Derrick and Dalton would assume
     certain  debt held by  creditors  unwilling  to  convert  such  obligations
     directly  into equity the shares  otherwise  issuable in  conversion of the
     assumed  debt  would be issued to ADP  Management,  Derrick  and  Dalton in
     consideration  of  their  assumption  of the debt  and the  release  of the
     Company of all liability for such debt by the creditor.

o    ADP  Management  would  convert  all  amounts  owing to it after  all other
     creditors have either  converted or assigned their notes as described above
     for the remaining shares, if any.



                                       19
<PAGE>

o    We  would  compensate  Derrick  and  Dalton  for  personal  guarantees  and
     assumptions of corporate debt and obligations.

o    Derrick would assign certificates of deposit to the Company securing a line
     of credit with a bank.


As of June 30, 2003, under the provisions of this agreement we:

o    Converted  $1,167,750 of principal and accrued interest into 786,001 shares
     of common stock at $1.50 per share

o    Were released from debt obligations to third parties totaling $2,613,975 in
     principal  and  accrued  interest  assumed by ADP  Management,  Derrick and
     Dalton and converted these obligations into common stock

o    Settled all  obligations  and  guarantees  of ADP  Management,  Derrick and
     Dalton,  including  $709,986 of principal and accrued interest owing to ADP
     Management and converted these obligations into common stock, and

o    Received  assignment of $550,000 of certificates of deposit securing a line
     of credit with a bank.


The total debt relief provided to us as a result of these transactions was
approximately $4,342,000. ADP Management also committed to assume an additional
$700,000 of debt upon release of the Company by the note holder. The total
number of shares issued in connection with this transaction was 8,416,667, of
which 8,113,999 shares were issued to ADP Management in connection with its
assumption of debt, guarantees, and agreement to indemnify the Company. The
number of shares ultimately retained by ADP Management is not known at this time
as ADP Management will continue to negotiate settlement of debts and obligations
assumed by it and use the shares allocated to it as consideration for such
settlements.


Critical Accounting Policies


In Note 1 to the audited financial statements for the fiscal year ended
September 30, 2002 included in this Form 10-KSB, the Company discusses those
accounting policies that are considered to be significant in determining the
results of operations and its financial position. The Company believes that the
accounting principles utilized by it conform to generally accepted accounting
principles in the United States of America.


The preparation of consolidated financial statements requires management to make
significant estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses. By their nature, these judgments are subject
to an inherent degree of uncertainty. On an on-going basis, we evaluate our
estimates, including those related to bad debts, inventories, intangible assets,
warranty obligations, product liability, revenue, and income taxes. We base our
estimates on historical experience and other facts and circumstances that are
believed to be reasonable, and the results form the basis for making judgments
about the carrying value of assets and liabilities. The actual results may
differ from these estimates under different assumptions or conditions.


With respect to inventory reserves, revenue recognition and allowance for
doubtful accounts, we apply the following critical accounting policies in the
preparation of its financial statements:


Inventory Reserves


The nature of our business requires us to maintain sufficient inventory on hand
at all times to meet the requirements of its customers. We record finished goods
inventory at the lower of standard cost, which approximates actual costs
(first-in, first-out) or market. Raw materials are stated at the lower of cost
(first-in, first-out), or market. General inventory reserves are maintained for
the possible impairment of the inventory. Impairment may be a result of slow
moving or excess inventory, product obsolescence or changes in the valuation of
the inventory. In determining the adequacy of its reserves, we analyze the
following, among other things:

o    Current inventory quantities on hand;

o    Product acceptance in the marketplace;

o    Customer demand;



                                       20
<PAGE>

o    Historical sales;

o    Forecast sales;

o    Product obsolescence; and

o    Technological innovations.


Any modifications to these estimates of reserves are reflected in the cost of
goods sold within the statement of operations during the period in which such
modifications are determined necessary by management.


Revenue Recognition


We derive revenue primarily from the sale of consumer electronics and reagent
stains. Under applicable accounting principles, revenue, less reserves for
returns, is recognized upon shipment to the customer. From the date of the
acquisition of SecureAlert in July 2001 through September 30, 2002, and for the
year ended September 30, 2002, the provision for sales returns was not material.
Amounts received in advance of shipment are recorded as deferred revenue.
Shipping and handling fees are included as part of net sales. The related
freight costs and supplies directly associated with shipping products to
customers are included as a component of cost of goods sold.


Impairment of Long-lived Assets


Under applicable accounting principles, we do not amortize goodwill. Goodwill is
subject to an impairment test, which is performed at least annually. Our
goodwill is related to the acquisition of SecureAlert in July 2001. During the
year ended September 30, 2002 we tested goodwill for impairment by comparing the
carrying value of the assets of our wholly owned subsidiary SecureAlert, to the
estimated fair value of those assets. The fair value was determined using an
income approach of estimated future cash flows. The estimated future cash flows
include those primarily related from mobile medical alert devices. The carrying
amount including goodwill was determined to exceed the estimated fair value.
Therefore we recognized an impairment of goodwill in 2002.


We review our long-lived assets, other than goodwill, for impairment when events
or changes in circumstances indicate that the book value of an asset may not be
recoverable. We evaluate, at each balance sheet date, whether events and
circumstances have occurred which indicate possible impairment. We use an
estimate of future undiscounted net cash flows of the related asset or group of
assets over the estimated remaining life of in measuring whether the assets are
recoverable.


Accounting for Stock-based Compensation


We accounts for stock-based compensation issued to employees and directors under
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued
to Employees," and related interpretations. Under APB No. 25, compensation
related to stock options, if any, is recorded if an option's exercise price on
the measurement date is below the fair value of the Company's common stock and
amortized to expense over the vesting period. Compensation expense for stock
awards or purchases, if any, is recognized if the award or purchase price on the
measurement date is below the fair value of the common stock and is recognized
on the date of award or purchase. Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock Based Compensation," requires pro forma
information regarding net loss and net loss per common share as if the Company
had accounted for its stock options granted under the fair value method. This
pro forma disclosure is presented in Note 11 to the audited financial
statements.


We account for stock-based compensation issued to persons other than employees
using the fair value method in accordance with SFAS No. 123 and related
interpretations. Under SFAS No. 123, stock-based compensation is determined as
either the fair value of the consideration received or the fair value of the
equity instruments issued, whichever is more reliably measurable. The
measurement date for these issuances is the earlier of either the date at which
a commitment for performance by the recipient to earn the equity instruments is
reached or the date at which the recipient's performance is complete.


Allowance for Doubtful Accounts


We must make estimates of the collectibility of accounts receivables. In doing
so, we analyze accounts receivable and historical bad debts, customer


                                       21
<PAGE>

credit-worthiness, current economic trends and changes in customer payment
patterns when evaluating the adequacy of the allowance for doubtful accounts.


Recent Accounting Pronouncements


In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets." Certain provisions of
these statements are effective for business combinations entered into after June
30, 2001. Accordingly, we were required to apply certain provisions of the
standards for the acquisition of SecureAlert. Under these rules, goodwill and
intangible assets deemed to have indefinite lives are no longer amortized but
are subject to annual impairment tests in accordance with the statements. Other
intangible assets are amortized over their useful lives. We adopted the
remaining provisions effective October 1, 2001, the beginning of our 2002 fiscal
year. The adoption of the remaining provisions of SFAS Nos. 141 and 142 had no
material impact on the results of operations, financial position or liquidity
related to the adoption of the remaining provisions of these statements.


In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," effective for fiscal years beginning after June 15, 2002, with
earlier application encouraged. This statement requires entities to record the
fair value of a liability for an asset retirement obligation in the period in
which it is incurred. When the liability is initially recorded, the entity
capitalizes the cost by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period,
and the capitalized cost is depreciated over the useful life of the related
asset. Upon settlement of the liability, an entity either settles the obligation
for its recorded amount or incurs a gain or loss upon settlement. Management
does not expect the adoption of this statement to have a material impact on the
results of operations, financial position or liquidity.


In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," which replaces SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The accounting model for long-lived assets to be disposed of by sale applies to
all long-lived assets, including discontinued operations, and replaces the
provisions of APB Opinion No. 30, "Reporting Results of Operations-Reporting the
Effects of Disposal of a Segment of a Business," for the disposal of segments of
a business. This statement requires that those long-lived assets be measured at
the lower of carrying amount or fair value less cost to sell, whether reported
in continuing operations or in discontinued operations. Therefore, discontinued
operations will no longer be measured at net realizable value or include amounts
for operating losses that have not yet occurred. This statement also broadens
the reporting of discontinued operations. We adopted the provisions of this
statement on October 1, 2001, the beginning of our fiscal year 2002. The
adoption of SFAS No. 144 did not have a material impact on the results of
operations, financial position or liquidity.


In April 2002, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections." This statement requires the
classification of gains or losses from the extinguishments of debt to meet the
criteria of Accounting Principles Board Opinion No. 30 before they can be
classified as extraordinary in the income statement. As a result, companies that
use debt extinguishment as part of their risk management cannot classify the
gain or loss from that extinguishment as extraordinary. The statement also
requires sale-leaseback accounting for certain lease modifications that have
economic effects similar to sale-leaseback transactions. We do not expect
adoption of SFAS No. 145 to have a material impact on the Company's financial
position or future operations.


In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This standard, which is effective for exit or
disposal activities initiated after December 31, 2002, provides new guidance on
the recognition, measurement and reporting of costs associated with these
activities. The standard requires companies to recognize costs associated with
exit or disposal activities when they are incurred rather than at the date the
Company commits to an exit or disposal plan. The adoption of SFAS No. 146 is not
expected to have a material impact on the Company's financial position or future
operations.


In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" (FIN No. 45). FIN No. 45 requires certain guarantees to
be recorded at fair value, which is different from current practice to record a
liability only when a loss is probable and reasonably estimable, as those terms
are defined in FASB Statement No. 5, "Accounting for Contingencies." FIN No. 45
also requires us to make significant new disclosures about guarantees. The
disclosure requirements of FIN No. 45 are effective for the first quarter of
fiscal year 2003. FIN No. 45's initial recognition and initial measurement
provisions are applicable on a prospective basis to guarantees issued or


                                       22
<PAGE>

modified after December 31, 2002. Our previous accounting for guarantees issued
prior to the date of the initial application of FIN No. 45 will not be revised
or restated to reflect the provisions of FIN No 45. We do not expect the
adoption of FIN No. 45 to have a material impact on our consolidated financial
position, results of operations or cash flows.


In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123," which is effective for all fiscal years ending after December 15, 2002.
SFAS No. 148 provides alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based employee
compensation under SFAS No. 123 from the intrinsic value based method of
accounting prescribed by APB Opinion No. 25. SFAS 148 also changes the
disclosure requirements of SFAS 123, requiring a more prominent disclosure of
the pro-forma effect of the fair value based method of accounting for
stock-based compensation. We do not expect the adoption of SFAS No. 148 have a
material impact on our financial position or future operations.


In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Ethics" (FIN No. 46), which addresses consolidation by
business enterprises of variable interest entities. FIN No. 46 clarifies the
application of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements," to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN No. 46 applies
immediately to variable interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an interest after that
date. It applies in the first fiscal year or interim period beginning after June
15, 2003, to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. We do not expect to identify
any variable interest entities that must be consolidated. In the event a
variable interest entity is identified, we do not expect the requirements of FIN
No. 46 to have a material impact on our financial condition or results of
operations.


In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
Statement is effective for contracts entered into or modified after June 30,
2003, with certain exceptions, and for hedging relationships designated after
June 30, 2003, with certain exceptions. Management is currently evaluating the
effect that the adoption of SFAS No. 149 may have, but believes it will not have
a material effect on its results of operations and financial position.


In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This new
statement changes the accounting for certain financial instruments that, under
previous guidance, issuers could account for as equity or classifications
between liabilities and equity in a section that has been known as "mezzanine
capital." It requires that those instruments be classified as liabilities in
balance sheets. Most of the guidance in SFAS 150 is effective for all financial
instruments entered into or modified after May 31, 2003. We anticipate that the
adoption of SFAS No. 150 may have a material impact on our consolidated
financial statements if in the future we issue mandatorily redeemable preferred
stock previously included as "mezzanine capital" that would be included as a
liability in accordance with SFAS 150.


Risk Factors


This report contains forward-looking statements, which may be affected by risks
and uncertainties including many that are outside our control. Our actual
operating results could differ materially as a result of certain factors,
including those set forth below and elsewhere in this report.


Our increased focus on a new business market means that you should regard your
investment in our shares as equivalent to an investment in a start-up venture.


This change in our business goals and strategy subjects us to the risks and
uncertainties usually associated with start-ups. Our business plan involves
risks, uncertainties and difficulties frequently encountered by companies in
their early stages of development. If we are to be successful in this new
business direction, we must accomplish the following, among other things:

o    Develop  and  introduce  functional  and  attractive  product  and  service
     offerings;



                                       23
<PAGE>

o    Increase awareness of our brand and develop consumer loyalty;

o    Respond to competitive and technological developments;

o    Build an operational structure to support our business; and

o    Attract, retain and motivate qualified personnel.


If we fail to achieve these goals, that failure would have a material adverse
effect on our business, prospects, financial condition and operating results.
Because the market for our new product and service offerings is new and
evolving, it is difficult to predict with any certainty the size of this market
and its growth rate, if any. There is no assurance that a market for these
products or services will ever develop or that demand for our products and
services will emerge or be sustainable. If the market fails to develop, develops
more slowly than expected or becomes saturated with competitors, our business,
financial condition and operating results would be materially adversely
affected.


There is no certainty that the market will accept our new products and services.


Our targeted markets may never accept our new products or services. Insurance
companies, physicians, nurses, patients and consumers may not use our products
unless they determine, based on experience, clinical data, advertising or other
factors, that those products are a preferable alternative to currently available
methods of diagnosis. In addition, decisions to adopt new medical devices can be
influenced by government administrators, regulatory factors, and other factors
largely outside our control. No assurance can be given that key decision-makers
or third party payors will accept our new products, which could have a material
adverse effect on our business, financial condition and results of operations.


Our relationship with our majority  shareholders presents potential conflicts of
interest,  which  may  result  in  decisions  that  favor  them  over our  other
shareholders.


Our principal beneficial owners, David Derrick and James J. Dalton, provide
management and financial services and assistance to the Company. Substantially
all of our financing over the past twelve months has come from entities
affiliated with these two shareholders and directors, who also serve as
executive officers of the Company. When their personal investment interests
diverge from our interests, they and their affiliates may exercise their
influence in their own best interests. Some decisions concerning our operations
or finances may present conflicts of interest between us and these shareholders
and their affiliated entities.


A significant number of our outstanding shares are or may be eligible for future
sale, which would have a potentially adverse effect on possible future stock
price.


There is not presently a public market for our securities, and we cannot
guarantee that a public market will develop after the offering. In the future,
the sale of substantial numbers of shares of common stock could cause downward
pressure on the market price of the common stock, if and when the common stock
becomes traded. These sales could also make it more difficult for us to sell
equity securities or equity-related securities in the future at a time and price
that we deem appropriate or favorable to us. We have outstanding an aggregate of
25,256,975 shares of common stock and approximately 24,454 shares of Series A
preferred stock, convertible into a minimum of approximately 9,047,976 shares of
common stock, as well as 1,835,824 shares of Series B preferred stock that are
convertible into 1,835,824 shares of common stock. We also have granted options
and warrants for the purchase of 5,580,888 shares of common stock. We may be
required to issue additional shares of preferred stock to pay accrued dividends
or to comply with anti-dilution adjustments to the conversion rights of the
preferred shareholders.


Because we are obligated to issue a significant number of shares upon conversion
of preferred stock and the exercise of options, your ownership in the Company is
subject to possible immediate and substantial dilution.


As of October 15, 2003, holders of our Series A preferred stock have the
immediate right to convert their shares into 9,047,976 shares of common stock.
Holders of the Series B preferred stock have the immediate right to convert
their shares into 1,835,824 shares of common stock. In addition, purchasers of
the Series B preferred stock in the original private placement and the holder of
1,000,000 shares of Series B preferred stock may have the right to have the
conversion rate adjusted in a manner that would significantly increase the
number of shares of common stock issuable upon conversion of their shares of
Series B preferred stock based on anti-dilution rights granted to them at the


                                       24
<PAGE>

time of their purchase. Furthermore, our Board of Directors has determined that
accrued dividends on the Series A preferred stock will be paid by issuing the
holders of the Series A preferred stock an aggregate of 2,487 shares of Series A
preferred stock, immediately convertible into 919,912 shares of common stock. We
have also granted options and warrants for the purchase of common stock to
employees, consultants and others. If these options were immediately exercised
in full, we would be required to issue a total of 7,202,343 shares of common
stock. The issuance of all or substantial portion of the shares issuable upon
conversion of the preferred stock or exercise of the outstanding options and
warrants would result in immediate and substantial dilution of your ownership
interest in the Company. In addition, the existence of the obligation to issue
such shares may adversely affect the price of our common stock in the market if
and when we are successful in listing our shares.


The existence of certain anti-dilution rights applicable to our Series B
Preferred Stock might result in increased dilution if we were to offer and sell
shares of common stock at prices below the conversion rate of $3.00 per common
share unless those rights are waived.


The original purchasers of shares of our Series B preferred stock and MEW have
the right to an automatic adjustment of the conversion price of the Series B
preferred shares held by them in the event we were to sell shares of common
stock at a price below the original conversion price of $3.00 per share. We have
issued shares to certain creditors to convert debt to equity at prices that are
below the $3.00 conversion price. Although we believe the holders of our Series
B preferred stock who may also have a right to an adjustment of their conversion
price as a result of such transactions will waive their right to receive the
adjustment, there is no assurance that they will waive those rights. Any
increase in the number of shares of common stock issued upon conversion of
Series B preferred shares would compound the risks of dilution to existing
shareholders.


The  obligation to issue shares of common stock upon the exercise of outstanding
options and warrants or upon conversion of outstanding shares of preferred stock
increases the potential for short sales.


Downward pressure on the market price of our common stock that likely would
result from sales of common stock issued on conversion of the preferred stock or
the exercise of options and warrants could encourage short sales of common stock
by the holders of the preferred stock or others. A significant amount of short
selling could place further downward pressure on the market price of the common
stock, reducing the market value of the securities held by our shareholders.


Payment of  dividends  in  additional  shares of Series A  preferred  stock will
result in further dilution.


Under the terms of the Series A preferred stock, our board of directors may
elect to pay dividends by issuing additional shares of Series A preferred stock.
Dividends accrue from the date of the issuance of the preferred stock, subject
to any intervening payments in cash. Each share of Series A preferred stock is
convertible into 370 shares of common stock. The issuance of additional shares
of Series A preferred stock as dividends could result in a substantial increase
in the number of shares issued and outstanding and could result in a decrease of
the relative voting control of the holders of the common stock issued and
outstanding prior to such payment of dividends and interest.


We face intense competition.


Our current and expected markets are rapidly changing. Existing products and
services and emerging products and services will compete directly with the
products we are seeking to develop and market. Our technology will compete
directly with other technology, and, although we believe our technology has or
will have advantages over these competing systems, there can be no assurance
that our technology will have advantages that are significant enough to cause
users to adopt its use. Competition is expected to increase.


Many of the companies currently in the remote medical monitoring and diagnostic
market may have significantly greater financial resources and expertise in
research and development, marketing, manufacturing, pre-clinical and clinical
testing, obtaining regulatory approvals and marketing than those available to
us. Smaller companies may also prove to be significant competitors, particularly
through collaborative arrangements with large third parties. Academic
institutions, governmental agencies and public and private research
organizations also conduct research, seek patent protection and establish
collaborative arrangements for product and clinical development and marketing in
the medical diagnostic arena. Many of these competitors have products or
techniques approved or in development and operate large, well-funded research
and development programs in the field. Moreover, these companies and


                                       25
<PAGE>

institutions may be in the process of developing technology that could be
developed more quickly or be ultimately more effective than our planned
products.


We face competition based on product efficacy, the timing and scope of
regulatory approvals, availability of supply, marketing and sales capability,
reimbursement coverage, price and patent position. There can be no assurance
that our competitors will not develop more effective or more affordable
products, or achieve earlier patent protection or product commercialization.


Our business plan is subject to the risks of technological uncertainty, which
may result in our products failing to be competitive or readily accepted by our
target markets.


We may not realize revenues from the sale of any of our new products or services
for several years, if at all. Some of the products we are currently evaluating
likely will require further research and development efforts before they can be
commercialized. There can be no assurance that our research and development
efforts will be successful or that we will be successful in developing any
commercially successful products. In addition, the technology which we integrate
or that we may expect to integrate with our product and service offerings, is
rapidly changing and developing. We face risks associated with the possibility
that our technology may not function as intended and the possible obsolescence
of our technology and the risks of delay in the further development of our own
technologies. Other difficulties and uncertainties normally associated with new
industries or the application of new technologies in new or existing industries
also threaten our business, including the possible lack of consumer acceptance,
difficulty in obtaining financing for untested technologies, increasing
competition from larger well-funded competitors, advances in competing or other
technologies, and changes in laws and regulations affecting the development,
marketing or use of our new products and related services. In addition, cellular
coverage in the United States and other markets is not uniform and is subject to
interruptions and interference in some areas, particularly remote geographic
areas. GPS technology is limited by its dependence upon "line-of-sight"
communication with signals transmitted among orbiting satellites. Its
effectiveness is therefore limited or seriously decreased if the user is located
in the lower floors of high-rise buildings, underground, or in other areas where
obstructions prevent a clear line-of-sight for the signals used to locate the
user.


We are dependent upon our strategic alliances, the loss of which would limit our
success.


Our strategy for the identification, development, testing, manufacture,
marketing and commercialization of our products and services includes, entering
into various collaborations through corporate alliances. We have entered into
collaborative relationships with a significant engineering and product
commercialization firm and a multi-national manufacturing corporation, and we
believe that these relationships provide us with strong strategic alliances for
the design and engineering of our products. Our manufacturing partner is a large
Japanese multinational with significant operations and holdings in several
industries, including electronics. There can be no assurance, however, that
these relationships will succeed or that we will be able to negotiate strategic
alliances with other parties on acceptable terms, if at all, or that any of
these collaborative arrangements will be successful. To the extent we choose or
are unable to establish or continue such arrangements we could experience
increased capital requirements as a result of undertaking such activities. In
addition, we may encounter significant delays in introducing products currently
under development into the marketplace or find that the development, manufacture
or sale of our proposed products are adversely affected by the absence of
successful collaborative agreements.


We have a history of losses and anticipate  significant future losses and may be
unable to project our revenues and expenses accurately.


We expect to incur net operating losses and negative cash flows for the
foreseeable future. We will incur significant expenses associated with the
further development and deployment of our new products and promoting our brand.
We intend to enter into additional arrangements through current and future
strategic alliances that may require us to pay consideration in various forms
and in amounts that may significantly exceed current estimates and expectations.
We may also be required to offer promotional packages of hardware and software
to end-users at subsidized prices in order to promote our brand, products and
services. These guaranteed payments, promotions and other arrangements would
result in significant expense. If we do achieve profitability, we cannot be
certain that we will be able to sustain or increase profitability in the future.
In addition, because of our limited operating history in our newly targeted
markets, we may be unable to project revenues or expenses with any degree of
certainty. We expect expenses to increase significantly in the future as we
continue to incur significant sales and marketing, product development and
administrative expenses. We cannot guarantee that we will be able to generate
sufficient revenues to offset operating expenses or the costs of the promotional
packages or subsidies described above, or that we will be able to achieve or


                                       26
<PAGE>

maintain profitability. If revenues fall short of projections, our business,
financial condition and operating results would be materially adversely
affected.


We have and will continue to have significant  future capital needs and there is
no assurance we will be successful in obtaining necessary additional funding.


We may be required to raise additional capital to fully implement our business
plan. Our actual capital requirements will depend on many factors, including but
not limited to, the costs and timing of our ongoing development activities, the
number and type of clinical or other tests we may be required to conduct in
seeking government or agency approval of these products, the success of our
development efforts, the cost and timing of establishing or expanding our sales,
marketing and manufacturing activities, the extent to which our products gain
market acceptance, our ability to establish and maintain collaborative
relationships, competing technological and market developments, the progress of
our commercialization efforts and the commercialization efforts of our marketing
alliances, the costs involved in preparing, filing, prosecuting, maintaining and
enforcing and defending patent claims and other intellectual property rights,
developments related to regulatory issues, and other factors, including many
that are outside our control. To satisfy our capital requirements, we may seek
to raise funds through public or private financings, collaborative relationships
or other arrangements. Any arrangement that includes the issuance of equity
securities or securities convertible into our equity securities may be dilutive
to shareholders (including the purchasers of the shares), and debt financing, if
available, may involve significant restrictive covenants that limit our ability
to raise capital in other transactions. Collaborative arrangements, if necessary
to raise additional funds, may require that we relinquish or encumber our rights
to certain of our technologies, products or marketing territories. Any inability
or failure to raise capital when needed could also have a material adverse
effect on our business, financial condition and results of operations. There can
be no assurance that any such financing, if required, will be available on terms
satisfactory to us, if at all.


We rely on third parties to manufacture our products. Therefore, we do not have
direct control over the quality or other aspects of the manufacturing process,
which could result in a loss of customer acceptance of our products and
increased expense related to warranty claims or defective product returns.


We do not directly control the manufacturing facilities where our products are
made and we must depend on third parties to make our products according to our
standards for quality and reliability. We do not own any manufacturing
facilities or equipment and do not employ any manufacturing personnel. We use
third parties to manufacture our products on a contract basis. There is no
assurance that we will be able to obtain qualified contract manufacturing
services on reasonable terms. In addition, the manufacture of our products
involves complex and precise processes. Changes in manufacturing processes by
our contract manufacturer or our suppliers, or the use of defective components
or materials, could significantly reduce our manufacturing yields and product
reliability. For example, subsequent to the period covered by this report, we
voluntarily recalled approximately 200 GPS phones that contained a defect
causing the battery to drain power at an unacceptable rate. The problem was
quickly resolved and the units replaced at the expense of our manufacturer.
There is no assurance, however, that similar problems will not arise in the
future with these other products.


Our proposed business plan subjects our research, development and ultimate
marketing activities to current and possibly to future government regulation.
The cost of compliance or the failure to comply with this regulation could
adversely affect our business, results of operations and financial condition.


We are developing and intend to market medical devices that are or that may
become regulated by a number of governmental agencies, including the United
States Food and Drug Administration ("FDA"). The FDA requires governmental
clearance of all medical devices and drugs before they can be marketed in the
United States. Similar approvals are required from other regulatory agencies in
most foreign countries. The regulatory processes established by these government
agencies are lengthy, expensive, and uncertain and may require extensive and
expensive clinical trials. There can be no assurance that any future products
developed by us that are subject to the FDA's authority will prove to be safe
and effective and meet all of the applicable regulatory requirements necessary
to be marketed. The results of testing activities could be susceptible to varied
interpretations that could delay, limit or prevent required regulatory
approvals. In addition, we may encounter delays or denials of approval based on
a number of factors, including future legislation, administrative action or
changes in FDA policy made during the period of product development and FDA
regulatory review. We may encounter similar delays in foreign countries.
Furthermore, approval may entail ongoing requirements for, among other things,
post-marketing studies. Even if we obtain regulatory approval of a marketed
product, our manufacturer and its manufacturing facility are subject to on-going
regulation and inspections. Discovery of previously unknown problems with a
product, manufacturer or facility could result in FDA sanctions, restrictions on


                                       27
<PAGE>

a product or manufacturer, or an order to withdraw and/or recall a specific
product from the market. There can also be no assurance that changes in the
legal or regulatory framework or other subsequent developments will not result
in limitation, suspension or revocation of regulatory approvals granted to us.
Any such events, were they to occur, could have a material adverse effect on our
business, financial condition and results of operations.


We may also be required to comply with FDA regulations for manufacturing
practices, which mandate procedures for extensive control and documentation of
product design, control and validation of the manufacturing process and overall
product quality. Foreign regulatory agencies have similar manufacturing
standards. Any third parties manufacturing our products or supplying materials
or components for such products may also be subject to these manufacturing
practices and mandatory procedures. If we, our management or our third party
manufacturers fail to comply with applicable regulations regarding these
manufacturing practices, we could be subject to a number of sanctions, including
fines, injunctions, civil penalties, delays, suspensions or withdrawals of
market approval, seizures or recalls of product, operating restrictions and, in
some cases, criminal prosecutions.


Our products and related manufacturing operations may also be subject to
regulation, inspection and licensing by other governmental agencies, including
the Occupational Health and Safety Administration.


We currently  lack  experienced  sales and marketing  capability  for all of our
product and service lines.


We currently have limited staff with experience in sales, marketing or
distribution in our intended markets. We will be required to develop a marketing
and sales force with technical expertise and with supporting distribution
capability. Alternatively, we may obtain the assistance of other companies with
established distribution and sales forces, in which case we would be required to
enter into agreements regarding the use and maintenance of these distribution
systems and sales forces. There can be no assurance that we will be able to
establish in-house sales and distribution capabilities, or that we will be
successful in gaining market acceptance for our products through the use of
third parties. There can be no assurance that we will be able to recruit, train
and maintain successfully the necessary sales and marketing personnel, or that
the efforts of such personnel will be successful.


Our  products  are subject to the risks and  uncertainties  associated  with the
protection of intellectual property and related proprietary rights.


We believe that our success depends in large part on our ability to obtain and
enforce patents, maintain trade secrets and operate without infringing on the
proprietary rights of others in the United States and in other countries. The
enforcement of patent rights can be uncertain and involve complex legal and
factual questions. The scope and enforceability of patent claims are not
systematically predictable with absolute accuracy.


The strength of our own patent rights depends, in part, upon the breadth and
scope of protection provided by the patent and the validity of our patents, if
any. Our inability to obtain or to maintain patents on our key products could
adversely affect our business. We own five patents and have filed and intend to
file additional patent applications in the United States and in key foreign
jurisdictions relating to our technologies, improvements to those technologies
and for specific products we may develop. There can be no assurance that patents
will issue on any of these applications or that, if issued, any patents will not
be challenged, invalidated or circumvented. The prosecution of patent
applications and the enforcement of patent rights are expensive, and the expense
may adversely affect our profitability and the results of our operations. In
addition, there can be no assurance that the rights afforded by any patents will
guarantee proprietary protection or competitive advantage.


Our success will also depend, in part, on our ability to avoid infringing the
patent rights of others. We must also avoid any material breach of technology
licenses we may enter into with respect to our new products and services.
Existing patent and license rights may require us to alter the designs of our
products or processes, obtain licenses or cease certain activities. In addition,
if patents have been issued to others that contain competitive or conflicting
claims and such claims are ultimately determined to be valid and superior to our
own, we may be required to obtain licenses to those patents or to develop or
obtain alternative technology. If any licenses are required, there can be no
assurance that we will be able to obtain any necessary licenses on commercially
favorable terms, if at all. Any breach of an existing license or failure to
obtain a license to any technology that may be necessary in order to
commercialize our products may have a material adverse impact on our business,
results of operations and financial condition. Litigation that could result in
substantial costs may also be necessary to enforce patents licensed or issued to
us or to determine the scope or validity of third party proprietary rights. If
our competitors prepare and file patent applications in the United States that


                                       28
<PAGE>

claim technology also claimed by us, we may have to participate in proceedings
declared by the U.S. Patent and Trademark Office to determine priority of
invention, which could result in substantial costs, even if we eventually
prevail. An adverse outcome could subject us to significant liabilities to third
parties, require disputed rights to be licensed from third parties or require
that we cease using such technology.


We rely on trade secrets laws to protect portions of our technology for which
patent protection has not yet been pursued or is not believed to be appropriate
or obtainable. These laws may protect us against the unlawful or unpermitted
disclosure of any information of a confidential and proprietary nature,
including but not limited to our know-how, trade secrets, methods of operation,
names and information relating to vendors or suppliers and customer names and
addresses.


We intend to protect this unpatentable and unpatented proprietary technology and
processes, in addition to other confidential and proprietary information in
part, by entering into confidentiality agreements with employees, collaborative
partners, consultants and certain contractors. There can be no assurance that
these agreements will not be breached, that we will have adequate remedies for
any breach, or that our trade secrets and other confidential and proprietary
information will not otherwise become known or be independently discovered or
reverse-engineered by competitors.


Item 7.  Financial Statements


Our audited financial statements and associated notes are included and set forth
on pages F-1 through F-34 of this report.


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


On May 13, 2002, we dismissed Arthur Andersen LLP as the independent public
accountant to audit our consolidated financial statements. The decision to
dismiss Arthur Andersen LLP was approved by the board of directors and the Audit
Committee.


The Audit Committee has engaged Tanner + Co. as our independent public
accountant. During the period from the date of Andersen's engagement as our
independent public accountants to and through the date of this Report, we did
not consult with Tanner + Co. on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure.


Arthur Andersen's report on the financial statements for the fiscal year ended
September 30, 2001 (the last fiscal year for which a report was filed) did not
contain an adverse opinion or a disclaimer of opinion. However, Arthur
Andersen's report was modified for uncertainty as to whether we would continue
as a going concern. There was no qualification or modification as to audit scope
or accounting principles. During our most recent fiscal year and the subsequent
interim period preceding Arthur Andersen's dismissal on May 13, 2002, there were
no disagreements with Arthur Andersen on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Arthur Andersen, would
have caused them to make a reference to the subject matter of the disagreements
in connection with its report. No disagreements have arisen in the period since
the date of Arthur Andersen's dismissal.


None of the reportable events described under Item 304(a)(1)(iv) of Regulation
S-B occurred during the fiscal year ended September 30, 2001 or within the
interim period through the date of this report.


We have provided Arthur Andersen with a copy of the foregoing disclosures. A
letter from Arthur Andersen addressed to the Securities and Exchange Commission
pursuant to Regulation S-B, Item 304(a)(3) was included as Exhibit 16 to this
Form 8-K as originally filed. Arthur Andersen has advised us that they will not
update that letter.


We have provided Arthur Andersen with a copy of the foregoing disclosures. A
letter from Arthur Andersen addressed to the Securities and Exchange Commission
pursuant to Regulation S-B, Item 304(a)(3) has been included as Exhibit 16 to
Form 8-K filed on May 15, 2002, amended July 3, 2003.


Item 8A.  Controls and Procedures


As required by SEC rules, we have evaluated the effectiveness of the design and
operation of our disclosure controls and procedures within 90 days of the filing
date of this quarterly report. This evaluation was carried out under the


                                       29
<PAGE>

supervision and with the participation of our management, including our
principal executive officer and principal financial officer. Based on this
evaluation, these officers have concluded that the design and operation of our
disclosure controls and procedures are effective. There were no significant
changes to our internal controls or in other factors that could significantly
affect internal controls subsequent to the date of their evaluation.


Disclosure controls and procedures are our controls and other procedures that
are designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SEC's rules
and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by us in the reports that we file under the Exchange Act is
accumulated and communicated to our management, including our principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure.


                                                               Part III


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


The following table sets forth information concerning our executive officers and
directors and their ages as at October 15, 2003:

<TABLE>
<CAPTION>
            Name                                     Age                 Position

<S>                                             <C>            <C>
David G. Derrick                                50             Chief Executive Officer and Chairman (Director)
James J. Dalton                                 60             President and Vice Chairman (Director)
Wilford W. Kirton, III                          42             Director and President of Medical Products
Michael G. Acton                                40             Chief Financial Officer, Secretary-Treasurer
Jonathan Barnes                                 29             Chief Technical Officer
Peter McCall                                    44             Director
Robert E. Childers                              57             Director
</TABLE>


David Derrick - CEO and Chairman


Mr. Derrick has been our CEO and Chairman since February 2001. Previously he
served as CEO and Chairman of the Board of Directors of Biomune Systems Inc.
between 1989 and 1998. From 1996 to 1999, Derrick was Chairman of the Board of
Directors; during 2000 he served as a director of Purizer Corporation. From 1979
to 1982, Derrick was a faculty member at the University of Utah College of
Business. Mr. Derrick graduated from the University of Utah with a Bachelor of
Arts degree in Economics in 1975 and a Masters in Business Administration degree
with an emphasis in Finance in 1976. Mr. Derrick has been a principal financier
and driving force in many new businesses. During the early 1980's he helped
create the community of Deer Valley, an exclusive ski resort outside of Park
City, Utah. In 1985 he founded and funded a company that pioneered the Smart
Home concept - the computerized home. The company is known as Vantage Systems
and is today a leader in this field.


James Dalton - President and Vice Chairman


Mr. Dalton joined us as a director in 2001. He was named President of the
Company in August 2003. From 1987 to 1997, Dalton was the owner and President of
Dalton Development, a real estate development company. He served as the
President and coordinated the development of The Pinnacle, an 86-unit
condominium project located at Deer Valley Resort in Park City, Utah. Mr. Dalton
also served as the President and equity owner of Club Rio Mar in Puerto Rico, a
680-acre beach front property that includes 500 condominiums, beach club,
numerous restaurants, pools and a Fazio-designed golf course. He was also a
founder and owner of the Deer Valley Club, where he oversaw the development of a
high-end, world-class ski project that includes 25 condominiums with a "ski-in
and ski-out" feature. From 1996 to 2000, Dalton served as an officer and
director of Biomune Systems, Inc. Prior to joining us and following his
resignation from Biomune Systems, Dalton managed his personal investments.


Wilford W. Kirton III - Vice President of PAL Services and Director


Mr. Kirton joined us as a director and as an executive officer in January 1998,
currently serving as our Vice President of PAL Services. He was our CEO from
1998 until 2001. Prior to joining us, Mr. Kirton was the proprietor and
President of Travel Systems Network, a travel agency and tour operator from 1987


                                       30
<PAGE>

to 1994. From February 1994 to June 1996, Mr. Kirton was Vice President of Old
Republic Title, a real estate title company. Mr. Kirton then became an officer
of Optim Nutrition, a subsidiary of Biomune Systems, Inc. until joining us in
January 1998. Mr. Kirton is David Derrick's brother-in-law.


Michael Acton - Secretary, Treasurer and Chief Financial Officer


Mr. Acton joined us as Secretary-Treasurer in March 1999. He has also served as
our CFO since March 2001. From June 1998 until November 2000, Mr. Acton was
Chief Executive Officer of Biomune Systems, Inc., where he also served as
Principal Accounting Officer and Controller from 1994 to 1997. From 1989 through
1994, Mr. Acton was employed by Arthur Andersen, LLP in Salt Lake City, Utah,
where he performed various tax, audit, and business advisory services. He is a
Certified Public Accountant in the State of Utah.


Jonathan Barnes - Chief Technical Officer


Mr. Barnes joined us as a part time technical advisor in October 2000, and was
hired full time as our CTO in November 2001. Previous to working with RemoteMDx,
Mr. Barnes was an independent technical consultant for various clients in
science and information technology. Mr. Barnes is responsible for all technology
coordination for the Company. Mr. Barnes has a Masters Degree in Physics and
Astronomy from Brigham Young University. He has headed numerous research and
development projects in coordination with Brigham Young University and NASA. Mr.
Barnes has an extensive background in science, computers, data gathering, and
telematics.


Peter McCall - Director


Mr. McCall joined our board of directors in July 2001. From 1998 to 2002, Mr.
McCall was Vice President for General Electric Capital Corp. where he was
responsible for whole loan mortgages and private label pass-through. From 1988
to 1998, he served as a Vice President of Financial Security Assurance, and
Managing Director of the residential mortgage purchase program for Nomura
Securities International. Mr. McCall is currently the owner of McCall Inc., a
privately held company that focuses on investments in start up companies. Mr.
McCall is a member of the Audit Committee of the board of directors.


Robert Childers - Director


Mr. Childers joined our board in July 2001. He is Chief Executive Officer of
Structures Resources Inc. and has more than 30 years of business experience in
construction and real estate development. Mr. Childers has served or is
currently serving as General Partner in 16 Public Limited Partnerships in the
Middle Atlantic States. Partners include First Union Bank, and Fannie Mae. In
1972, Mr. Childers founded Structures Resources Inc. a design build construction
firm, and has been president of that company for 28 years. Structures Resources
has successfully completed over 300 projects, (offices, hotels, apartments, and
shopping centers) from New York to North Carolina. Recently Mr. Childers has
been a partner for various projects in Baltimore and Philadelphia. He is a
co-founder of Life Science Group, a boutique biotech investment-banking firm.
Mr. Childers was also the founding President of Associated Building Contractors
for the State of West Virginia and served as a director of The Twentieth Street
Bank until its merger with City Holding Bank. He is a former naval officer
serving in Atlantic Fleet submarines. Mr. Childers is a member of the Audit
Committee of the board of directors.


Section 16(a) Beneficial Ownership Reporting Compliance


Section 16(a) of the Securities Exchange Act of 1934 requires our officers,
directors and persons who beneficially own more than 10% of a registered class
of our equity securities to file reports of ownership and changes in ownership
with the Securities and Exchange Commission. Officers, directors and greater
than 10% shareholders are required by regulation of the Securities and Exchange
Commission to furnish us with copies of all Section 16(a) forms they file.


Based solely upon its review of the copies of such forms furnished to it, and
representations made by certain persons subject to this obligation that such
filings were not required to be made, RemoteMDx believes that all reports
required to be filed by these individuals and persons under Section 16(a) were
filed; however, filings on Form 4 by David Derrick were late as follows:

o    Report on Form 4 to report  transactions  occurring on and prior to October
     29, 2002, was filed on November 12, 2002



                                       31
<PAGE>

o    Report on Form 4 to report  transactions  occurring on October 31, 2002 and
     due on November 4, 2002, was filed on November 12, 2002

o    Report on Form 4 to report transactions  occurring November 1, 2002 and due
     on November 4, 2002, was filed on November 12, 2002


The Board of Directors


Directors hold office until the next annual meeting of the shareholders and
until their successors have been elected or appointed and duly qualified.
Executive officers are elected by the board of directors and hold office until
their successors are elected or appointed and duly qualified. Vacancies on the
board which are created by the retirement, resignation or removal of a director
may be filled by the vote of the remaining members of the board, with such new
director serving the remainder of the term or until his successor shall be
elected and qualify.


Meetings and Committees


There were nine regular meetings of the board of directors held during the
fiscal year ended September 30, 2002. No director attended fewer than 75% of the
meetings during the fiscal year. The board also acted during fiscal year 2002 by
unanimous written consent in lieu of a meeting, as permitted by Utah law and our
bylaws. The board has no formal Nominating Committee. The board has an Audit
Committee, comprised of Mr. McCall and Mr. Childers. The Audit Committee held
two meetings in fiscal year 2002.


The functions of the Audit Committee are (1) to review and approve the selection
of, and all services performed by, our independent auditors, (2) to review our
internal controls, and (3) to review and report to the board of directors with
respect to the scope of our audit procedures, accounting practices and internal
accounting and financial controls. Mr. Childers and Mr. McCall are independent
directors within the meaning of that term under applicable Securities and
Exchange Commission rules.


Audit Committee Financial Expert


Peter McCall, a director of the Company, is the financial expert serving on the
Audit Committee of the Board of Directors within the meaning of that term under
applicable rules promulgated by the Securities and Exchange Commission.


Remuneration


Non-employee directors are paid $1,500 per meeting and in fiscal year 2002 the
Board of Directors determined that each non-employee director would receive a
grant of an option to acquire 30,000 shares of common stock for each completed
year of service on the board. We also reimburse the reasonable travel expenses
of members for their attendance at the meetings of the board and meetings of the
shareholders. No options have been granted or compensation paid under this
arrangement as of the date of this memorandum.


Item 10.  Executive Compensation


The following table sets forth the compensation paid in each of the past three
fiscal years to all individuals serving as our chief executive officer during
the year ended September 30, 2002 as well as our four most highly compensated
executive officers other than the CEO who were serving as executive officers at
the end of the year ended September 30, 2002, whose total annual salary and
bonus for the year then ended exceeded $100,000 (the "Named Executive
Officers").





                                       32
<PAGE>




<TABLE>
<CAPTION>
                                                          Annual Compensation                 Long Term
                                                                                          Compensation Awards

                                                                                              Securities
                                                                          Other Annual           Underlying           All other
                   Name and            Fiscal     Salary     Bonus        Compensation         Options/SARs       compensation ($)
              Principal Position        Year        ($)        ($)            ($)                   (#)
------------------------------------- --------- ----------- ----------  ---------------- --------------------- -------------------

<S>                                    <C>      <C>         <C>         <C>                    <C>     <C>     <C>
  Wilford Kirton III                   2001     $ 107,654   $   21,500  $         10,650       400,000/0       $          0
      Vice President PAL Services (1)  2002     $ 108,000   $        0  $              0          0/0          $          0
                                       2003     $ 108,000   $        0  $              0          0/0          $          0

  David G. Derrick, Chief Executive
        Officer Chairman of            2001     $ 100,000   $   63,000  $        110,000       579,924/0       $    125,000
      the Board of Directors (2)       2002     $ 120,000   $        0  $        180,000          0/0          $          0
                                       2003     $ 120,000   $        0  $              0          0/0          $          0

  Michael G. Acton, Chief
        Financial Officer (3)          2001     $  62,180   $   12,500  $        100,000       240,496/0       $          0
                                       2002     $ 100,000   $   28,750  $              0          0/0          $          0
                                       2003     $ 100,000   $   25,000  $              0          0/0          $          0

  Tom Natale, President (4)            2001     $  25,000   $   15,000  $          1,500          0/0          $          0
                                       2002     $ 100,000   $   60,000  $          6,000          0/0          $          0
                                       2003     $  50,000   $   30,000  $         30,000          0/0          $          0

  Brian Boling, President of
        SecureAlert (5)                2001     $  25,000   $   10,000  $          1,500          0/0          $          0
                                       2002     $ 100,000   $   40,000  $          6,000          0/0          $          0
                                       2003     $  50,000   $   10,000  $              0          0/0          $          0
</TABLE>


(1)  Mr.  Kirton  served as Chief  Executive  Officer  from  January  1998 until
     February 2001. He was Chief Operating Officer from February 2001 until July
     2001. He has served in the current executive position since July 2001.

(2)  Mr.  Derrick  became  Chief  Executive  Officer in February  2001.  Amounts
     indicated  in table do not include  amounts  recorded by the Company  under
     applicable  accounting  principles  for non-cash  compensation  paid to ADP
     Management in connection with financing transactions that were entered into
     by the Company  and ADP  Management  during the years  2001,  2002 or 2003.
     Salary was accrued and  included in amounts  owed to ADP  Management  under
     various financing agreements. Outstanding amounts owed ADP Management under
     all such  agreements  were  converted  to common  stock in June  2003.  Mr.
     Derrick is the principal  owner and control person of ADP  Management.  See
     "Certain Relationships and Related Party Transactions."

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

(4)  Mr. Natale was President from July 2001 until April 2003. The new President
     is James J.  Dalton who also  serves as the Vice  Chairman  of our Board of
     Directors.  During  2001,  2002 and 2003,  Dalton was paid  $100,000 a year
     under a consulting  agreement.  His annual salary as President is $100,000.
     The  consulting  fees and  salary  owed to Dalton  have  historically  been
     accrued as part of the ADP Management financing  arrangements.  Outstanding
     amounts have been  converted to common stock as of June 2003.  See "Certain
     Relationships and Related Party Transactions."

(5)  Mr. Boling was President of our wholly owned  subsidiary  SecureAlert  from
     July 2001 until December 2002.


                                       33
<PAGE>

Employment Agreements


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


Stock Option Grants in Fiscal Year 2002


During the year ended September 30, 2002, we granted options to purchase a total
of 5,817,674 shares of common stock to employees, outside directors and
consultants. These options give the option holders the right to purchase common
stock of at a stated price per share during the term of the option agreement.
The weighted average per share exercise price of these options was $2.43. The
exercise prices of the options range from $.54 to $3.00.


We did not grant stock options during the fiscal year ended September 30, 2002
to the Named Executive Officers in connection with their employment. We did
grant options to ADP Management, an entity owned and controlled by Derrick for
the purchase of 3,450,000 shares of common stock at $.54 per share in connection
with financing transactions facilitated by ADP Management. Mr. Derrick would be
deemed to be the beneficial owner of those options and the underlying shares of
common stock under applicable Securities and Exchange Commission rules and
regulations. ADP Management exercised a portion of those options during fiscal
year 2002 to purchase 1,712,844 shares of common stock. In addition, options to
purchase 135,701 shares were exercised after September 30, 2002.


Stock Options Outstanding and Options Exercised in Fiscal Year 2002


The following table sets forth certain information, including the fiscal
year-end value of unexercised stock options held by the Named Executive Officers
as of September 30, 2002. We have not granted any stock appreciation rights
("SAR's").


<TABLE>
<CAPTION>
                                                               Number of Securities             Value of Unexercised In-
                                                               Underlying Unexercised           the-Money Options / SARs
                              Shares Acquired       Value      Options At 9/30/2002             At 9/30/2002 ($)
          Name                on Exercise (#)  Realized ($)    Exercisable / Unexercisable (1)  Exercisable / Unexercisable
--------------------------  ------------------ --------------  ------------------------------   ----------------------------
<S>                              <C>           <C>                      <C>         <C>                <C>          <C>
David G. Derrick (2)             1,712,844     $  5,138,532             1,737,156 / 0                  $4,273,404 / 0
Michael G. Acton                        -                -                151,894 / 0                  $  303,788 / 0
Wilford W. Kirton, III                  -                -                150,000 / 0                  $  300,000 / 0
Tom Natale (3)                          -                -                238,925 / 0                           0 / 0
Brian Boling (4)                        -                -                194,530 / 0                           0 / 0
</TABLE>



(1)  Value is based on the fair market  value of our common  stock on  September
     30, 2002,  estimated to be $3.00 per share.  Values  indicated  reflect the
     difference  between the exercise price of the  unexercised  options and the
     market value of shares of common stock on September 30, 2002.

(2)  Options   granted  to  ADP  Management  in  connection   with  a  financing
     arrangement.  The exercise  price of these  options is $.54 per share.  See
     "Certain Relationships and Related Transactions."

(3)  Options granted in July 2001 in connection with the SecureAlert acquisition
     to  Natale  Investments,  a family  limited  liability  company  owned  and
     controlled by Mr. Natale.  The exercise price of these options is $3.00 per
     share.

(4)  Options granted in July 2001 in connection with the SecureAlert acquisition
     to  Boling  Investments,  a family  limited  liability  company  owned  and
     controlled by Mr. Boling.  The exercise price of these options is $3.00 per
     share.


                                       34
<PAGE>

 Stock Plans


The 1997 Volu-Sol, Inc. Transition Plan


At the time of our divestiture by Biomune, it adopted the 1997 Volu-Sol, Inc.
Transition Plan (the "Transition Plan") to govern the issuance and exercise of
certain options to purchase our common stock. Certain officers, directors and
employees of Biomune had been granted options to purchase shares of Biomune
common stock (the "Biomune Options"). The Biomune Options were granted pursuant
to various Biomune stock plans (the "Biomune Plans"). The Biomune Plans gave the
committee of the Biomune Board that administers the plans (the "Biomune Plan
Committee") the authority to make equitable adjustments to outstanding Biomune
Options in the event of certain transactions, such as the divestiture.


At the time of the divestiture, the Biomune Plan Committee and the Biomune Board
determined that, immediately prior to the divestiture, each Biomune Option would
be divided into two separately exercisable options: (i) an option to purchase
our common stock (the "Add-on RemoteMDx Option") in an amount that would have
been issued in the divestiture in respect of the shares of Biomune common stock
subject to the applicable Biomune Option, if such Biomune Option had been
exercised in full immediately prior to the record date of the divestiture, and
containing substantially equivalent terms as the existing Biomune Option, and
(ii) an option to purchase Biomune common stock (an "Adjusted Biomune Option"),
exercisable for the same number of shares of Biomune common stock as the
corresponding Biomune Option had been. The per share exercise price of the
Biomune Option would remain the same in the Adjusted Biomune Option, and all
other terms of such Biomune Option would remain the same in all material
respects. The Add-on RemoteMDx Option carries an option exercise price per share
equal to the price per share of the exercise price under the Biomune Option.


As a result of the foregoing, certain persons who remained Biomune employees or
non-employee directors of Biomune after the divestiture hold both Adjusted
Biomune Options and separate Add-on RemoteMDx Options. The obligations with
respect to the Adjusted Biomune Options and Add-on RemoteMDx Options held by
Biomune employees and non-employee directors following the distribution are
obligations solely of Biomune. We reserved a total of 732,101 shares of common
stock for issuance upon exercise of the Add-on RemoteMDx Options granted at the
time of the divestiture under the Transition Plan.


At September 30, 2002, no Add-on RemoteMDx Options granted under the Transition
Plan remained outstanding. No shares were issued upon exercise of Add-on
RemoteMDx Options during the fiscal years ended September 30, 2001 or 2002.


The 1997 Volu-Sol, Inc. Stock Incentive Plan


Immediately prior to the divestiture in August 1997 we adopted the 1997
Volu-Sol, Inc. Stock Incentive Plan ("1997 Plan"). The 1997 Plan was approved by
our board of directors and by action of Biomune, then our sole shareholder.
Under the 1997 Plan, we may issue stock options, stock appreciation rights,
restricted stock awards, and other incentives to our employees, officers and
directors.


The 1997 Plan provides for the award of incentive stock options to our key
employees and directors and the award of nonqualified stock options, stock
appreciation rights, bonus rights, and other incentive grants to employees and
certain non-employees who have important relationships with our subsidiaries or
us. A total of 5,000,000 shares are authorized for issuance pursuant to awards
granted under the 1997 Plan. During fiscal year 2002, options for the purchase
of 430,000 shares of common stock were granted under the 1997 Plan and no
options were exercised. As of September 30, 2002, options for the purchase of
1,111,894 shares of common stock were outstanding and exercisable under the 1997
Plan.


Item 11.    Security Ownership of Certain Beneficial Owners and Management


This Item 11 sets forth information known to us with respect to the beneficial
ownership of our common stock as of October 15, 2003. We have determined
beneficial ownership in accordance with the rules of the Securities and Exchange
Commission. In computing the number of shares beneficially owned by a person and
the percentage ownership of that person, we include shares of common stock
subject to options, warrants, or convertible securities held by that person that
are currently exercisable or will become exercisable within 60 days after
October 15, 2003, while those shares are not included for purposes of computing
percentage ownership of any other person. Unless otherwise indicated, the


                                       35
<PAGE>

persons and entities named in the table have sole voting and investment power
with respect to all shares beneficially owned, subject to community property
laws where applicable.


Security Ownership of Certain Beneficial Owners


The following table sets forth information for any person (including any
"group") who is known to us to be the beneficial owner of more than 5% of our
common stock as of October 15, 2003.

<TABLE>
<CAPTION>
          (1)                                      (2)                            (3)                          (4)
                                                Name and
     Title of Class                  Address of Beneficial Owner (1)          Amount Owned               Percent of Class

<S>                                       <C>                 <C>                 <C>                            <C>
         Common                           David G. Derrick    (2)                 13,194,898                     46.7%

         Common                           James Dalton        (3)                 13,038,690                     46.1%

                                          J. Lee Barton       (4)
                                          196 No. Forest Ave.
         Common                           Hartwell, GA 30643                       1,384,002                      5.4%
------------------
</TABLE>

(1)  Unless otherwise indicated,  the business address of the shareholder is the
     address of the Company, 5095 W. 2100 S., Salt Lake City, UT, 84120.

(2)  Includes shares owned of record as follows: 9,577,486 shares held of record
     by ADP  Management,  704,924  shares owned of record by Derrick,  1,167,350
     shares issuable upon conversion of Series A preferred stock owned of record
     by ADP  Management,  20,350  shares  issuable  upon  conversion of Series A
     preferred  stock owned of record by MK Financial,  33,333  shares  issuable
     upon conversion of Series B preferred stock owned of record by Derrick, and
     1,601,455  shares  issuable  upon  exercise  of stock  options  held by ADP
     Management.

(3)  Includes shares owned of record as follows: 9,577,486 shares held of record
     by ADP  Management  (by agreement  with Derrick,  Dalton shares control and
     beneficial  ownership  of the  shares  owned of record by ADP  Management),
     458,929  shares owned of record by Dalton,  233,470  shares  issuable  upon
     conversion of Series A preferred stock owned of record by Dalton, 1,167,350
     shares issuable upon conversion of Series A preferred stock owned of record
     by ADP  Management,  and 1,601,455  shares  issuable upon exercise of stock
     options held by ADP Management.

(4)  Includes 690,667 shares owned directly by Mr. Barton,  493,334 shares owned
     of record by Lintel,  Inc., an entity owned and  controlled by Mr.  Barton,
     and 200,001 shares  issuable upon  conversion of 200,001 shares of Series B
     preferred stock owned of record by Lintel, Inc.


Security Ownership of Management


We have two classes of voting equity securities, the common stock and the Series
B preferred stock. In addition, we have a class of preferred stock, the Series
A, that is convertible into common stock. The following table sets forth
information as of September 10, 2003, as to each class of our equity securities
beneficially owned by all directors and nominees named therein, each of the
named executive officers, and directors and executive officers as a group.

<TABLE>
<CAPTION>
                                                      Name and
     Title of Class                          Address of Beneficial Owner             Amount Owned         Percent of Class

<S>                       <C>                                                         <C>                       <C>
Common                    David G. Derrick (1)                                        13,194,898                46.7%
                          James Dalton (2)                                            13,038,690                46.1%
                          Wilford W. Kirton, III (3)                                     150,015                  *
                          Michael G. Acton (4)                                           237,401                  *
                          Peter McCall (5)                                               830,360                 3.2%


                                       36
<PAGE>

                          Robert Childers (6)                                            364,600                 1.4%
                          Officers and Directors as a Group (6 persons) (7)           18,298,915                55.5%

Series B Preferred        David G. Derrick                                                33,333                 1.8%
                          Michael G. Acton                                                45,000                 2.5%
                          Officers and Directors as a Group                               78,333                 4.3%
</TABLE>



(1)  Derrick's beneficial ownership of these shares is summarized in note (2) on
     the previous page.

(2)  Dalton's beneficial  ownership of these shares is summarized in note (3) on
     the previous page.

(3)  Mr. Kirton is an executive  officer and director.  Of the shares indicated,
     150,000 are issuable upon exercise of stock options held by Mr. Kirton.

(4)  Includes 146,894 shares issuable under options granted to Mr. Acton, 45,507
     shares  owned of record by Mr.  Acton,  and  45,000  shares  issuable  upon
     conversion of the Series B preferred stock owned by Mr. Acton.

(5)  Mr. McCall is a director. Includes (a) 150,000 shares of common stock owned
     of record by Mr.  McCall,  300,000  shares  issuable upon exercise of stock
     options held by Mr. McCall,  and 380,360 shares issuable upon conversion of
     shares of Series A preferred stock owned by Mr. McCall.

(6)  Mr.  Childers is a director.  Includes  (a) 50,000  shares of common  stock
     owned of record by the Robert E. Childers Living Trust,  (b) 100,000 shares
     issuable  upon  exercise of stock  options  held by Mr.  Childers,  and (c)
     214,600 shares issuable upon conversion of Series A preferred stock.

(7)  Duplicate entries eliminated.


Securities Authorized for Issuance Under Equity Compensation Plans


The following table sets forth information as of the September 30, 2002, our
most recently completed fiscal year, with respect to compensation plans
(including individual compensation arrangements) under which equity securities
are authorized for issuance, aggregated as follows:

o    All compensation plans previously approved by security holders; and

o    All compensation plans not previously approved by security holders.


Equity Compensation Plan Information

<TABLE>
<CAPTION>
                                                  Number of securities to be
                                                   issued upon exercise of    Weighted average exercise     Number of securities
                                                     outstanding options,        price of outstanding      remaining available for
                 Plan category                       warrants and rights     options, warrants and rights      future issuance
<S>                                               <C>                        <C>                           <C>
Equity compensation plans approved by security
holders                                                   1,440,000                     $2.85                     3,560,000

Equity compensation plans not approved by
security holders                                          5,762,343                     $2.75                        N/A

Total                                                     7,202,343                     $2.77                     3,560,000
</TABLE>



                                       37
<PAGE>

Item 12.  Certain Relationships and Related Transactions


The following discussion summarizes transactions between the Company and related
parties not disclosed elsewhere in this report.


Fiscal Year 2001


In February 2001, we entered into a loan agreement with ADP Management, which
was amended in March 2001 and again in July 2001. Under the terms of this loan
agreement, as amended, ADP Management agreed to loan us up to $3,000,000 in the
aggregate, including a total of $535,000 that had already been loaned through
March 30, 2001. Until April 1, 2001, all amounts loaned or to be loaned under
the agreement were repayable at the option of ADP Management in cash or in
shares of Series A Preferred Stock or a series with terms and preferences
substantially the same as the Series A preferred stock. On March 31, 2001, we
repaid the outstanding $535,000 by issuing to ADP Management a total of 2,675
shares of Series A preferred stock, which are convertible into 989,750 shares of
Common Stock. ADP Management and we amended the loan agreement in June 2001 to
cancel the conversion feature and to grant ADP Management the option to purchase
one share of Series A preferred stock at a price of $200 per share for every
$200 loaned under the agreement. At the election of ADP Management, the option
could be exercised using a cashless exercise feature. In March 2002, the loan
agreement was again amended and these options were canceled and new options were
granted to ADP Management to purchase common stock at a per-share price
equivalent to the conversion price of the Series A preferred stock ($0.54 per
share of common stock) previously issuable upon exercise of the original
options. These options expire in March 2007.


In connection with our offering of Series B preferred stock in fiscal year 2001,
Messrs. Derrick and Dalton personally entered into a loan agreement with J. Lee
Barton to borrow sufficient proceeds to close the offering. In connection with
the loan agreement, Derrick transferred 666,667 shares of common stock owned by
him to Mr. Barton. As we could not have completed the offering without the
funding, the issuance of the shares by Derrick was deemed to be for our benefit.
Accordingly, we recorded the value of the shares, $2,000,001, based upon an
estimated fair value of $3.00 per share of common stock, as a capital
contribution from Derrick and a Series B Preferred Stock offering cost.


Fiscal Year 2002


As of September 30, 2002, $338,300 related to a Series A Preferred Stock
subscription receivable was outstanding from MK Financial, an entity owned by
Derrick. ADP Management assumed this obligation, MK Financial assigned the
shares to ADP Management and the receivable was extinguished as part of the
agreement entered into between the Company and ADP Management, David Derrick and
James Dalton in April 2003.


During the year ended September 30, 2002 and 2001, under consulting arrangements
with ADP Management to provide the services of Derrick to the Company and to
assist in financing through loans, guarantees and other services, we recorded
consulting fees and expenses of $18,871,003 and $1,087,000, respectively. These
amounts include the valuation under applicable accounting principles of non-cash
consideration paid to ADP Management under these contracts. For the years ended
September 30, 2002 and 2001, of these amounts, $2,324,340 and $695,000,
respectively was recorded as the value of 2,094 and 3,475 shares of Series A
preferred stock issued to ADP Management and Dalton, or their respective
assignees. Subsequent to year-end 2002, we entered into an agreement with ADP
Management, Derrick and Dalton under which we canceled all outstanding stock
options and warrants held by them for the purchase of 1,601,455 shares of common
stock.


During fiscal years 2001 and 2002, we entered into promissory notes totaling
$1,400,000 which were personally guaranteed by Derrick and Dalton and
collateralized by 1,000,000 shares of common stock held by them.


In June 2003, we entered into agreements with former shareholders of SecureAlert
pursuant to which the shareholders assigned to the Company two certificates of
deposit in the aggregate amount of $550,000 pledged as security for the line of
credit with SunTrust Bank, which was subsequently refinanced by Zion's Bank.
This assignment of the certificates of deposit, along with a letter of credit
from a trust, whose trustee is related to an officer of the Company, replaced
the personal guarantees of four former SecureAlert shareholders. In June 2003
these certificates of deposit were assigned to the Company and the obligation to
repay these individuals was assumed by ADP Management. See "Management's
Discussion and Analysis - Recent Developments."




                                       38
<PAGE>

Item 13.  Exhibits and Reports on Form 8-K


The following exhibits are filed herewith or are incorporated by reference to
exhibits previously filed with the Commission:


(a)        Exhibits

Exhibit Number                 Title of Document

3.01 Articles of Incorporation and Amendments thereto (incorporated by reference
     to our  Registration  Statement  and  Amendments  thereto  on  Form  10-SB,
     effective December 1, 1997).


3.01(1) Amendment to Articles of  Incorporation  for Change of Name  (previously
     filed)


3.01(2) Amendment to Articles of  Incorporation  Amending Rights and Preferences
     of Series A Preferred Stock (previously filed)

3.01(3) Amendment to Articles of  Incorporation  Adopting  Designation of Rights
     and Preferences of Series B Preferred Stock (previously filed)

3.01(4)  Certificate of Amendment to the  Designation of Rights and  Preferences
     Related  to  Series  A  10%  Cumulative   Convertible  Preferred  Stock  of
     RemoteMDx, Inc.

3.02 Bylaws  (incorporated  by reference to our  Registration  Statement on Form
     10-SB, effective December 1, 1997)

10.01Distribution  and Separation  Agreement  (incorporated  by reference to our
     Registration  Statement  and  Amendments  thereto on Form 10-SB,  effective
     December 1, 1997).

10.021997  Stock  Incentive  Plan  of  we,  (incorporated  by  reference  to our
     Registration  Statement  and  Amendments  thereto on Form 10-SB,  effective
     December 1, 1997).

10.031997  Transition  Plan  (incorporated  by  reference  to  our  Registration
     Statement  and  Amendments  thereto on Form  10-SB,  effective  December 1,
     1997).

10.04Securities  Purchase  Agreement for $1,200,000 of Series A Preferred  Stock
     (incorporated  by reference to our  Registration  Statement and  Amendments
     thereto on Form 10-SB, effective December 1, 1997).

10.05Securities  Purchase  Agreements  with  ADP  Management  and  James  Dalton
     (previously filed)

10.06Agreement and Plan of Merger (SecureAlert)  (previously filed as exhibit to
     Current Report on Form 8-K)

10.07Loan 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)

10.08Amended and Restated Loan and Security Agreement (SunTrust Bank and
     SecureAlert) dated August 3, 2001, (incorporated by reference to the
     Company's annual report on Form 10-KSB for the year ended September 30,
     2001)

10.09Amended  and  Restated  Loan  and  Security  Agreement  (SunTrust  Bank and
     SecureAlert),  dated January 24, 2002 (filed as an exhibit to the Company's
     quarterly report on Form 10-QSB for the quarter ended December 31, 2001)

10.10Amended  and  Restated  Loan  and  Security  Agreement  (SunTrust  Bank and
     SecureAlert)  dated  March 1, 2002  (filed as an exhibit  to the  Company's
     quarterly report on Form 10-QSB for the quarter ended December 31, 2001)

10.11Loan  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)

10.12License  Agreement  between  RemoteMDx,  Inc.  and  SecureAlert,   Inc.  as
     licensor and Matsushita Electric Works, Ltd., as licensee, (April 12, 2002)
     (previously filed)


                                       39
<PAGE>

31.1 Certification of President and Chief Executive Officer under Section 302 of
     Sarbanes-Oxley Act of 2002


31.2 Certification   of  Chief   Financial   Officer   under   Section   302  of
     Sarbanes-Oxley Act of 2002


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



(b)        Reports on Form 8-K


During the quarter ended September 30, 2002, we filed no current reports on Form
8-K.


Item 14.  Principal Accountant Fees and Services


For the year ended September 30, 2001, Arthur Andersen LLP provided audit and
other services for the Company. We terminated our relationship with Arthur
Andersen in March 2002. For the year ended September 30, 2002 and the year
ending September 30, 2003, Tanner + Co., LLP provided audit and other services
for the Company.


Audit Services


Audit services consist of the audit of the annual consolidated financial
statements of the Company, review of the quarterly financial statements,
stand-alone audits of subsidiaries, accounting consultations and consents and
other services related to SEC filings and registration statements filed by the
Company and its subsidiaries and other pertinent matters. During fiscal year
2001, audit fees paid to Arthur Andersen were $158,413. No audit fees were paid
to Tanner + Co. during our fiscal year 2002.


Tax Services


Arthur Andersen also provided other consulting services to the Company in fiscal
years 2001 and 2002, consisting primarily of tax consultation and related
services. Neither firm performed any financial information systems design and
implementation services for the Company for either period. Non-audit-related
services consist primarily of tax consultation and related services. During
fiscal year 2001, non-audit fees and tax fees paid by the Company to Arthur
Andersen totaled $9,500.

The Audit Committee of the Board of Directors considered and authorized all
services provided by these firms and considered whether the provision of
non-audit services is compatible with maintaining auditor independence.


                                       40
<PAGE>


                                   SIGNATURES

           In accordance with Section 13 and/or 15(d) of the Securities Exchange
Act, the registrant caused this report, as amended, to be signed on its behalf
by the undersigned, thereunto duly authorized.

                       RemoteMDx, Inc.


                       By: /s/ David G. Derrick
                          -----------------------------------------------------
                          David G. Derrick, Chief Executive Officer

                          Dated: October 30, 2003

           In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.

<TABLE>
<CAPTION>
Signature                                           Title                                    Date


<S>                                                 <C>                                                <C>
/s/ David G. Derrick                                Director, Chairman, and                            October 30, 2003
------------------------------------------
David G. Derrick                                    Chief Executive Officer


/s/ James Dalton                                    Director, Vice Chairman                            October 30, 2003
------------------------------------------
James Dalton


s/s Wilford W. Kirton III                           Director                                           October 30, 2003
------------------------------------------
Wilford W. Kirton, III


/s/ Peter McCall                                    Director                                           October 30, 2003
------------------------------------------
Peter McCall


/s/ Robert E. Childers                              Director                                           October 30, 2003
------------------------------------------
Robert E. Childers


/s/ Michael G. Acton                               Chief Financial Officer                            October 30, 2003
------------------------------------------
Michael G. Acton
</TABLE>






                                       41
<PAGE>

REMOTEMDX, INC.
Consolidated Financial Statements
September 2002 and 2001


<PAGE>


                                                                 REMOTEMDX, INC.
                                      Index to Consolidated Financial Statements

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




                                                                            Page

Reports of Independent Public Accountants                                    F-2


Consolidated Balance Sheet                                                   F-5


Consolidated Statements of Operations                                        F-6


Consolidated Statements of Stockholders' Equity                              F-7


Consolidated Statements of Cash Flows                                        F-8


Notes to Consolidated Financial Statements                                  F-10



<PAGE>




                          INDEPENDENT AUDITORS' REPORT









To the Board of Directors and
Stockholders of RemoteMDx, Inc.


We have audited the accompanying consolidated Balance Sheet as of September 30,
2002 and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows of RemoteMDx, Inc. and subsidiaries, (the "Company"),
for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit. The
consolidated financial statements of the Company for the year ended September
30, 2001 were audited by other auditors who have ceased operations. Those
auditors expressed an unqualified opinion on the financial statements in their
report dated January 4, 2003.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
RemoteMDx, Inc. and subsidiaries as of September 30, 2002 and the consolidated
results of their operations and cash flows for the year then ended in conformity
with accounting principles generally accepted in the United States of America.



<PAGE>


The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has incurred recurring operating
losses, has a working capital deficit and has an accumulated deficit. These
conditions raise substantial doubt about its ability to continue as a going
concern. Management's plans regarding those matters also are described in Note
1. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.



TANNER + CO.





Salt Lake City, Utah
September 3, 2003


<PAGE>


NOTE: This report is a copy of the report  previously  issued by Arthur Anderson
LLP as of and for the  periods  indicated  above.  Arthur  Anderson  LLP has not
reissued this report.

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To RemoteMDx, Inc.,


We have audited the accompanying consolidated balance sheet of RemoteMDx, Inc.
(a Utah Corporation) (formerly Volu-Sol, Inc.) and subsidiaries as of September
30, 2001, and the related consolidated statements of operations, stockholders'
equity and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of RemoteMDx, Inc. and
subsidiaries as of September 30, 2001, and the results of their operations and
their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company incurred a net loss of $8,520,097 and negative
cash flows from operating activities of $2,612,483 for the year ended September
30, 2001. As of September 30, 2001, the Company has a working capital deficit of
$2,865,119, a net tangible stockholders' deficit of $2,683,057 and has an
accumulated deficit of $21,708,091. These matters raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans
regarding these matters are also described in Note 1. The accompanying financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.



ARTHUR ANDERSEN LLP
Salt Lake City, Utah
January 4, 2002


<PAGE>

                                                                Remote MDx, Inc.
                                                      Consolidated Balance Sheet

                                                                   September 30,
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                        2002
                                                                               -----------------------
Assets

Current assets:
<S>                                                                            <C>
Cash                                                                           $               51,390
Accounts receivable, net of allowance for doubtful
  accounts of $71,000                                                                         990,647
Inventories                                                                                 1,380,363
Prepaids and other assets                                                                      10,278
                                                                               -----------------------

Total current assets                                                                        2,432,678

Property and equipment, net                                                                   337,120
Core technology, net of amortization of $233,334                                              326,666
Goodwill                                                                                    3,569,164
Other assets                                                                                    3,206
                                                                               -----------------------

                                                                               $            6,668,834
                                                                               -----------------------


                                                                                        2002
                                                                               -----------------------
Liabilities and Stockholders' Deficit

Current liabilities:
Current portion of purchase obligation to former
  SecureAlert shareholders, net of discount of $5,825                          $              394,175
Bank line of credit                                                                         1,100,000
Related party convertible notes payable                                                       500,000
Related party line of credit                                                                  951,290
Accounts payable                                                                            1,075,207
Accrued expenses                                                                              391,745
Deferred revenues                                                                              81,430
Short-term notes payable                                                                    2,470,795
Related party short-term notes payable                                                        125,720
Dividends payable - Series A                                                                  493,197
                                                                               -----------------------

Total current liabilities                                                                   7,583,559

Commitments and contingencies                                                                       -

Redeemable common stock at redemption value of
  $3 per share, 172,000 shares outstanding                                                    516,000

Stockholders' deficit:
Series A convertible preferred stock; 10% dividend, non-voting; $.0001 par
  value; 30,000 shares designated; 26,130 shares issued and outstanding
  (aggregate liquidation preference of $658,814)                                                    3
Series B convertible preferred stock; $0.0001 par value;  2,000,000
  shares designated; 1,835,824 shares issued and
  outstanding (aggregate liquidation preference of $5,987,820)                                    184
Common stock, $.0001 par value, 50,000,000 shares
  authorized; 12,616,895 shares issued and outstanding                                          1,262
Additional paid-in capital                                                                 54,445,083
Series A preferred stock subscription receivable                                             (338,300)
Deferred consulting fees and financing costs                                                 (355,000)
Accumulated deficit                                                                       (55,183,957)
                                                                               -----------------------

Total stockholders' deficit:                                                               (1,430,725)
                                                                               -----------------------

                                                                               $            6,668,834
                                                                               -----------------------
</TABLE>








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



<PAGE>

                                RemoteMDx, Inc.
                      Consolidated Statement of Operations

                            Years Ended September 30,
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                          2002                   2001
                                                                   --------------------   --------------------

<S>                                                                <C>                    <C>
Sales, net                                                         $        11,013,147    $         1,247,633
Cost of goods sold                                                           9,558,264                959,167
                                                                   --------------------   --------------------

Gross profit                                                                 1,454,883                 288,466

Operating expenses:
Research and development                                                       514,329                960,969
Selling, general and administrative (including
  $20,326,882 and $1,729,305 of compensation expense
  paid in stock or stock option / warrants, respectively)                   26,847,767              5,237,648
Impairment of inventory                                                        107,942                      -
Impairment of goodwill                                                       4,207,045                      -
                                                                   --------------------   --------------------

Total operating expenses                                                    31,677,083              6,198,617
                                                                   --------------------   --------------------

Loss from operations                                                       (30,222,200)            (5,910,151)
                                                                   --------------------   --------------------

Other income (expense):
Interest income                                                                  5,562                  9,238
Interest expense (including $2,776,465 and
 $2,233,000 paid in stock and warrants,
 respectively)                                                              (3,263,653)            (2,619,184)
Other income                                                                     4,425                      -
                                                                   --------------------   --------------------

Total other expense                                                         (3,253,666)            (2,609,946)

Income tax benefit                                                                   -                      -
                                                                   --------------------   --------------------

Net loss                                                                   (33,475,866)            (8,520,097)

Beneficial conversion feature on Series A preferred
  stock and Series A Preferred stock dividends                                (501,000)            (4,673,374)
                                                                   --------------------   --------------------

Net loss applicable to
common shareholders                                                $       (33,976,866)   $       (13,193,471)
                                                                   --------------------   --------------------

Net loss per common share - basic and diluted                      $             (3.50)   $             (3.26)
                                                                   --------------------   --------------------

Weighted average shares - basic and diluted                                  9,707,000              4,053,000
                                                                   --------------------   --------------------
</TABLE>





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


<PAGE>

                                 RemoteMDx, Inc.
                 Consolidated Statement of Shockholders' Deficit

                     Years Ended September 30, 2002 and 2001
--------------------------------------------------------------------------------






<TABLE>
<CAPTION>
                                                                                               Preferred Stock
                                                                             -------------------------------------------------------
                                                                                      Series A                   Series B
                                                                                 Shares        Amount       Shares        Amount
                                                                             ------------- ------------ -------------  -------------

<S>                                                                          <C>           <C>          <C>            <C>
Balance at October 1, 2000                                                        16,138   $        2              -   $         -

Additional shares issued as a result of the divestiture
  of the Company's common stock                                                        -            -              -             -

Issuance of common stock for:
Services                                                                               -            -              -             -
Conversion inducement for Series A convertible debenture                               -            -              -             -
Conversion of Series A debentures                                                      -            -
Conversion of Series A preferred stock                                            (1,911)           -              -             -
Exercise of common stock options                                                       -            -              -             -
Acquisition of SecureAlert                                                             -            -              -             -
                                                                                                                   -             -
Issuance of Series A preferred stock for:
Services                                                                           3,475            -
Conversion of borrowings under a related-party                                                                     -             -
   line of credit                                                                  2,675            -
Cashless exercise of warrants                                                      1,801            -              -             -
Payment of dividends (in lieu of cash)                                             2,003            -              -             -
                                                                                                                   -             -
Issuance of Series B preferred stock for cash                                          -            -        700,001            70

Series B preferred stock offering costs:
Cash                                                                                   -            -              -             -
Non-cash                                                                               -            -              -             -

Shares of common stock of the Company owned by
  Mr. David Derrick, an officer and director of the Company,
  given to an individual in connection with the Series B
  preferred stock offering                                                             -            -              -             -


Issuance of common stock warrants as Series B preferred stock offering cost            -            -              -             -

Issuance of common stock options to consultants
  for services                                                                         -            -              -             -

Compensation in connection with the replacement of
  certain officer and director common stock options                                    -            -              -             -

Issuance of debt conversion feature related to
  acquisition of SecureAlert                                                           -            -              -             -


Beneficial conversion features and preferred stock associated with
  borrowings under a related party line-of-credit                                      -            -              -             -

Beneficial conversion feature on Series A preferred stock                              -            -              -             -

Net loss                                                                               -            -              -             -
                                                                             ------------- ------------ -------------  -------------

Balance at September 30, 2001                                                     24,181            2        700,001            70

Issuance of redeemable common stock for deferred
   financing services                                                                  -            -              -             -

Issuance of common stock for:
  Exercise of stock options; options were exercised
     through reduction of related party line-of-credit                                 -            -              -             -
   Debt and accrued interest                                                           -            -              -             -
   Prepaid consulting fees                                                             -            -              -             -
   Discounts related to debt                                                           -            -              -             -
   Consulting services                                                                 -            -              -             -
   Conversion of Series A preferred stock                                         (6,872)          (1)             -             -
   Exchange of redeemable common stock                                                 -            -              -             -

Issuance of Series B preferred stock and common stock
   warrants for cash                                                                   -            -      1,135,823           114

Warrants to purchase Series A preferred stock granted
    to a related party in connections with borrowings
    to the Company resulting in $1,445,525 interest
    expense and $332,488 compensation expense                                          -            -              -             -

Issuance of Series A preferred stock for:
   Related party cashless exercise of warrants
     to purchase Series A preferred stock resulting
     in additional compensation expense of $5,416,812                              6,688            1              -             -
   Services from related party                                                     2,094            1              -             -

Warrants to purchase common stock granted to related
  party in connection with loans to the Company resulting
  in $895,940 interest expense and $8,770,499
  compensation expense                                                                 -            -              -             -

Stock option compensation for consulting services                                      -            -              -             -

Amortization of deferred consulting and financing  costs                               -            -              -             -

Preferred stock dividend accrued                                                       -            -              -             -

Preferred stock dividend paid with Series A preferred stock                           39            -              -             -

Net loss                                                                               -            -              -             -
                                                                             ------------- ------------ -------------  -------------

Balance at September 30, 2002                                                     26,130   $        3      1,835,824   $       184
                                                                             ------------- ------------ -------------  -------------
</TABLE>

<TABLE>
<CAPTION>
                                                                                                                Additional
                                                                                      Common Stock               Paid-in
                                                                                  Shares           Amount        Capital
                                                                            -----------------  ------------ ---------------

<S>                                                                         <C>                <C>          <C>
Balance at October 1, 2000                                                         2,941,246   $       294  $    9,089,908

Additional shares issued as a result of the divestiture
  of the Company's common stock                                                      188,621            19             (19)

Issuance of common stock for:
Services                                                                             669,000            67         668,933
Conversion inducement for Series A convertible debenture                              60,000             6         179,994
Conversion of Series A debentures                                                    160,001            16         479,987
Conversion of Series A preferred stock                                               707,384            71             (71)
Exercise of common stock options                                                   1,682,000           168       1,681,832
Acquisition of SecureAlert                                                         1,433,333           143       4,299,856

Issuance of Series A preferred stock for:
Services                                                                                  -             -          695,000
Conversion of borrowings under a related-party
   line of credit                                                                         -             -          535,000
Cashless exercise of warrants                                                             -             -               -
Payment of dividends (in lieu of cash)                                                    -             -          400,526

Issuance of Series B preferred stock for cash                                             -             -        2,099,933

Series B preferred stock offering costs:
Cash                                                                                      -             -         (238,000)
Non-cash                                                                                  -             -       (2,138,059)

Shares of common stock of the Company owned by
  Mr. David Derrick, an officer and director of the Company,
  given to an individual in connection with the Series B
  preferred stock offering                                                                -             -        2,000,001


Issuance of common stock warrants as Series B preferred stock offering cost               -             -          138,058

Issuance of common stock options to consultants
  for services                                                                            -             -          185,305

Compensation in connection with the replacement of
  certain officer and director common stock options                                       -             -          767,788

Issuance of debt conversion feature related to
  acquisition of SecureAlert                                                              -             -          300,200


Beneficial conversion features and preferred stock associated with
  borrowings under a related party line-of-credit                                         -             -        2,233,000

Beneficial conversion feature on Series A preferred stock                                 -             -        4,272,848

Net loss                                                                                  -             -               -
                                                                            -----------------  ------------ ---------------

Balance at September 30, 2001                                                      7,841,585           784      27,652,020

Issuance of redeemable common stock for deferred
   financing services                                                                     -             -               -

Issuance of common stock for:
  Exercise of stock options; options were exercised
     through reduction of related party line-of-credit                             1,712,844           171         924,763
   Debt and accrued interest                                                          35,735             4         107,310
   Prepaid consulting fees                                                           224,000            23         671,978
   Discounts related to debt                                                         145,000            15         434,985
   Consulting services                                                                79,885             8         239,647
   Conversion of Series A preferred stock                                          2,537,846           254            (253)
   Exchange of redeemable common stock                                                40,000             4         119,996

Issuance of Series B preferred stock and common stock
   warrants for cash                                                                      -             -        3,366,159

Warrants to purchase Series A preferred stock granted
    to a related party in connections with borrowings
    to the Company resulting in $1,445,525 interest
    expense and $332,488 compensation expense                                             -             -        1,778,013

Issuance of Series A preferred stock for:
   Related party cashless exercise of warrants
     to purchase Series A preferred stock resulting
     in additional compensation expense of $5,416,812                                     -             -        5,416,811
   Services from related party                                                            -             -        2,324,340

Warrants to purchase common stock granted to related
  party in connection with loans to the Company resulting
  in $895,940 interest expense and $8,770,499
  compensation expense                                                                    -             -        9,666,439

Stock option compensation for consulting services                                         -             -        2,236,072

Amortization of deferred consulting and financing  costs                                  -             -               -

Preferred stock dividend accrued                                                          -             -         (501,000)

Preferred stock dividend paid with Series A preferred stock                               -             -            7,803

Net loss                                                                                  -             -               -
                                                                            -----------------  ------------ ---------------

Balance at September 30, 2002                                                   12,616,895     $     1,262  $   54,445,083
                                                                            -----------------  ------------ ---------------
</TABLE>


<TABLE>
<CAPTION>
                                                                                 Deferred
                                                                              Financing and         Stock
                                                                                Consulting      Subscriptions     Accumulated
                                                                                   Fees          Receivable         Deficit
                                                                             ----------------  ----------------  -----------------

<S>                                                                          <C>               <C>               <C>
Balance at October 1, 2000                                                   $           -     $      (338,300)  $    (8,514,620)

Additional shares issued as a result of the divestiture
  of the Company's common stock                                                          -                  -                 -

Issuance of common stock for:
Services                                                                                 -                  -                 -
Conversion inducement for Series A convertible debenture                                 -                  -                 -
Conversion of Series A debentures                                                        -                  -                 -
Conversion of Series A preferred stock                                                   -                  -                 -
Exercise of common stock options                                                         -                  -                 -
Acquisition of SecureAlert                                                               -                  -                 -

Issuance of Series A preferred stock for:
Services                                                                                 -                  -                 -
Conversion of borrowings under a related-party
   line of credit                                                                        -                  -                 -
Cashless exercise of warrants                                                            -                  -                 -
Payment of dividends (in lieu of cash)                                                   -                  -           (400,526)

Issuance of Series B preferred stock for cash                                            -                  -                 -

Series B preferred stock offering costs:
Cash                                                                                     -                  -                 -
Non-cash                                                                                 -                  -                 -

Shares of common stock of the Company owned by
  Mr. David Derrick, an officer and director of the Company,
  given to an individual in connection with the Series B
  preferred stock offering                                                               -                  -                 -


Issuance of common stock warrants as Series B preferred stock offering cost              -                  -                 -

Issuance of common stock options to consultants
  for services                                                                           -                  -                 -

Compensation in connection with the replacement of
  certain officer and director common stock options                                      -                  -                 -

Issuance of debt conversion feature related to
  acquisition of SecureAlert                                                             -                  -                 -


Beneficial conversion features and preferred stock associated with
  borrowings under a related party line-of-credit                                        -                  -                 -

Beneficial conversion feature on Series A preferred stock                                -                  -         (4,272,848)

Net loss                                                                                 -                  -         (8,520,097)
                                                                             ----------------  ----------------  -----------------

Balance at September 30, 2001                                                            -            (338,300)      (21,708,091)

Issuance of redeemable common stock for deferred
   financing services                                                              (375,000)                -                 -

Issuance of common stock for:
  Exercise of stock options; options were exercised
     through reduction of related party line-of-credit                                   -                  -                 -
   Debt and accrued interest                                                             -                  -                 -
   Prepaid consulting fees                                                         (648,000)                -                 -
   Discounts related to debt                                                             -                  -                 -
   Consulting services                                                                   -                  -                 -
   Conversion of Series A preferred stock                                                -                  -                 -
   Exchange of redeemable common stock                                                   -                  -                 -

Issuance of Series B preferred stock and common stock
   warrants for cash                                                                     -                  -                 -

Warrants to purchase Series A preferred stock granted
    to a related party in connections with borrowings
    to the Company resulting in $1,445,525 interest
    expense and $332,488 compensation expense                                            -                  -                 -

Issuance of Series A preferred stock for:
   Related party cashless exercise of warrants
     to purchase Series A preferred stock resulting
     in additional compensation expense of $5,416,812                                    -                  -                 -
   Services from related party                                                           -                  -                 -

Warrants to purchase common stock granted to related
  party in connection with loans to the Company resulting
  in $895,940 interest expense and $8,770,499
  compensation expense                                                                   -                  -                 -

Stock option compensation for consulting services                                        -                  -                 -

Amortization of deferred consulting and financing  costs                            668,000                 -                 -

Preferred stock dividend accrued                                                         -                  -                 -

Preferred stock dividend paid with Series A preferred stock                              -                  -                 -

Net loss                                                                                 -                  -        (33,475,866)
                                                                             ----------------  ----------------  -----------------

Balance at September 30, 2002                                                $     (355,000)   $      (338,300)  $   (55,183,957)
                                                                             ----------------  ----------------  -----------------
</TABLE>






See accompanying notes to consolidated financial statements.                 F-7

<PAGE>

                                                                 RemoteMDx, Inc.
                                            Consolidated Statement of Cash Flows

                                                       Years Ended September 30,
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                             2002                 2001
                                                                       --------------------  --------------

Cash flows from operating activities:
<S>                                                                    <C>                   <C>
Net loss                                                               $     (33,475,866)    $  (8,520,097)
Adjustments to reconcile net loss to net cash used in
  operating activities:
Compensation expense in connection with the replacement
  of certain officer and director common stock options                                 -           767,788
Depreciation and amortization                                                    305,099            99,924
Amortization of debt discount                                                    513,234            32,503
Amortization of deferred financing and consulting services                       668,000                 -
Interest expense related to preferred stock warrants
  issued with borrowings under a related-party line of credit                  2,341,465         2,233,000
Common stock issued for services                                                 263,656           669,000
Redeemable common stock issued for services                                      315,000                 -
Common stock issued as conversion inducement for
  Series A convertible debenture                                                       -           180,000
Common stock options and warrants issued primarily to related
 parties for services                                                         16,755,870           185,305
Preferred stock issued to related parties
 for services and financing costs                                              2,324,341           695,000
Impairment of inventory                                                          107,942                 -
Impairment of goodwill                                                         4,207,045                 -
Changes in operating assets and liabilities:
Accounts receivable                                                             (654,593)           47,752
Inventories                                                                     (488,529)         (276,777)
Prepaid expenses                                                                  53,033           (35,543)
Accounts payable                                                                (106,419)          768,405
Accrued liabilities                                                             (510,442)          545,234
Deferred revenues                                                                 (1,730)           (3,977)
                                                                       --------------------  --------------

Net cash used in operating activities                                         (7,382,894)       (2,612,483)
                                                                       --------------------  --------------

Cash flows from investing activities:
Net cash paid in the acquisition of SecureAlert                                        -          (416,138)
Purchase of property and equipment                                              (101,118)          (43,452)
                                                                       --------------------  --------------

Net cash used in investing activities                                           (101,118)         (459,590)
                                                                       --------------------  --------------


                                                                             2002                   2001
                                                                       --------------------  --------------
Cash flows from financing activities
Payments on purchase obligation to former SecureAlert
  shareholders                                                                  (800,000)         (200,000)
Net borrowings under a related-party line of credit                            1,860,224         2,233,000
Net payments on a bank line of credit                                            506,413        (1,586,374)
Borrowings under short-term notes payable                                      4,249,695                 -
Payment on short-term notes payable                                           (1,653,180)                -
Proceeds from issuance of redeemable common stock                                 96,000                 -
Payment for redemption of redeemable common stock                               (150,000)                -
Proceeds from issuance of convertible debentures                                       -           545,000
Proceeds from issuance of Series B preferred stock, net of

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

  cash offering costs                                                          3,366,273         1,862,003
                                                                       --------------------  --------------

Net cash provided by financing activities                                      7,475,425         2,853,629
                                                                       --------------------  --------------

Net decrease in cash                                                              (8,587)         (218,444)

Cash, beginning of year                                                           59,977           278,421
                                                                       --------------------  --------------

Cash, end of year                                                      $          51,390          $ 59,977
                                                                       --------------------  --------------






                                                                             2002                 2001
                                                                       --------------------  --------------
Cash paid for interest and taxes:
Cash paid for income taxes                                             $               -     $           -
Cash paid for interest                                                 $         322,085     $      27,386
Supplemental schedule of non-cash investing and
financing activities:
Issuance of 2,523,416 shares of common stock in exchange
  for 6,834 shares of Series A preferred stock                                       254                 -
Common stock (40,000 shares) exchanged for redeemable
  common stock                                                                   120,000                 -
Common stock (327,667 shares) issued for deferred consulting
  and debt discounts                                                            (648,000)                -
Common stock (1,712,844 shares) exchange for related party
  line-of-credit debt                                                           (924,934)                -
Preferred Series A stock dividends ($7,803 paid by issuance of 39                                        -
  shares of Preferred Series A stock)                                           (501,000)
Deferred financing costs paid for by issuance of 125,000 redeemable
  common shares                                                                  375,000                 -
Acquisition of SecureAlert:
Liabilities assumed in excess of tangible assets acquired                              -        (2,036,434)
Goodwill                                                                               -         7,776,209
Core technology                                                                        -           560,000
Common stock issued                                                                    -         4,299,999
Purchase obligation, net of discount                                                   -         1,283,438
Fair value of debt conversion feature issued                                           -           300,200
Series A convertible debentures and related accrued interest ($12,314)
    converted into shares of common stock                                        107,314           480,003
Series A preferred stock issued in lieu of cash dividends                          7,803           400,526
Series A preferred stock beneficial conversion features                                -         4,272,848
Series A preferred stock issued for conversion of borrowings
    under a related-party line of credit                                               -           535,000
Utilization of borrowings under a related-party line of credit
  as payment for exercise of common stock options                                      -         1,682,000
Non-cash offering costs related to the issuance of Series B preferred
  stock consisting of warrants to purchase common stock and shares
  of common stock of the Company owned by Mr. David Derrick, an
  officer and director of the Company, given to an individual in
  connection with the Series B preferred stock offering (Note 10)                      -         2,138,059
</TABLE>




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



--------------------------------------------------------------------------------
                                      Notes to Consolidated Financial Statements

                                                     September 30, 2002 and 2001
--------------------------------------------------------------------------------

1.   Organization  RemoteMDx,  Inc. was originally  incorporated in Utah in July
     1995 under the name  Volu-Sol,  and Nature Inc.  ("Volu-Sol"),  as a wholly
     owned  subsidiary  of Biomune  Systems,  Inc.  ("Biomune").  of  Operations
     Biomune spun off Volu-Sol by distributing shares of Volu-Sol's common stock
     as a stock  dividend  to the  holders of the common  stock of Biomune  (the
     "Distribution").  As a consequence of the Distribution,  Volu-Sol commenced
     operations as a separate,  independent  company in October 1997.  Effective
     July 27, 2001, Volu-Sol changed its name to RemoteMDx, Inc. RemoteMDx, Inc.
     and its subsidiaries are collectively referred to as the "Company".

     The Company is a medical,  technology-based  remote personal safety, health
     monitoring and diagnostic  services company.  The Company creates solutions
     for real-time monitoring of personal safety,  security, and health needs in
     conjunction with national call centers.

     Historically,  the  Company's  strategy  was to  capitalize  on the  global
     medical  diagnostic  industry  by  providing  "building  block"  stains and
     reagents.  Although the Company continues to conduct its medical stains and
     solutions business, over the past two years, management has begun to pursue
     a more  expanded  role in the  medical  diagnostic  industry  by  providing
     innovative  ways to manage patient  medical  information as well as linking
     patients,  physicians and payors through remote health monitoring products.
     Additionally,   through   its   acquisition   of   SecureAlert   II,   Inc.
     ("SecureAlert")  in July  2001(see  Note 3), the  Company is engaged in the
     business of  manufacturing  and  marketing  mobile  emergency  and personal
     security  systems,  and distributing  consumer  electronics  products.  The
     Company's  revenues  for the year ended  September  30,  2002 and 2001 were
     generated  primarily  from the sale of consumer  electronics  and  personal
     security products and to a lesser extent from medical stains and reagents.




                                      F-10
<PAGE>


                                                                 REMOTEMDX, INC.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

1.Organization      Going  Concern  The  Company  incurred  a net  loss  and has
  and Nature        negative cash flows from  operating  activities for the year
  of Operations     ended  September  30, 2002.  As of September  30, 2002,  the
  Continued         Company  has a  working  capital  deficit,  a  stockholders'
                    deficit and an  accumulated  deficit.  These  factors  raise
                    substantial doubt about the Company's ability to continue as
                    a going concern. The financial statements do not include any
                    adjustments  that  might  result  from the  outcome  of this
                    uncertainty.

                    In order for the Company to remove  substantial  doubt about
                    its ability to continue as a going concern, the Company must
                    generate   positive  cash  flows  from  operations,   obtain
                    positive working capital,  and obtain the necessary  funding
                    to meet its projected capital investment requirements.

                    Management's plans with respect to this uncertainty  include
                    converting debt obligations to equity and raising additional
                    capital from the sale of equity securities. On April 2, 2003
                    in  connection  with a  raising  of  equity  funds  for  the
                    Company,  the Company  entered  into an  agreement  with Mr.
                    David G. Derrick,  the Company's Chief Executive Officer and
                    Chairman of the Board of Directors,  and James  Dalton,  the
                    Company's  President  and  Vice  Chairman  of the  Board  of
                    Directors,  and  ADP  (ADP),  a  company  controlled  by Mr.
                    Derrick  and Mr.  Dalton,  whereby  Dalton,  Derrick and ADP
                    agreed to continue  to assist the  Company in its  financing
                    activities and convert  existing Company debt owed to ADP of
                    $709,986  and debt  which ADP  assumed  from the  Company of
                    $3,163,975,  including $700,000 of which the Company has not
                    been  released by the original  creditor.  In addition,  the
                    Company  assumed  $725,000 of debt (which was converted into
                    483,333  shares of redeemable  common stock on June 24, 2003
                    by the original holder). The put obligation  associated with
                    the redeemable common stock was assumed by ADP. However, the
                    original  holder  has not  released  the  Company  from  the
                    potential put  obligation.  In addition,  ADP also agreed to
                    assume the subscription  receivable due form MK financial in
                    the amount of $338,300.  In exchange  for these  assumptions
                    and conversions,  the Company issued 8,113,499 shares of the
                    Company's  common stock. In association with the issuance of
                    stock in this transaction, the Company recognized an expense
                    for ADP services of  approximately  $846,000.  The number of
                    shares ultimately  retained by ADP is not known at this time
                    as ADP will  continue to negotiate  settlement  of the debts
                    assumed  by ADP  and  use  the  shares  allocated  to ADP as
                    consideration for the settlements. The Company also plans to
                    enhance  revenues  and cash  flows  from its  operations  by
                    increasing  selling and marketing efforts related to new and
                    existing products and services.



                                      F-11
<PAGE>


                                                                 REMOTEMDX, INC.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

1. Organization and Nature of Operations Continued

                    Going Concern - Continued There can be no assurance that the
                    Company will be able to raise sufficient capital to meet its
                    working  capital  needs.  In  addition,   there  can  be  no
                    assurance  that the operations  will generate  positive cash
                    flows and that the Company will be  economically  successful
                    from increasing  selling and marketing  efforts to introduce
                    new products  into the market.  Further,  the Company may be
                    unable  to   complete   the   development   and   successful
                    commercialization   of  any  new  remote  health  monitoring
                    products.

                    Principles of Consolidation  The  accompanying  consolidated
                    financial  statements  include the  accounts  of  RemoteMDx,
                    Inc., its wholly owned  subsidiaries,  Volu-Sol Reagents and
                    SecureAlert  since its acquisition on July 2, 2001 (see Note
                    3). All  intercompany  balances and  transactions  have been
                    eliminated upon consolidation.


2.   Summary of Significant Accounting Policies

                    Use of Estimates in the Preparation of Financial  Statements
                    The  preparation of financial  statements in conformity with
                    accounting  principles  generally  accepted  in  the  United
                    States of America requires  management to make estimates and
                    assumptions  that affect the reported  amounts of assets and
                    liabilities   and   disclosure  of  contingent   assets  and
                    liabilities at the date of the financial  statements and the
                    reported   amounts  of  revenues  and  expenses  during  the
                    reporting  period.  Actual  results  could differ from these
                    estimates.

                    Fair Value of  Financial  Statements  The  carrying  amounts
                    reported   in  the   accompanying   consolidated   financial
                    statements for cash, accounts receivable,  notes payable and
                    accounts  payable  approximate  fair  values  because of the
                    immediate  or  short-term   maturities  of  these  financial
                    instruments.  The  carrying  amounts of the  Company's  debt
                    obligations approximate fair value.

                    Concentration  of  Credit  Risk  In  the  normal  course  of
                    business,   the  Company   provides   credit  terms  to  its
                    customers.  Accordingly, the Company performs ongoing credit
                    evaluations  of  its  customers'   financial  condition  and
                    requires  no  collateral  from its  customers.  The  Company
                    maintains an allowance for uncollectable accounts receivable
                    based  upon  the  expected  collectability  of all  accounts
                    receivable.



                                      F-12
<PAGE>


2.  Summary of Significant Accounting Policies, Continued

                  The Company had sales to entities which  represent more than
                  10% as follows for the years ended September 30:

                                    2002                2001
                                 -------------------- --------------------

                      Company A  $         5,952,000  $           212,000
                      Company B  $         1,756,000  $           125,000
                      Company C  $         1,632,000  $                 -


                    Inventories

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

                 Consumer electronics and mobile security  $         1,614,481
                 Reagent stains                                         46,534
                 Reserve                                              (280,652)
                                                           --------------------
                                                            $        1,380,363
                                                           --------------------

                    Consumer electronics inventory consists of home security and
                    entertainment  system  components  and mobile  and  personal
                    security devices.

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



                                      F-13
<PAGE>


2.    Summary of Significant Accounting Policies, Continued

               Concentration of Purchases

                    For the years ended September 30, 2002 and 2001, the Company
                    purchased    approximately    $4,794,000    and    $232,692,
                    respectively,  of inventory  from Royal Philips  Electronics
                    ("Philips")  under  a  purchase  agreement  (see  Note  15).
                    Further,  the Company  currently  has a single  supplier for
                    cellular  switching  access  for  the  Company's   MobilePal
                    network (see Note 15).  Management  believes  the  Company's
                    products,  components  and services  could be obtained  from
                    different suppliers.  However,  should the Company's current
                    suppliers  cease to provide  the  Company  with  products or
                    services, the Company's ability to find products, components
                    or services at similar prices may be materially impaired.

                    Property and Equipment

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


                    Property  and  equipment  consisted  of the  following as of
                    September 30, 2002:

                     Equipment                $           602,106
                     Leasehold improvements               226,496
                     Furniture and fixtures                60,128
                                              --------------------
                                                          888,730
                     Accumulated depreciation           (551,610)
                                              --------------------
                                              $           337,120
                                              --------------------




                                      F-14
<PAGE>


2.    Summary of Significant Accounting Policies, Continued

                    Goodwill and Core Technology

                    In connection with the acquisition of SecureAlert  (see Note
                    3), the  Company  recorded  goodwill  and a core  technology
                    intangible  asset.  Core  technology   primarily  represents
                    patents in the area of remote  security  and  medical  alert
                    devices.    Core   technology   is   amortized   using   the
                    straight-line  method over an estimated useful life of three
                    years.

                    Impairment of Long-Lived Assets

                    Goodwill is not  amortized  but is subject to an  impairment
                    test,  which is  performed  at least  annually.  Goodwill is
                    related to the  acquisition  of SecureAlert in July 2001 and
                    was initially  determined  to be valued at $7,776,209  based
                    upon SFAS 141 and 142.  During the year ended  September 30,
                    2002 the Company tested goodwill for impairment by comparing
                    the carrying  value of its component  unit to which goodwill
                    was  assigned,   namely  the  assets  of  its  wholly  owned
                    subsidiary  SecureAlert,  Inc. (referred to as the component
                    unit for purposes of this note), to the estimated fair value
                    of the component  unit. The fair value of the component unit
                    was determined  using an income approach of estimated future
                    cash flows.  The  estimated  future cash flows include those
                    primarily  related from mobile  medical alert devices of the
                    component  unit.  The carrying  amount of the component unit
                    including  goodwill was  determined  to exceed the estimated
                    fair value by approximately $4,207,000.  Accordingly, during
                    the year ended September 30, 2002, the Company recognized an
                    impairment of approximately $4,207,000 of its goodwill.

                    The  Company  reviews  its  long-lived  assets,  other  than
                    goodwill,   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.




                                      F-15
<PAGE>


2.    Summary of Signficant Accounting Policies, Continued

                    Revenue Recognition

                    The Company  derives its revenue  primarily from the sale of
                    consumer  electronics  and  reagent  stains.  Revenue,  less
                    reserves for returns,  is  recognized  upon  shipment to the
                    customer.  The Company provides its customers a 30-day right
                    of return policy for telephone products and no return rights
                    for its other products.  From the date of the acquisition of
                    SecureAlert (see Note 3) through September 30, 2002, and for
                    the year ended  September 30, 2002,  the provision for sales
                    returns  was not  material.  Amounts  received in advance of
                    shipment are recorded as deferred revenue.

                    Shipping  and  handling  fees  are  included  as part of net
                    sales.  The  related  freight  costs and  supplies  directly
                    associated with shipping  products to customers are included
                    as a component of cost of goods sold.

                    Research and Development Costs

                    All expenditures for research and development are charged to
                    expense as incurred.

                    Stock-Based Compensation

                    The Company accounts for its stock-based compensation issued
                    to employees and directors under Accounting Principles Board
                    Opinion  ("APB")  No. 25,  "Accounting  for Stock  Issued to
                    Employees," and related  interpretations.  Under APB No. 25,
                    compensation  related to stock options,  if any, is recorded
                    if an option's  exercise  price on the  measurement  date is
                    below  the fair  value of the  Company's  common  stock  and
                    amortized to expense over the vesting  period.  Compensation
                    expense for stock awards or purchases, if any, is recognized
                    if the award or purchase  price on the  measurement  date is
                    below the fair value of the  Company's  common  stock and is
                    recognized  on the date of award or  purchase.  Statement of
                    Financial Accounting Standards ("SFAS") No. 123, "Accounting
                    for   Stock   Based   Compensation,"   requires   pro  forma
                    information regarding net loss and net loss per common share
                    as if the  Company  had  accounted  for  its  stock  options
                    granted  under  the  fair  value  method.   This  pro  forma
                    disclosure is presented in Note 12.




                                      F-16
<PAGE>


2.Summary of        Stock-Based  Compensation  - Continued The Company  accounts
  Significant       for  its  stock-based  compensation  issued  to  other  than
  Accounting        employees  using the fair value  method in  accordance  with
  Policies          SFAS No.  123 and  related  interpretations.  Under SFAS No.
  Continued         123,  stock-based  compensation  is determined as either the
                    fair value of the  consideration  received or the fair value
                    of the equity instruments issued, whichever is more reliably
                    measurable.  The measurement date for these issuances is the
                    earlier  of  either  the  date  at  which a  commitment  for
                    performance by the recipient to earn the equity  instruments
                    is reached or the date at which the recipient's  performance
                    is complete.

                    Income Taxes

                    The  Company  recognizes   deferred  income  tax  assets  or
                    liabilities  for the  expected  future tax  consequences  of
                    events that have been recognized in the financial statements
                    or  income  tax  returns.  Deferred  income  tax  assets  or
                    liabilities are determined based upon the difference between
                    the  financial   statement  and  tax  bases  of  assets  and
                    liabilities  using enacted tax rates  expected to apply when
                    the  differences  are  expected  to be settled or  realized.
                    Deferred  income tax assets are  reviewed  periodically  for
                    recoverability  and  valuation  allowances  are  provided as
                    necessary.

                    Net Loss Per Common Share

                    Basic net loss per common share ("Basic EPS") is computed by
                    dividing net loss  available 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 by the sum of the
                    weighted-average number of common shares outstanding and the
                    weighted-average  dilutive  common  share  equivalents  then
                    outstanding.  The computation of Diluted EPS does not assume
                    exercise  or  conversion  of  securities  that would have an
                    anti-dilutive effect.

                    Common share equivalents consist of shares issuable upon the
                    exercise  of  common  stock   options  and   warrants,   the
                    conversion of the convertible debentures and related accrued
                    interest,  and shares  issuable upon conversion of preferred
                    stock.  As of  September  30,  2002  and  2001,  there  were
                    approximately  18,706,000 and 14,253,000  outstanding common
                    share equivalents,  respectively,  that were not included in
                    the  computation  of diluted  net loss per  common  share as
                    their effect would be anti-dilutive.



                                      F-17
<PAGE>


2.Summary of       xRecently Issued Accounting  Pronouncements In June 2001, the
  Significant       Financial Accounting Standards Board (FASB) issued Statement
  Accounting        of   Financial   Accounting   Standards   (SFAS)  No.   143,
  Policies          "Accounting   for  Asset   Retirement   Obligations".   This
  Continued         Statement addresses  financial  accounting and reporting for
                    obligations  associated  with  the  retirement  of  tangible
                    long-lived assets and the associated asset retirement costs.
                    This Statement is effective for financial  statements issued
                    for  fiscal  years  beginning  after  June  15,  2002.  This
                    Statement addresses  financial  accounting and reporting for
                    the disposal of long-lived  assets. The adoption of SFAS 143
                    did not have a material  impact on the  Company's  financial
                    position or operations.

                    In April 2002, the FASB issued SFAS No. 145,  "Rescission of
                    FASB  Statements  No.  4,  44,  and  64,  Amendment  of FASB
                    Statement No. 13, and Technical Corrections." This statement
                    requires  the  classification  of gains or  losses  from the
                    extinguishment  of debt to meet the  criteria of  Accounting
                    Principles   Board   Opinion  No.  30  before  they  can  be
                    classified as  extraordinary in the income  statement.  As a
                    result,  companies that use debt  extinguishment  as part of
                    their risk management  cannot classify the gain or loss from
                    that  extinguishment  as  extraordinary.  The statement also
                    requires   sale-leaseback   accounting   for  certain  lease
                    modifications   that  have  economic   effects   similar  to
                    sale-leaseback  transactions.  The  adoption of SFAS No. 145
                    did not have a material  impact on the  Company's  financial
                    position or operations.

                    In June 2002, the FASB issued SFAS No. 146,  "Accounting for
                    Costs  Associated  with Exit or Disposal  Activities."  This
                    standard, which is effective for exit or disposal activities
                    initiated after December 31, 2002,  provides new guidance on
                    the   recognition,   measurement   and  reporting  of  costs
                    associated  with these  activities.  The  standard  requires
                    companies  to  recognize  costs   associated  with  exit  or
                    disposal  activities  when they are incurred  rather than at
                    the date the company  commits to an exit or  disposal  plan.
                    The  adoption of SFAS No. 146 by the Company is not expected
                    to  have  a  material  impact  on  the  Company's  financial
                    position or future operations.




                                      F-18
<PAGE>


2.    Summary of Significant Accounting Policies, Continued

                    Recently Issued Accounting Pronouncements - Continued

                    In December 2002,  the FASB issued SFAS No. 148  "Accounting
                    for Stock-Based  Compensation--Transition and Disclosure--an
                    amendment of FASB Statement No. 123," which is effective for
                    all fiscal years ending  after  December 15, 2002.  SFAS No.
                    148  provides   alternative  methods  of  transition  for  a
                    voluntary   change  to  the  fair  value  based   method  of
                    accounting for stock-based employee  compensation under SFAS
                    No. 123 from the intrinsic  value based method of accounting
                    prescribed  by Accounting  Principles  Board Opinion No. 25.
                    SFAS 148 also changes the  disclosure  requirements  of SFAS
                    123, requiring a more prominent  disclosure of the pro-forma
                    effect of the fair  value  based  method of  accounting  for
                    stock-based  compensation.  The  adoption of SFAS No. 148 by
                    the Company is not expected to have a material impact on the
                    Company's financial position or future operations.

                    In January  2003,  the FASB  issued  Interpretation  No. 46,
                    "Consolidation  of Variable  Interest  Ethics" (FIN No. 46),
                    which  addresses  consolidation  by business  enterprises of
                    variable  interest  entities.   FIN  No.  46  clarifies  the
                    application   of  Accounting   Research   Bulletin  No.  51,
                    "Consolidated Financial Statements",  to certain entities in
                    which equity investors do not have the  characteristics of a
                    controlling  financial  interest  or do not have  sufficient
                    equity at risk for the  entity  to  finance  its  activities
                    without additional subordinated financial support from other
                    parties. FIN No. 46 applies immediately to variable interest
                    entities  created  after  January 31, 2003,  and to variable
                    interest entities in which an enterprise obtains an interest
                    after that date.  It  applies  in the first  fiscal  year or
                    interim  period  beginning  after June 15, 2003, to variable
                    interest  entities in which an  enterprise  holds a variable
                    interest  that it  acquired  before  February  1, 2003.  The
                    Company does not expect to identify  any  variable  interest
                    entities that must be consolidated.  In the event a variable
                    interest  entity is identified,  the Company does not expect
                    the  requirements of FIN No. 46 to have a material impact on
                    its financial condition or results of operations.




                                      F-19
<PAGE>


2. Significant Accounting Policies, Continued

                    Summary of Recent Accounting Pronouncements - Continued

                    In November  2002,  the FASB issued  Interpretation  No. 45,
                    "Guarantor's  Accounting  and  Disclosure  Requirements  for
                    Guarantees, Including Indirect Guarantees of Indebtedness of
                    Others" (FIN No. 45). FIN No. 45 requires certain guarantees
                    to be  recorded  at fair  value,  which  is  different  from
                    current  practice to record a liability  only when a loss is
                    probable  and  reasonably  estimable,  as  those  terms  are
                    defined   in  FASB   Statement   No.  5,   "Accounting   for
                    Contingencies". FIN No. 45 also requires the Company to make
                    significant new disclosures about guarantees. The disclosure
                    requirements  of FIN No. 45 are effective for the Company in
                    the first quarter of fiscal year 2003.  FIN No. 45's initial
                    recognition   and   initial   measurement   provisions   are
                    applicable  on a prospective  basis to guarantees  issued or
                    modified  after  December 31, 2002.  The Company's  previous
                    accounting  for  guarantees  issued prior to the date of the
                    initial  application  of FIN No. 45 will not be  revised  or
                    restated to reflect the provisions of FIN No 45. The Company
                    does  not  expect  the  adoption  of FIN  No.  45 to  have a
                    material  impact  on its  consolidated  financial  position,
                    results of operations or cash flows.

                    In April 2003,  the FASB issued SFAS No. 149,  "Amendment of
                    Statement   133  on  Derivative   Instruments   and  Hedging
                    Activities."  SFAS No. 149 amends  and  clarifies  financial
                    accounting   and  reporting  for   derivative   instruments,
                    including certain derivative  instruments  embedded in other
                    contracts  (collectively referred to as derivatives) and for
                    hedging  activities  under  SFAS No.  133,  "Accounting  for
                    Derivative   Instruments  and  Hedging   Activities".   This
                    Statement  is  effective  for  contracts   entered  into  or
                    modified after June 30, 2003, with certain  exceptions,  and
                    for hedging  relationships  designated  after June 30, 2003,
                    with  certain  exceptions,  and  for  hedging  relationships
                    designated  after June 30,  2003.  Management  is  currently
                    evaluating  the effect that the adoption of SFAS No. 149 may
                    have, but believes it will not have a material effect on its
                    results of operations and financial position.




                                      F-20
<PAGE>


2. Significant Accounting Policies, Continued

                    Summary of Recent Accounting Pronouncements - Continued

                    In May 2003, the FASB issued SFAS No. 150,  "Accounting  for
                    Certain Financial  Instruments with  Characteristics of both
                    Liabilities  and  Equity."  This new  statement  changes the
                    accounting for certain  financial  instruments  that,  under
                    previous  guidance,  issuers  could account for as equity or
                    classifications  between liabilities and equity in a section
                    that has been known as "mezzanine capital." It requires that
                    those certain  instruments  be classified as  liabilities in
                    balance  sheets.  Most  of  the  guidance  in  SFAS  150  is
                    effective  for all  financial  instruments  entered  into or
                    modified after May 31, 2003. Management anticipates that the
                    adoption  of SFAS No. 150 may have a material  impact on the
                    Company's consolidated financial statements if in the future
                    the Company issues mandatorily  redeemable  preferred stock.
                    Such  mandatorily  redeemable  preferred  stock,  previously
                    included  as  "mezzanine  capital",  would be  included as a
                    liability in accordance with SFAS 150.

                    Reclassifications  Certain  reclassifications have been made
                    in the prior year's  consolidated  financial  statements  to
                    conform with the current year presentation.


3.    Acquisition of SecureAlert

                    On July 2, 2001, the Company  consummated a merger agreement
                    to acquire SecureAlert,  a Tennessee  corporation engaged in
                    the business of manufacturing  and selling home and personal
                    security   devices  and  other   electronic   devices.   The
                    consideration  for the  acquisition  consisted  of 1,433,333
                    shares of common stock with a fair value of  $4,299,999  and
                    $1,400,000 in cash.  Consideration  also  included  advances
                    made  to  SecureAlert  of  $301,420,  acquisition  costs  of
                    $114,718  and a  conversion  feature on an  assumed  note of
                    $300,200. Of the acquisition  consideration,  233,333 shares
                    of common  stock and  $200,000 in cash were  delivered  upon
                    consummating   the  merger   agreement   and  the  remaining
                    1,200,000  shares  were  to  be  deposited  into  an  escrow
                    account.  The remaining  1,200,000  shares and $1,200,000 in
                    cash were to be delivered in installments on the last day of
                    each of six successive calendar quarters beginning September
                    30, 2001.



                                      F-21
<PAGE>


3.    Acquisition of SecureAlert, Continued

                    The  obligations of the Company to make the payments of cash
                    and shares of common stock as required by the agreement were
                    secured by all of the outstanding shares of SecureAlert.

                    On November 30, 2001, the Company and the former SecureAlert
                    shareholders amended the merger agreement to extend the cash
                    payment  terms.  In addition  the Company  issued  1,000,000
                    options to purchase the Company's  common stock at $3.00 per
                    share which  expire in five years.  At November 30, 2001 the
                    options were fully  vested.  Of these  options  142,200 were
                    granted  to  non-employees   and  857,800  were  granted  to
                    employees. The Company recognized expense of $343,545 (based
                    on  the  Black  Scholes   pricing   model)  related  to  the
                    non-employee  grants and has included the value of grants to
                    employees  in  the  pro  forma   disclosures   at  Note  12.
                    Additionally, the agreement was amended that in the event of
                    default, should the former SecureAlert shareholders exercise
                    their right to receive the shares of SecureAlert,  they will
                    have one year from that  date to repay  $2,060,000  less any
                    amount then outstanding under an intercompany loan agreement
                    originally  in the amount of  $600,000.  The  obligation  to
                    repay this amount was  personally  guaranteed by four former
                    SecureAlert  shareholders.  As of  September  30,  2002  the
                    Company  was in  compliance  with the  agreement.  Remaining
                    payments due at September 30, 2002 to the former SecureAlert
                    shareholders  were $394,175,  net of discount of $5,825.  In
                    January  2003,  the  parties   entered  into  an  agreement,
                    effective  December 31,  2002,  pursuant to which the former
                    shareholders of SecureAlert  returned the final  installment
                    of shares and cash and  released  the Company  from  further
                    liability under the merger agreement. See Note 17.





                                      F-22
<PAGE>


3.    Acquisition of SecureAlert, Continued

                    The  following  table  sets  forth the  consideration  paid,
                    including  direct  acquisition  related costs, in connection
                    with  the  acquisition  of  SecureAlert.   For  purposes  of
                    computing the purchase price,  the value of the common stock
                    was  determined  using an estimated  fair value of $3.00 per
                    share,  which represents the estimated fair value based upon
                    equity  transactions with independent parties at or near the
                    date the acquisition was consummated.

           Issuance of 1,433,333 shares of common stock      $         4,299,999

           Estimated present value of the $1,400,000 in
           cash to be paid in quarterly installments through
           December 31, 2002 discounted at a rate of 12%               1,283,438

           Working capital advances to SecureAlert prior
           to the acquisition                                            301,420

           Estimated fair value of the conversion feature
           of the assumed $500,000 in promissory
           notes payable (see Note 6)                                    300,200

           Acquisition related costs                                     114,718
                                                             -------------------

                           Total purchase consideration      $         6,299,775
                                                             -------------------




                                      F-23
<PAGE>



3.    Acquisition of SecureAlert, Continued

                    Management  believes that the  historical  carrying value of
                    the tangible assets and liabilities  approximate fair value.
                    The purchase consideration has been allocated as follows:

               Accounts receivable                           $           305,701
               Inventories                                               672,109
               Property and equipment                                    307,924
               Other assets                                               27,702
               Bank line of credit                                   (2,179,961)
               Promissory notes payable                                (500,000)
               Accounts payable                                        (222,591)
               Accrued liabilities                                     (360,181)
               Deferred revenue                                         (87,137)
                                                             -------------------

               Liabilities in excess of tangible assets              (2,036,434)
               Core technology                                           560,000
               Goodwill                                                7,776,209
                                                             -------------------
                               Total purchase consideration  $         6,299,775
                                                             -------------------


                    In   connection   with  the   allocation   of  the  purchase
                    consideration,  the Company determined that no amount should
                    be  allocated  to   incomplete   research  and   development
                    projects.  The valuation of the core technology included but
                    was not  limited  to an  analysis  of (i) the  economic  and
                    competitive  environments in which SecureAlert  operates and
                    (ii) an analysis of SecureAlert's products,  including their
                    characteristics,  future expected changes and  enhancements.
                    The  assumptions  used in valuing the core  technology  were
                    based on assumptions the Company  believed to be reasonable,
                    but which are inherently uncertain and unpredictable.


                    The  acquisition  was recorded using the purchase  method of
                    accounting  in  accordance  with  SFAS  No.  141,  "Business
                    Combinations,"   and  SFAS  No.  142,  "Goodwill  and  Other
                    Intangible  Assets," both of which were issued in June 2001.
                    SFAS No. 141 requires that all  acquisitions  after June 30,
                    2001 be accounted for as purchases and SFAS No. 142 requires
                    that goodwill not be amortized, but be subject to a periodic
                    test of impairment.



                                      F-24
<PAGE>


3.    Acquisition of SecureAlert, Continued

                    The  following  unaudited  pro forma  financial  information
                    presents the results of  operations of the Company as if the
                    acquisition of SecureAlert  had occurred at the beginning of
                    fiscal year 2001 after giving effect to certain adjustments,
                    including  the  amortization  of core  technology,  interest
                    expense and the issuance of common  shares.  These pro forma
                    results have been prepared for comparative purposes only and
                    do not purport to be  indicative  of future  results or what
                    would have  occurred  had the  acquisition  been made at the
                    beginning of the applicable year.

                                                                 2001
                                                          ----------------------

              Revenues                                    $          3,604,515
              Net loss applicable to common shareholders  $        (14,116,491)
              Basic and diluted net loss per common share $              (3.11)



4.    Bank Line of Credit

                    As  of  September  30,  2002,  the  Company  had  $1,100,000
                    outstanding  under a line of credit  agreement with SunTrust
                    Bank.   Borrowings  under  the  agreement  were  limited  to
                    $1,100,000.  The interest rate  associated  with the line of
                    credit was the 30-day  average  LIBOR rate plus 2.15 percent
                    (4.75% as of  September  30, 2002) and  borrowings  were due
                    March 15, 2003.  Additionally,  the  agreement  required the
                    Company to  maintain  certain  financial  and  non-financial
                    covenants  and  required  the  bank's   consent  to  certain
                    transactions, including transactions between SecureAlert and
                    RemoteMDx, Inc.

                    Subsequent  to  September  30, 2002,  the  SunTrust  line of
                    credit  was  refinanced  through  a note due to Zions  First
                    National  Bank.  The new note bears  interest  at prime plus
                    .25%,   matures  on  March  11,  2004,  and  is  secured  by
                    certificates of deposit. See Note 17.



                                      F-25
<PAGE>


5.    Related-Party Line of Credit

                    At  September  30,  2002,  the  Company had a line of credit
                    outstanding of $951,290, due to ADP, an entity controlled by
                    David Derrick,  Chief Executive  Officer and Chairman of the
                    Board  of  Directors,   and  James  Dalton,   the  Company's
                    President and Vice  Chairman of the Board of Directors.  The
                    line of credit  bears  interest  at the prime rate (4.75% at
                    September 30, 2002).  Borrowings  under the arrangement were
                    due on  December  31,  2002.  The  Company did not repay the
                    amounts outstanding under the line of credit on December 31,
                    2002,  but entered into a  subsequent  agreement on April 2,
                    2003 whereby all indebtedness owed to ADP was converted into
                    common stock (see Note 17).

                    Through  December  31,  2001,  borrowings  under the line of
                    credit,  including any accrued interest, were convertible at
                    the option of the holder at any time into shares of Series A
                    Preferred Stock at a rate of one share of Series A Preferred
                    Stock for each $200  outstanding.  In addition,  the Company
                    was required to issue to ADP a warrant to purchase one share
                    of Series A Preferred Stock at a price of $200 per share for
                    every  $200 in  principal  loaned  under the line of credit.
                    During the quarter  ended  December  31,  2001,  the Company
                    borrowed  $1,445,526 under the ADP line of credit agreement.
                    In connection with these borrowings,  during the fiscal year
                    ended  September  30,  2002,  ADP was  granted  warrants  to
                    purchase  7,228  shares  of Series A  preferred  stock at an
                    exercise  price  of $200  per  share.  These  warrants  were
                    determined to have a value of $1,778,013  based on the Black
                    Scholes  Option  Pricing  Model and a $3.00 per common share
                    price.  Of this amount,  $1,445,526 was recorded as interest
                    expense  and  the   remaining   $332,488   was  recorded  as
                    compensation expense due to the fact that ADP is principally
                    owned  and  controlled  by David  Derrick,  Chief  Executive
                    Officer and  Chairman of the Board,  and James  Dalton,  the
                    Company's  President  and  Vice  Chairman  of the  Board  of
                    Directors.




<PAGE>


5.    Related-Party Line of Credit, Continued

                    On December 31, 2001 the Company  amended its line of credit
                    agreement  with  ADP.  This   amendment   provided  for  the
                    following:

                    o    Additional  borrowings  or loan  guarantees of up to $2
                         million  were  made  available  to the  Company  by ADP
                         between  December 31, 2001 and March 31, 2002, with all
                         loan amounts being extended until December 31, 2002.

                    o    Removed the Series A Preferred Stock conversion feature
                         from  amounts   advanced   under  the  line  of  credit
                         subsequent to the amendment.

                    o    Removed the  requirement to issue a warrant to purchase
                         Series A Preferred Stock for each $200 loaned under the
                         line of credit.

                    o    Established  a  maximum  of 6,688  shares  of  Series A
                         Preferred  Stock issuable upon the exercise of the line
                         of credit outstanding as of the date of the amendment.

                    Also, in conjunction with the amendment,  which provided for
                    additional  borrowings under the line of credit, the Company
                    issued  3,450,000  options to ADP with an exercise  price of
                    $.54 per share and an expiration date of March 31, 2007. The
                    value of these  options,  based on the Black Scholes  Option
                    Pricing  Model  at a  $3.00  per  common  share  price,  was
                    determined to be $9,666,439. Of this amount, $895,940, which
                    equaled the total  additional  borrowings  under the amended
                    agreement,   was  recorded  as  interest  expense,  and  the
                    remaining  $8,770,499 was recorded as  compensation  expense
                    due to the related party nature of the transaction.




                                      F-26
<PAGE>


5.    Related-Party Line of Credit, Continued

                    During  the year  ended  September  30,  2002,  $924,936  of
                    borrowings were utilized as  consideration  for the exercise
                    of existing  options to purchase  1,712,844 shares of common
                    stock  at  an  exercise  price  of  $.54  per  share.  As of
                    September  30,  2002,   the   outstanding   balance  on  the
                    related-party  line of credit was $951,290.  During the year
                    ended  September  30, 2002,  the Company  recorded  interest
                    expense  related to the line of credit of  $2,357,920.  This
                    expense  primarily  related  to the  issuance  of  Series  A
                    Preferred  Stock warrants and common stock  warrants  issued
                    pursuant to the  line-of-credit  agreement  valued under the
                    Black  Scholes  Option  Pricing  Model at a $3.00 per common
                    share.  Because  the value  under the Black  Scholes  Option
                    Pricing  Model was greater than the proceeds  received  from
                    the  borrowings,  an  amount  equal  to  the  borrowings  of
                    $2,341,465  was  deemed  to be  interest  expense  with  the
                    remainder of the expense  being  recorded in  administrative
                    expense as compensation for providing various  guarantees on
                    other  debt  obligations,   assistance  to  the  Company  in
                    obtaining  other  financial  arrangements  and  services for
                    obtaining  extended terms on existing debt  arrangements due
                    to  the  related  party  nature  of  the  transaction.  This
                    additional  non-cash interest expense of $2,341,465 resulted
                    in an  increase  of  approximately  539%  to  the  effective
                    interest  rate,  which when  combined with the face interest
                    rate of prime (4.75% at September  30, 2003)  resulted in an
                    effective interest rate of approximately 544%.





                                      F-27
<PAGE>


6.    Related-Party Convertible Promissory Notes

                    In connection with the acquisition of SecureAlert  (see Note
                    3), the Company  assumed  two  promissory  notes  payable to
                    former  SecureAlert  shareholders,  each  with  a  principal
                    balance of $250,000. The promissory notes bear interest at a
                    rate of five  percent  per year  and were due July 2,  2002.
                    During  the year  ended  September  30,  2002,  the  Company
                    recorded  interest  expense  of  $25,000  related  to  these
                    promissory  notes.  In connection  with the  acquisition  of
                    SecureAlert  (see Note 3), the Company  granted  each of the
                    note  holders the right,  at any time prior to July 2, 2002,
                    to convert  their note into 83,333  shares of the  Company's
                    common stock,  or to be paid  $250,000 on July 2, 2002.  The
                    estimated fair value of the conversion option granted to the
                    note holders was $300,200 based on the Black-Scholes  Option
                    Pricing Model and was recorded as purchase  consideration in
                    the acquisition of SecureAlert (see Note 3). On December 31,
                    2002 the former  SecureAlert  shareholders  agreed to modify
                    the  terms of the notes in which  payments  of  $40,000  per
                    month were required beginning March 11, 2003 until the notes
                    are paid in full  (See  Note  17).  Subsequent  to March 11,
                    2003, the Company had paid $150,000  towards these notes and
                    was in default.



7.    Related Party Notes Payable

Related party short-term notes payable consist of the
      following at September 30, 2002:

<TABLE>
<CAPTION>
<S>                 <C>                                                            <C>
                    Notes  payable to a finance  company,  which is a  principal
                    shareholder of the Company.  The note bears interest at 12%,
                    matures  March  2003  and is  unsecured.  On June  30,  2003
                    pursuant to an agreement dated April 2, 2003 this note, with
                    additional  borrowings  subsequent  to September 30, 2002 of
                    $362,480, was assumed by David Derrick, James Dalton and ADP
                    and converted into shares of the Company's common stock (See
                    Note 17).                                                      $  100,720

                    Unsecured note payable to the Chief Financial Officer of the
                    Company.  The note bore interest of 12% and was paid in full
                    in November 2002.                                                  25,000

                                                                                   $  125,720
                                                                                   ===========
</TABLE>



                                      F-28
<PAGE>


8.    Short-term              Short-term notes payable consist of the following
      Notes                    at September 30, 2002:
      Payable
<TABLE>
<CAPTION>
<S>                            <C>                                                   <C>
                               Note payable to individuals with interest at
                               22.5%, payable (interest only) in monthly
                               installments of $15,000, and maturing on
                               September 30, 2002. The note is secured by
                               1,000,000 shares of the Company's common stock
                               owned by David Derrick, Chief Executive Officer
                               and Chairman of the Board of Directors and James
                               Dalton, President and Vice Chairman of the Board
                               of Directors, and the note is guaranteed by them.
                               As of September 30, 2002 this note was in
                               default. On June 30, 2003 pursuant to an
                               agreement dated April 2, 2003, this note was
                               assumed by David Derrick, James Dalton, and ADP
                               and converted into shares of the Company's common
                               stock (See note 17).                                  $  800,000


                               Note payable to a corporation with interest at
                               18% plus $100,000 for a 30 day extension of the
                               note's original terms. At September 30, 2002 the
                               note was in default and due on demand. The note
                               is secured by a general lien on the Company's
                               assets and is personally guaranteed by David
                               Derrick and James Dalton. On April 2, 2003, David
                               Derrick, James Dalton, and ADP agreed to assume
                               this note, however the note holder has not yet
                               released the Company of this obligation.                 600,000


                               Note payable to an individual at 14.5%, with
                               interest payable in monthly installments. The
                               note matures on June 30, 2003 and is secured by
                               350,000 shares of the Company's common stock and
                               is guaranteed by David Derrick, and James Dalton.
                               On June 30, 2003 pursuant to an agreement dated
                               April 2, 2003, this note was assumed by David
                               Derrick, James Dalton, and ADP and converted into
                               shares of the Company's common stock (See note
                               17).                                                     350,000
</TABLE>



                                      F-29
<PAGE>


8.    Short-term Notes Payable, Continued

<TABLE>
<CAPTION>
<S>                 <C>                                                             <C>
                    Note payable to a financing  company at a fixed rate of 10%,
                    monthly  payment  of  $91,774,  maturing  December  2002 and
                    secured by  inventory.  Subsequent  to December 31, 2002 the
                    Company paid this note in full.                                     270,795

                    Note payable to an individual with interest at 18%, maturing
                    on September 30, 2002 and unsecured. Subsequent to September
                    30, 2002 the note was in default. On June 30, 2003 this note
                    (including  accrued  penalties)  was converted  into 151,334
                    shares of the Company's common stock at $1.50 per share.            200,000

                    Note payable to an  individual.  The note bears  interest at
                    18%,  is due in monthly  installments  of $4,050,  including
                    accrued  interest,  unless a demand by the holder is made in
                    which the note  becomes  immediately  due.  On June 30, 2003
                    this note (including  accrued  penalties) was converted into
                    113,500  shares of the  Company's  common stock at $1.50 per
                    share.                                                              150,000

                    Note payable to an  individual  at an interest  rate of 18%,
                    due in monthly  installments of $1,350,  including interest,
                    unless  a demand  by the  holder  is made in which  the note
                    becomes  immediately  due. The note is secured by all assets
                    of the  Company.  On June  30,  2003  this  note,  including
                    penalties, was converted into 37,834 shares of the Company's
                    common stock at $1.50 per share.                                     50,000

                    Note payable to an individual with interest at 18%, maturing
                    on September 30, 2002 and unsecured. Subsequent to September
                    30, 2002 the note was in default. Subsequent to year end the
                    Company paid $25,000.                                                50,000

                                                                                    $ 2,470,795
</TABLE>




                                      F-30
<PAGE>


9.    Redeemable Common Stock

                    The Company issued common stock with a redeemable feature at
                    $3.00 per share. Of the shares issued 32,000 were issued for
                    cash at $3.00 per share;  125,000 were issued in  connection
                    with   personal    guarantees   from   former    SecureAlert
                    shareholders at $3.00 per share,  and 105,000 were issued to
                    consultants at $3.00 per share.  The Company redeemed 50,000
                    shares at $3.00 per share, and 40,000 redeemable shares were
                    exchanged for non-redeemable  common stock. At September 30,
                    2002,   172,000   shares  with  a  value  of  $516,000  were
                    redeemable as follows: 32,000 shares were redeemable through
                    August  2003 after  which the  redeemable  feature  expires;
                    140,000 shares were  redeemable  after December 31, 2003 and
                    until January 15, 2004, so long as the Company is not traded
                    in the  over-the-counter  market or on a recognized exchange
                    and the holder can readily  sell the shares at $3.00 or more
                    per share.


10.   Preferred Stock

                    The Company is authorized  to issue up to 10,000,000  shares
                    of  preferred  stock,  $0.0001  par  value  per  share.  The
                    Company's  Board of Directors has the authority to amend the
                    Company's   Articles  of   Incorporation,   without  further
                    stockholder approval,  to designate and determine,  in whole
                    or in part, the preferences, limitations and relative rights
                    of the preferred  stock before any issuance of the preferred
                    stock and to create one or more series of preferred stock.

                    Series  A 10 %  Convertible  Non-Voting  Preferred  Stock In
                    September  1997,  the Company  designated  20,000  shares of
                    preferred  stock  as  Series  A 10%  Convertible  Non-Voting
                    Preferred Stock ("Series A Preferred Stock").  In June 2001,
                    the Board of Directors  increased the  designated  number of
                    shares of Series A  Preferred  Stock from  20,000  shares to
                    30,000 shares.  As of September 30, 2002,  there were 26,130
                    shares of Series A Preferred Stock outstanding.

                    Dividends

                    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 years ended September 30, 2002
                    and 2001,  the Company  recorded  $501,000  and  $400,526 in
                    dividends on Series A Preferred Stock.



                                      F-31
<PAGE>


10.   Preferred Stock, Continued

                    Convertibility

                    Prior to March 30, 2001,  shares of Series A Preferred Stock
                    were convertible into shares of common stock at a rate equal
                    to the lesser of (i) the  average  closing  bid price of the
                    Company's   common   stock  for  the  three   trading   days
                    immediately preceding the applicable conversion date less 20
                    percent;  or (ii)  $6.25.  On March 30,  2001,  the Board of
                    Directors   approved   an   amendment   of  the  rights  and
                    preferences  of the Series A  Preferred  Stock to revise the
                    conversion  rate to be a fixed  rate of 370 shares of common
                    stock  for each  share of  Series A  Preferred  Stock.  This
                    revision  in the  conversion  ratio  resulted in the Company
                    recording a beneficial  conversion  amount of  $1,859,283 on
                    the date of the approval of the amendment.  During the years
                    ended  September 30, 2002 and 2001,  the Company  recorded a
                    total of $0 and  $4,272,848,  respectively,  related  to the
                    beneficial  conversion  feature  of the  Series A  Preferred
                    Stock.

                    During the year ended  September  30, 2002,  6,872 shares of
                    Series A  Preferred  Stock  were  converted  into  2,537,846
                    shares of common stock.  During the year ended September 30,
                    2001,   1,911  shares  of  Series  A  Preferred  Stock  were
                    converted into 707,384 shares of common stock.

                    Voting  Rights and  Liquidation  Preference  The  holders of
                    Series A  Preferred  Stock  have no  voting  rights  and are
                    entitled to a liquidation preference of $2.00 per share plus
                    unpaid dividends multiplied by 133 percent.

                    Optional  Redemption The Company may, at its option,  redeem
                    up to  two-thirds  of the total number of shares of Series A
                    Preferred  Stock.  As of September 30, 2001,  the redemption
                    price is 133  percent  of the  conversion  price of Series A
                    Preferred  Stock;  however,  the  Company  may  designate  a
                    different  and  lower  conversion  price  for all  shares of
                    Series  A  Preferred  Stock  called  for  redemption  by the
                    Company.  Through  September 30, 2002 and 2001,  the Company
                    has not  exercised  its option to redeem  shares of Series A
                    Preferred Stock.




                                      F-32
<PAGE>


10.   Preferred Stock, Continued

                    Issuances of Series A Preferred  Stock During the year ended
                    September  30,  2002,  the Company  issued  8,821  shares of
                    Series A  Preferred  Stock to ADP, a company  controlled  by
                    David Derrick,  Chief Executive  Officer and Chairman of the
                    Board of Directors and James Dalton, the Company's President
                    and Vice Chairman member of the Board of Directors. Of these
                    shares  6,688  were  issued in  connection  with a  cashless
                    exercise of Series A warrants  received from providing loans
                    through  a  line-of-credit   (see  Note  5).  This  cashless
                    exercise  resulted  in  additional  compensation  expense of
                    $5,416,812  based on the  common  stock  conversion  rate of
                    Series A shares  and a $3.00  per  common  share  price.  An
                    additional  2,094 Series A shares were also issued to ADP in
                    connection   with   obtaining   financing   and   consulting
                    arrangements  for the  Company.  These  shares  resulted  in
                    $2,324,340 of compensation expense based on the common stock
                    conversion  rate of Series A shares  and a $3.00 per  common
                    share price.  The remaining 39 shares were issued in lieu of
                    Preferred Series A cash dividend. ADP converted 6,872 of its
                    Series A shares into 2,537,846 shares of common stock.

                    During the year ended September 30, 2001, the Company issued
                    9,954 shares of Series A Preferred  Stock.  Of these shares,
                    2,675  were  issued in  connection  with the  conversion  of
                    $535,000 of  borrowings  under a line of credit  arrangement
                    with ADP (see Note 5), 3,475 were issued to Messrs.  Derrick
                    and  Dalton,   in  connection   with  $695,000  in  services
                    performed by them under their consulting arrangements, 2,003
                    were issued in consideration for accrued dividends on Series
                    A  Preferred  Stock  through  September  30,  2001 and 1,801
                    shares  were  issued  related to the  exercise  of  warrants
                    issued in connection with the line of credit with ADP. As of
                    September  30,  2001,  there were 24,181  shares of Series A
                    Preferred  Stock  outstanding,  which  represents  8,946,970
                    common stock equivalents.




                                      F-33
<PAGE>


10.   Preferred Stock, Continued

                    Warrants  to Purchase  Series A  Preferred  Stock On June 1,
                    2001, the Company amended its line-of-credit  agreement with
                    ADP (see  Note 5) and  increased  the  amount  available  to
                    borrow by the Company from ADP to a total of $3 million with
                    the line of credit due and payable on December 31, 2001.  As
                    part of that amendment, the Company granted ADP the right to
                    purchase  one  share  of  Series  A  Preferred  Stock  at an
                    exercise price of $200 for each $200 advanced under the line
                    of  credit.  Originally  the  warrants  were  to  expire  on
                    December  31,  2002.  The  Company  issued  7,228  Series  A
                    warrants during the three months ended December 31, 2001, as
                    part of this  arrangement.  These warrants were valued based
                    on the  Black  Scholes  Option  Pricing  Model at $3.00  per
                    common share, which resulted in an expense of $1,778,013, of
                    which $1,445,525 was allocated to interest expense under the
                    line of credit,  and $332,488 was allocated to  compensation
                    expense.  On December  31,  2001,  the  Company  amended its
                    agreement  with ADP whereby ADP agreed to loan or  guarantee
                    loans of up to an additional $2 million between December 31,
                    2001 and March 31, 2002, with all loans being extended until
                    December 31, 2002. In connection  with this amendment to the
                    line-of-credit  agreement, ADP was allowed to exercise 8,158
                    Series A Preferred  Stock warrants on a cashless method into
                    6,688  Shares of Series A  Preferred  Stock  during the year
                    ended September 30, 2002. This cashless exercise resulted in
                    $5,416,812 of  additional  compensation  expense  during the
                    year  ended  September  30,  2002.  All  remaining  warrants
                    resulting  from  the  line of  credit  agreement  that  were
                    outstanding as of that date were terminated.

                    During the year ended September 30, 2001, the Company issued
                    warrants  to  purchase  8,490  shares of Series A  Preferred
                    Stock  related to  borrowings  under the line of credit with
                    ADP  wherein  ADP  provided  up to $3 million on the line of
                    credit.  Of these  warrants,  2,198  shares  were  exercised
                    through a cashless  exercise  resulting  in the  issuance of
                    1,801  shares  of  Series A  Preferred  Stock.  The  Company
                    recognized  approximately  $2,233,000  of  interest  expense
                    related to these  issuances for the year ended September 30,
                    2001.




                                      F-34
<PAGE>


10.   Preferred Stock, Continued

                    Subscription   to  Purchase  Series  A  Preferred  Stock  In
                    September 1997, in conjunction with the establishment of the
                    Series A Preferred Stock, 6,125 shares of Series A Preferred
                    Stock  were  subscribed  from a third  party  for a total of
                    $1,225,000,  of which  $325,000 was collected in cash during
                    September 1997. During the year ended September 30, 1999, MK
                    Financial, an entity controlled by Mr. Derrick,  assumed the
                    subscription  from  the  third  party  and the  subscription
                    balance was reduced by the  $159,500  received  from ADP and
                    $402,200  as a  reduction  of a  note  payable  and  accrued
                    interest  due to MK  Financial.  As of  September  30, 2002,
                    $338,300 remains outstanding from MK Financial.  On April 2,
                    2003, the Company  extinguished this subscription.  See Note
                    17.

                    Series B Convertible  Preferred  Stock On June 7, 2001,  the
                    holders of the Company's  Series A Preferred  Stock approved
                    the  designation  of  2,000,000  shares  of a new  series of
                    preferred  stock,  the Series B Convertible  Preferred Stock
                    ("Series B  Preferred  Stock")  previously  approved  by the
                    Board of Directors.

                    Dividends The Company will not pay dividends on the Series B
                    Preferred  Stock unless  dividends are declared by the Board
                    of  Directors,  in which case the Series B  Preferred  Stock
                    would  be paid  dividends  prior  and in  preference  to any
                    declaration  or payment of any dividend on the common stock,
                    and subject to the  preferences of the holders of the Series
                    A Preferred Stock.




                                      F-35
<PAGE>


10.   Preferred Stock, Continued

                    Convertibility During the year ended September 30, 2002, the
                    Company issued 1,135,823 shares of Series B Preferred Stock.
                    Of these issuances  1,000,000  shares was sold to Matsushita
                    Electric Works, Ltd., a Japanese  corporation  ("MEW").  MEW
                    was  granted  an  anti-dilution  right on the  common  stock
                    conversion  feature  of the  1,000,000  Series B  shares  it
                    purchased.  If the  Company  shall  at  any  time  during  a
                    two-year  period  (beginning  April  2002) issue or sell its
                    common stock or any security  exercisable  into common stock
                    for an equivalent  value of less than $3.00 per share,  then
                    the conversion  price of the 1,000,000  Series B shares into
                    common stock will be adjusted to the common stock equivalent
                    value of those securities sold. These  anti-dilution  rights
                    are expected by  management  to be waived,  but no assurance
                    can be given that management will be successful in obtaining
                    a waiver from MEW.

                    Other than the MEW shares  each share of Series B  Preferred
                    Stock is convertible at any time into shares of common stock
                    at an initial rate of $3.00 per share of common stock.  Each
                    share of Series B Preferred Stock will automatically convert
                    into shares of common stock at the then effective conversion
                    rate on the closing of a firm commitment underwritten public
                    offering with an aggregate public offering price of not less
                    than $20,000,000.  If, with certain limited exceptions,  the
                    Company  issues  any  shares of common  stock or  securities
                    convertible into common stock without consideration or for a
                    consideration  per share  less than the  conversion  rate in
                    effect  immediately  prior to the issuance of those  shares,
                    the  conversion  rate will  automatically  be  adjusted to a
                    price equal to the aggregate  consideration  received by the
                    Company for that issuance divided by the number of shares of
                    common stock so issued.

                    Voting Rights and Liquidation  Preference  Holders of shares
                    of Series B  Preferred  Stock are  entitled  to one vote per
                    share of Series B Preferred  Stock on all matters upon which
                    holders of the common  stock of the Company are  entitled to
                    vote.  Generally the holders of Series B Preferred Stock are
                    entitled  to a  liquidation  preference  of $3.00 per share,
                    plus all accrued and unpaid  dividends.  However,  1,000,000
                    shares,  which were issued  during the year ended  September
                    30, 2002, are subject to $3.30 liquidation  preference.  For
                    purposes  of  this  liquidation  preference,  the  Series  A
                    Preferred  Stock  ranks  on  a  parity  with  the  Series  B
                    Preferred Stock.



                                      F-36
<PAGE>


10.   Preferred Stock, Continued

                    Optional Redemption

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

                    Issuance of Series B Preferred  Stock  During the year ended
                    September 30, 2002, the Company issued  1,135,823  shares of
                    Series B Preferred  Stock in exchange for net cash  proceeds
                    of $3,366,273.  Of these shares  purchased  1,000,000 shares
                    were sold with 1,000,000 common stock warrants attached.

                    During the year ended September 30, 2001, the Company issued
                    700,001  shares of Series B Preferred  Stock in exchange for
                    net  cash  proceeds  of  $1,862,003   ($2,100,003  in  gross
                    proceeds  less  $238,000  in  cash-offering  costs).  Of the
                    shares sold,  245,000 were issued to three  individuals  who
                    are officers and  directors of the Company,  in exchange for
                    $735,000 in cash.

                    In  connection  with the  offering  during  the  year  ended
                    September  30,  2001,  the  Company  issued  warrants to the
                    placement  agent for the purchase of 53,333 shares of Series
                    B  Preferred  Stock  at a price of $3.00  per  share,  which
                    expire five years from the date of  issuance.  The  warrants
                    were  valued  at  $138,058  using the  Black-Scholes  Option
                    Pricing  Model and  recorded as a Series B  Preferred  Stock
                    offering cost.

                    When the Company was completing the first offering of Series
                    B  Preferred  Stock in  August  2001,  the  placement  agent
                    notified the Company that the minimum $2,000,000 in proceeds
                    had not been met. In order to complete  the first  offering,
                    Messrs.  Derrick and Dalton  personally  entered into a loan
                    agreement with an individual to borrow  sufficient  proceeds
                    to  close  the  offering.   In  connection   with  the  loan
                    agreement,  Mr. Derrick was required to issue 666,667 shares
                    of  common  stock  owned  by him to the  individual.  As the
                    Company could not have  completed  the offering  without the
                    funding,  the  issuance  of the  shares by Mr.  Derrick  was
                    deemed to be for the  benefit of the  Company.  Accordingly,
                    the Company  recorded  the value of the shares,  $2,000,001,
                    based  upon an  estimated  fair  value of $3.00 per share of
                    common stock, as a capital contribution from Mr. Derrick and
                    a Series B Preferred Stock offering cost.



                                      F-37
<PAGE>


11.   Common        Authorized Shares
      Stock         The Company is authorized to issue up to
                    50,000,000 shares of common stock.

                    Divestiture Add-On Shares In February 1997, Biomune declared
                    that it would divest  itself of the Company by  distributing
                    the common  stock of the  Company as a dividend by which one
                    share of the Company's  common stock was issued for every 10
                    shares of Biomune common stock held by the  shareholders  of
                    record of Biomune as of March 5, 1997.  The  divestiture  of
                    the  Company  was  effective  October 1,  1997.  On or about
                    February  1,  1998,  the  dividend  shares of the  Company's
                    common stock were delivered to the Biomune  stockholders who
                    had been shareholders of record as of March 5, 1997.

                    Both the Company and Biomune were  unaware  however that the
                    National  Association  of  Securities  Dealers  ("NASD") had
                    announced to its members an ex-dividend date of February 11,
                    1998 for the spin-off distribution, notwithstanding the fact
                    that Biomune had  previously  notified the NASD and publicly
                    announced an  ex-dividend  and record date of March 5, 1997.
                    NASD informed holders of Biomune common stock as of February
                    11, 1998 that they would receive the dividend based on their
                    ownership of Biomune common stock as of February 11, 1998.

                    After  consultation  with the NASD,  Biomune and the Company
                    agreed to issue additional shares of Company common stock as
                    part of the original  dividend  announced  March 5, 1997, to
                    cover  (a) the  dividend  in the  Company  that  technically
                    inured to the  benefit of the  holders of  Biomune's  common
                    stock issued  between March 5, 1997 and February 11, 1998 by
                    reason of the NASD's action; and (b) short positions held by
                    accounts which purchased  Biomune common stock between March
                    5, 1997 and February 11, 1998,  from  accounts not then held
                    in "street name".  Street name accounts were  electronically
                    credited  with the  dividend  shares  during  the year ended
                    September 30, 2001.

                    During the years  ended  September  30,  2002 and 2001,  the
                    Company issued no shares and 188,621 shares of common stock,
                    respectively,  as additional  distribution  shares under its
                    agreement  with the NASD.  The  Company  may be  required to
                    issue additional shares in the future.



                                      F-38
<PAGE>


11.   Common Stock

                    Common Stock  Issuances  During the year ended September 30,
                    2002,  the  Company  issued   4,775,310   shares  of  common
                    Continued  stock.  Of these  shares,  1,712,844  were issued
                    related  to  the  exercise  of  stock  options  whereby  the
                    exercise  price  was  paid  through  the  extinguishment  of
                    $924,934  in  borrowings  under the line of credit  with ADP
                    (see  Note 5). Of the  remaining  2,969,466  shares  issued,
                    2,537,846  shares were issued for conversion of 6,872 shares
                    of Series A preferred shares;  303,885 for services,  valued
                    at $3.00 per share;  145,000 for interest  expense valued at
                    $3.00 per share; 35,735 for debt and accrued interest valued
                    at $3.00  per  share,  and  40,000  shares  were  issued  in
                    exchange for redeemable common stock.

                    During the year ended September 30, 2001, the Company issued
                    4,900,339 shares of common stock. Of these shares, 1,682,000
                    were issued related to the exercise of stock options whereby
                    the exercise  price was paid through the  extinguishment  of
                    $1,682,000 in  borrowings  under the line of credit with ADP
                    (see  Note 5). Of the  remaining  3,218,339  shares  issued,
                    1,433,333   shares  were  issued  in  connection   with  the
                    acquisition of  SecureAlert,  669,000 shares were issued for
                    services, 60,000 shares were issued to induce the conversion
                    of convertible  debentures,  707,384 shares were issued upon
                    the  conversion of 1,911 shares of Series A Preferred  Stock
                    (see Note 17),  188,621  shares were  issued as  divestiture
                    add-on shares (see above) and 160,001  shares were issued as
                    the result of the  conversion of  convertible  debentures in
                    the amount of $450,000  together  with  accrued  interest of
                    $30,003.


12.Common           Stock  Incentive  Plan  The  Company  has  adopted  the 1997
   Stock            Volu-Sol,  Inc. Stock Incentive Plan (the "1997 Plan").  The
   Options and      1997 Plan was  approved by action of Biomune,  the  original
   Warrants         stockholder of the Company,  in August 1997.  Under the 1997
                    Plan,   the   Company  may  issue   stock   options,   stock
                    appreciation  rights,  restricted  stock  awards,  and other
                    incentives  to  employees,  officers  and  directors  of the
                    Company  and  award  nonqualified  stock  options  and other
                    awards  to  employees  and  certain  non-employees  who have
                    important   relationships  with  the  Company.  A  total  of
                    5,000,000  shares were  initially  available for grant under
                    the 1997 Plan.  As of September 30, 2002,  1,440,000  shares
                    have been granted under the 1997 Plan.



                                      F-39
<PAGE>



12.   Common
      Stock
      Options and
      Warrants
      Continued

                    A summary of stock option and warrant activity for the years
                    ended September 30, 2002 and 2001 is as follows:

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

 Outstanding at October 1, 2000             2,160,500   $    3.00 to 15.00
     Granted                                2,397,227         1.00 to 7.00
     Expired or cancelled                   (796,250)        5.80 to 15.00
     Exercised                            (1,682,000)                 1.00
                                   -------------------  -------------------

 Outstanding at September 30, 2001          2,079,477         1.00 to 7.00
     Granted                                6,683,161          .54 to 3.00
     Expired                                 (14,250)                 5.80
     Exercised                            (1,712,844)                  .54
                                   -------------------  -------------------

 Outstanding at September 30, 2002          7,035,544   $      .54 to 7.00
                                   -------------------  -------------------


                    As of September 30, 2002 and 2001, the  outstanding  options
                    and warrants have a weighted-average exercise price of $2.76
                    and $4.25 per share, respectively.

                    The Company has adopted the  disclosure-only  provisions  of
                    Statement of Financial  Accounting Standards (SFAS) No. 123,
                    Accounting for  Stock-Based  Compensation.  Accordingly,  no
                    compensation  cost  has  been  recognized  in the  financial
                    statements for employees,  except when the exercise price is
                    below  the  market  price of the stock on the date of grant.
                    Had  compensation  cost for the Company's stock option plans
                    been  determined  based on the fair  value at the grant date
                    for awards in fiscal year 2002 and 2001  consistent with the
                    provisions  of SFAS No. 123, the Company's  approximate  net
                    loss  and loss  per  share  would  have  been the pro  forma
                    amounts indicated below:

                                             2002              2001
                                        ----------------  -----------------

 Net loss attributable to common
   shareholders   - as reported         $   (33,976,866)  $   (13,193,471)
 Net loss attributable to common
   shareholders - pro forma             $   (37,167,877)  $   (14,851,790)
 Basic and diluted net loss per common
   share - as reported                  $         (3.50)  $         (3.26)
 Basic and diluted net loss per common
   Share - pro forma                    $         (3.83)  $         (3.66)





                                      F-40
<PAGE>



12.   Common
      Stock
      Options and
      Warrants
      Continued

                    The fair value of each option or warrant  grant is estimated
                    on the date of grant using the Black-Scholes  option pricing
                    model with the following assumptions:

                                                      Years Ended
                                                     September 30,
                                         ---------------------------------------
                                                2002               2001
                                         -------------------  ------------------

          Expected dividend yield                          -                  -
          Expected stock price volatility               110%               110%
          Risk-free interest rate                      5.75%                 6%
          Expected life of options                   5 years            5 years

                    The  weighted  average  fair value of options  and  warrants
                    granted during the years ended  September 30, 2002 and 2001,
                    based on a $3.00  common  share  value were $2.43 and $0.68,
                    respectively.

                    The  following  table  summarizes  information  about  stock
                    options and warrants outstanding at September 30, 2002:

<TABLE>
<CAPTION>
                             Options and Warrants                  Options and Warrants
                                 Outstanding                            Exercisable
                  --------------------------------------------  ------------------------------
                                   Weighted
                                   Average
                                  Remaining       Weighted                       Weighted
    Range of                     Contractual       Average                        Average
    Exercise          Number        Life         Exercise         Number        Exercise
    Prices          Outstanding    (Years)         Price         Exercisable       Price
 ---------------  -------------  -------------  --------------  -------------- ---------------
<S>               <C>            <C>            <C>             <C>            <C>
 $    .54 - 1.00      2,099,050      4.25       $          .62       2,099,050 $          .62
            3.00      3,836,494      4.01                 3.00       3,836,494           3.00
     5.00 - 7.00      1,100,000      2.63                 6.00       1,100,000           6.00
 ---------------  -------------  -------------  --------------  -------------- ---------------

 $    .54 - 7.00      7,035,544      3.87       $         2.76       7,035,544 $         2.76
 ---------------  -------------  -------------  --------------  -------------- ---------------
</TABLE>

                    As of  September  30,  2002,  all  outstanding  options  and
                    warrants are exercisable.




                                      F-41
<PAGE>


12.   Common
      Stock
      Options and
      Warrants
      Continued

                    During the year ended September 30, 2002, the Company issued
                    3,450,000  options  at an  exercise  price of $.54 to ADP, a
                    company  under  common  control  by  David  Derrick,   Chief
                    Executive  Officer and  Chairman of the Board of  Directors,
                    and James Dalton, the Company's  President and Vice Chairman
                    of the  Board of  Directors.  The  options  were  issued  in
                    connection  with a $2 million line of credit provided to the
                    Company,  and extension of current debts owed by the Company
                    to ADP. The issuance of these  options  resulted in $895,940
                    of interest  expense and $8,770,499 of compensation  expense
                    based on the Black  Scholes  Option  Pricing  Model  with an
                    estimated common share price of $3.00.


                    During the year ended  September 30, 2002 the Company issued
                    920,361 options to purchase the Company's common stock at an
                    exercise price of $3.00 to  consultants  or outside  parties
                    for   services.   The   Company   recognized   approximately
                    $2,236,072 of expense  related to these issuances based on a
                    $3.00 common share price.

                    During the year ended September 30, 2002, the Company issued
                    1,000,000  common  stock  warrants at an  exercise  price of
                    $3.00 in conjunction the sell of 1,000,000  shares of Series
                    B Preferred Stock.

                    During  the year  ended  September  30,  2001,  the  Company
                    cancelled  certain  officer  and  director  Add-on  Volu-Sol
                    options  and  replaced  them with new  options  to  purchase
                    383,894 shares of common stock at an exercise price of $1.00
                    per  share.   This  replacement   resulted  in  the  Company
                    recording  compensation  expense of $767,788.  These options
                    were exercised prior to September 30, 2001.

                    During  the  year  ended  September  30,  2001,  options  to
                    purchase  1,993,894  shares of common  stock were granted to
                    employees  and  directors  at an  exercise  price of  $1.00,
                    including 383,894  replacement  options.  The options vested
                    immediately and expire in September 2005.




                                      F-42
<PAGE>


12.   Common
      Stock
      Options and
      Warrants
      Continued

                    During  the year  ended  September  30,  2001,  warrants  to
                    purchase  350,000  shares  of  common  stock  at a  weighted
                    average  exercise  price of $4.43 per share for services and
                    warrants  to  purchase  53,333  shares of common  stock at a
                    weighted  average exercise price of $3.00 per share (subject
                    to certain  exercise  rights and pricing  adjustments if the
                    Company  issues  or sells any  shares of common  stock for a
                    consideration  which  is  less  than  $3.00  per  share  and
                    cashless  exercise  rights),  for Series B  Preferred  Stock
                    offering  costs.  The 350,000  warrants  expire in September
                    2005 and the 53,333  warrants  expire in September 2006. The
                    350,000  warrants  were  valued  at  $185,305  based  on the
                    Black-Scholes  Option  Pricing Model and recorded as general
                    and administrative  expense in the accompanying statement of
                    operations for the year ended September 30, 2001. The 53,333
                    warrants were valued at $138,058 based on the  Black-Scholes
                    Option  Pricing  Model  and  were  recorded  as a  Series  B
                    Preferred Stock offering cost (see Note 17).


13.   Related Party Transactions

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

                    Financing  Transactions  During the year ended September 30,
                    2002, the Company had net  borrowings of $1,760,224  under a
                    line of credit with ADP (see Note 5). The Company recognized
                    interest  expense related to these  borrowings of $2,357,920
                    of which $2,341,465 was from the issuance of options as part
                    of the  financing  agreement  to purchase  common  stock and
                    warrants to purchase  Preferred  Series A stock (see Notes 9
                    and 11). The value of theses  warrants and options was based
                    on the Black Scholes  Option Pricing Model with an estimated
                    common share value of $3.00.

                    During the year ended September 30, 2002, the Company issued
                    2,094   shares  of  Series  A  Preferred   Stock  valued  at
                    $2,324,340  for services  and  expenses  rendered by Messrs.
                    Derrick and Dalton (see Note 10). ADP exercised 8,158 Series
                    A  Preferred  Stock  warrants to  purchase  6,688  shares of
                    Series A Preferred  Stock  through a cashless  exercise (see
                    Note 10), and  converted  6,872 shares of Series A Preferred
                    Stock into 2,537,846 shares of common stock (see Note 10).



                                      F-43
<PAGE>


13.   Related Party Transactions, Continued

                    Financing  Transactions  -  Continued  During the year ended
                    September  30,  2001,  the  Company  had net  borrowings  of
                    $2,233,000  under a line of credit with ADP (see Note 5) and
                    the Company issued 3,475 shares of Series A Preferred  Stock
                    valued at $695,000  for  consulting  services  and  expenses
                    rendered  by Messrs.  Derrick and Dalton  (see  below).  ADP
                    exercised  options  to  purchase  2,198  shares  of Series A
                    Preferred  Stock through a cashless  exercise and was issued
                    1,801 shares of Series A Preferred  Stock (see Note 10), the
                    1,801 shares of Series A Preferred Stock were converted into
                    666,667  shares of common  stock.  In addition,  the Company
                    issued 200,000  shares of Series B Preferred  Stock for cash
                    proceeds  of  $735,000  to  officers  and  directors  of the
                    company  (see Note 10).  Mr.  Derrick was  required to issue
                    666,667 shares of common stock owned by him to an individual
                    in order for the Company to complete  the Series B Preferred
                    Stock offering.

                    As of  September  30, 2002,  $338,300  related to a Series A
                    Preferred Stock subscription  receivable remains outstanding
                    from MK  Financial  Subsequent  to  September  30, 2002 this
                    amount was extinguished (see Note 17).

                    Consulting Arrangements In March 2000, the Company agreed to
                    pay  consulting  fees to ADP for  assisting  the  Company to
                    develop its new business  direction and business plan and to
                    provide  introductions to strategic  technical and financial
                    partners.  Under the terms of this agreement, ADP was paid a
                    consulting  fee of $10,000 per month and the Company  agreed
                    to reimburse  the expenses  incurred by ADP in the course of
                    performing  services under the consulting  arrangement.  The
                    ADP agreement also requires ADP to pay the salaries of David
                    Derrick as Chief Executive Officer and Chairman of the Board
                    of  Directors  of the Company and James  Dalton as president
                    and  Vice-Chairman of the Board of Directors of the Company.
                    The Board of  Directors,  which at the time did not  include
                    either  of  these   individuals,   approved  both  of  these
                    arrangements.




                                      F-44
<PAGE>


13.   Related Party Transactions, Continued

                    Consulting  Arrangements  - Continued  During the year ended
                    September  30,  2002 and  2001,  under  the  consulting  and
                    line-of-credit  arrangements  described  above,  the Company
                    recorded  consulting  fees and expenses of  $18,871,003  and
                    $1,087,000,  respectively. For the years ended September 30,
                    2002 and 2001, $2,324,340 and $695,000,  respectively,  were
                    paid by issuing 2,094 and 3,475 shares of Series A Preferred
                    Stock to ADP and Mr.  Dalton,  the  Company's  President and
                    Vice Chairman or their  respective  assignees (see Note 10).
                    In  addition  during  the year  ended  September  30,  2002,
                    $15,312,031  of  consulting  expense  was  paid  by  issuing
                    options or warrants to purchase  common stock and  preferred
                    Series A stock  valued  based on the  Black  Scholes  Option
                    Pricing  Model  assuming  a $3.00 per  common  share  market
                    value.

                    Personal   Guarantees   The   Company   has   entered   into
                    approximately  $3,375,000  of  promissory  notes  which  are
                    personally  guaranteed by Derrick and Dalton and are in some
                    cases collateralized by shares of the Company's common stock
                    held by them (see Note 8).

                    Former  SecureAlert  Shareholders  In  connection  with  the
                    acquisition of SecureAlert (see Note 3), the Company assumed
                    two  promissory  notes  payable  to two  former  SecureAlert
                    shareholders  each with a principal balance of $250,000 (see
                    Note 6).

                    Related-Party Sales During the year ended September 30, 2002
                    and  2001,  the  Company  recorded  sales  of  $253,108  and
                    $121,637,  respectively,  to an entity owned by the relative
                    of a former officer of the Company.




                                      F-45
<PAGE>


13.   Related
      Party
      Transactions
      Continued

                    License  Agreement  During the year ended September 30, 2002
                    entered into a License  Agreement with  Matsushita  Electric
                    Works,  Ltd.,  a  Japanese  corporation  ("MEW").  Under the
                    License    Agreement,    the    Company    granted   MEW   a
                    nontransferable,  worldwide, exclusive license under certain
                    of  the  Company's   patents  to  use,   manufacture,   have
                    manufactured,  market,  distribute  and sell  the  Company's
                    one-button  emergency  wireless  telephone device,  with and
                    without global positioning satellite  technology,  under the
                    terms of the License  Agreement.  In connection with the new
                    strategic  alliance  created by the execution of the License
                    Agreement,  MEW  also  made  an  equity  investment  in  the
                    Company.   MEW  purchased   1,000,000  shares  of  Series  B
                    Preferred   Stock  at  a  price  of  $3.00  per  share.   In
                    conjunction  with the sale of the Series B Preferred  Stock,
                    and as an  indication of the parties'  mutual  interest in a
                    long-term  relationship,  the  Company  also  granted  MEW a
                    warrant to purchase  1,000,000  shares of common  stock at a
                    price of $3.00 per  share.  During  the  fiscal  year  ended
                    September  30,  2002,  the Company paid MEW $310,000 for GPS
                    products and related  services.  Subsequent to yearend,  the
                    Company paid MEW an additional $160,332 for GPS products and
                    related services.

14.   Income Taxes

                    For the years ended September 30, 2002 and 2001, the Company
                    incurred net operating  losses of  approximately  $7,945,000
                    and  $5,607,000  for income tax purposes.  The amount of and
                    ultimate  realization of the benefits from the net operating
                    losses is dependent,  in part,  upon the tax laws in effect,
                    the Company's future earnings,  and other future events, the
                    effects  of which  cannot be  determined.  The  Company  has
                    established a valuation  allowance  for all deferred  income
                    tax assets not offset by deferred income tax liabilities due
                    to the uncertainty of their realization.  Accordingly, there
                    is  no  benefit  for  income   taxes  in  the   accompanying
                    consolidated statements of operations.




                                      F-46
<PAGE>


14.   Income Taxes, Continued

                    At September 30, 2002,  the Company has net  operating  loss
                    carryforwards  available to offset future  taxable income of
                    approximately  $17,651,000  which  will  begin to  expire in
                    2018.   The   utilization   of  the   net   operating   loss
                    carryforwards  is  dependent  upon the tax laws in effect at
                    the  time  the  net  operating  loss  carryforwards  can  be
                    utilized. The Internal Revenue Code contains provisions that
                    likely   could   reduce  or  limit  the   availability   and
                    utilization of these net operating loss  carryforwards.  For
                    example,  limitations  are imposed on the utilization of net
                    operating loss  carryforwards if certain  ownership  changes
                    have taken place or will take place. Due to the frequency of
                    equity  transactions  within the Company,  it is likely that
                    the  use  of net  operating  loss  carry  forwards  will  be
                    limited.  The Company  will perform an analysis to determine
                    whether  any  such  limitations  have  occurred  as the  net
                    operating losses are utilized.


                    Deferred income taxes are determined  based on the estimated
                    future   effects  of   differences   between  the  financial
                    statement  and  income  tax  reporting  bases of assets  and
                    liabilities  given the  provisions of currently  enacted tax
                    laws and the tax rates expected to be in place. The deferred
                    income  tax  assets   (liabilities)  are  comprised  of  the
                    following at September 30, 2002:

                                                                   2002
                                                           ---------------------

                        Net operating loss carryforwards    $         6,584,000
                        Depreciation and reserves                     1,569,000
                        Core technology                                  87,000
                        Accruals and reserves                           172,000
                        Valuation allowance                         (8,412,000)
                                                           ---------------------
                                                            $                 -
                                                           ---------------------




                                      F-47
<PAGE>



14.   Income Taxes, Continued

                    Reconciliations  between the benefit for income taxes at the
                    federal  statutory income tax rate and the Company's benefit
                    for income taxes for the years ended  September 30, 2002 and
                    2001 are as follows:

<TABLE>
<CAPTION>
                                                             2002                2001
                                                    -------------------  ------------------

 Federal income tax benefit at
<S>                                                  <C>                 <C>
   statutory rate                                    $      11,381,000   $       2,897,000
 State income tax benefit, net of
   federal income tax effect                                 1,105,000             281,000
 Beneficial conversion features and
   preferred stock warrants
   associated with borrowings under
   a related-party line of credit                             (663,000)           (833,000)
 Conversion inducement for Series A
   convertible debenture                                              -            (93,000)
 Stock valuation for services                               (3,091,000)                  -
 Stock warrants and options for
   services                                                 (4,440,000)                  -
 Other                                                          14,000             (11,000)
 Change in valuation allowance                              (4,306,000)         (2,241,000)
                                                    -------------------  ------------------

 Effective income tax rate                           $              -    $               -
                                                    -------------------  ------------------
</TABLE>

15.   Commitment
      and
      Contingencies

                    Legal Matters The Company is involved in various  claims and
                    legal actions arising in the ordinary course of business. It
                    is the opinion of management,  after  discussions with legal
                    counsel, that the ultimate disposition of these matters will
                    not  have  a  material   adverse  effect  on  the  Company's
                    financial position or results of operations.




                                      F-48
<PAGE>


15.   Commitment and Contingencies, Continued

                    Lease  Obligations  The  Company  leases a facility  under a
                    noncancellable  operating  lease that  expires  in  November
                    2005.    Future   minimum   rental    payments   under   the
                    non-cancelable  operating lease as of September 30, 2002 are
                    approximately as follows:

                            Year Ending September 30:        Amount
                                                      ---------------------

                                  2003                 $            65,000
                                  2004                              67,000
                                  2005                              69,000
                                                      ---------------------
                                                       $           201,000
                                                      ---------------------




                    Rent expense related to this non-cancelable  operating lease
                    was  approximately  $62,000  and $60,000 for the years ended
                    September 30, 2002 and 2001, respectively. Additionally, the
                    Company  leases a facility  on a  month-to-month  basis with
                    monthly base rent of $5,000.

                    Indemnification  Agreements In November  2001, the Company's
                    Board of Directors  agreed that the Company would  indemnify
                    officers  and  directors  of the  Company  against  personal
                    liability  incurred by them in the  conduct of their  duties
                    for the  Company.  In the event that any of the  officers or
                    directors  of the  Company are sued or claims or actions are
                    brought  against them in connection  with the performance of
                    their  duties  and  the  individual  is  required  to pay an
                    amount,  the Company will  immediately  repay the obligation
                    together with interest  thereon at the greater of 10 percent
                    per year or the interest  rate of any funds  borrowed by the
                    individual to satisfy their liability.

                    Cellular  Access  Agreement  In October  2001,  the  Company
                    entered  into  an  agreement  with  a  vendor  for  cellular
                    switching  access.  Under the  agreement,  the  vendor  will
                    provide software  interface and a dedicated  circuit for the
                    Company's  MobilPal network.  The cost to the Company in the
                    first year of the agreement were approximately  $180,000. In
                    years two and three,  the minimum  required monthly payments
                    will be $7,500 and $12,500, respectively.




                                      F-49
<PAGE>


15.   Commitment
      and
      Contingencies
      Continued

                    Purchase and Royalty  Agreement On July 1, 2001, the Company
                    entered into an agreement with Philips,  a  manufacturer  of
                    consumer electronics.  Under the agreement,  the Company has
                    committed to a minimum  amount of purchases.  This agreement
                    expires on June 30, 2006, provided however, that Philips can
                    terminate  the  agreement  if the Company  fails to maintain
                    cumulative  purchase  volumes  of  $3,500,000,   $5,750,000,
                    $8,250,000 and $11,250,000 in years ending June 2003 through
                    2006,  respectively.  For the year ended September 30, 2002,
                    the Company purchased  approximately  $4,794,000 in consumer
                    electronics  from  Philips.  Additionally,  the  Company has
                    committed  to pay Philips a 4.5 percent  royalty on the cost
                    of products  that carry the Magnavox  brand  purchased  from
                    either  Philips or other  manufacturers.  For the year ended
                    September 30, 2002 royalties to Phillips were  approximately
                    $81,000.




16.   Segment Information

                    As a result of the  acquisition  of SecureAlert in July 2001
                    (see Note 3), the  Company is  organized  into two  business
                    segments  based  primarily  on the  nature of the  Company's
                    products.  The Company's  Reagents segment is engaged in the
                    business of manufacturing and marketing  medical  diagnostic
                    stains,  solutions  and related  equipment to hospitals  and
                    medical testing labs. The Company's  SecureAlert  segment is
                    engaged in the  business  of  developing,  distributing  and
                    marketing mobile emergency and personal  security systems to
                    distributors  and  consumers,   and  distributing   consumer
                    electronics  products to the manufactured home market. Other
                    (unallocated)  loss  consists of research  and  development,
                    selling,  general and administrative expenses related to the
                    Company's  corporate  activities,  including  remote  health
                    monitoring and market and business development activities.

                    The  accounting  policies of the  business  segments are the
                    same  as  those  described  in the  summary  of  significant
                    accounting policies (see Note 2).




                                      F-50
<PAGE>


16.   Segment Information, Continued

                    The following table reflects certain  financial  information
                    relating to each reportable  Information segment for each of
                    the   years   ended    September    30,   2002   and   2001.

<TABLE>
<CAPTION>
                                                           2002               2001
                                                    ------------------- -------------------

 Net sales:
       SecureAlert
<S>                                                  <C>                <C>
          Consumer electronics                       $       9,669,650  $         605,884
          Mobile emergency and personal
            security systems                                   801,320            138,942
                                                    ------------------- -------------------

                                                            10,470,970            744,826
 Reagents                                                      542,177            502,807
                                                    ------------------- -------------------

                                                     $      11,013,147  $       1,247,633
                                                    ------------------- -------------------

 Operating income (loss):
       SecureAlert                                   $      (6,826,139) $        (566,271)
       Reagents                                                 33,728            (82,164)
       Other (unallocated)                                 (23,429,789)        (5,261,716)
                                                    ------------------- -------------------

                                                     $     (30,222,200) $      (5,910,151)
                                                    ------------------- -------------------
</TABLE>

<TABLE>
<CAPTION>
                                                           2002               2001
                                                    -------------------- ------------------

 Depreciation and amortization:
<S>                                                  <C>                 <C>
       SecureAlert                                   $          287,059  $          61,368
       Reagents                                                  11,437             35,812
       Other (unallocated)                                        6,603              2,744
                                                    -------------------- ------------------

                                                     $          305,099  $          99,924
                                                    -------------------- ------------------

 Capital expenditures:
       SecureAlert                                   $           93,824  $          11,082
       Reagents                                                   1,357              3,100
       Other (unallocated)                                        5,937             29,270
                                                    -------------------- ------------------

                                                     $          101,118  $          43,452
                                                    -------------------- ------------------

 Interest income:
       SecureAlert                                   $             (348) $          (2,781)
       Reagents                                                    (327)            (2,442)
       Other (unallocated)                                       (4,887)            (4,015)
                                                    -------------------- ------------------

                                                     $           (5,562) $          (9,238)
                                                    -------------------- ------------------
</TABLE>







                                      F-51
<PAGE>

16.   Segment Information, Continued

<TABLE>
<CAPTION>
 Interest Expense:
<S>                                                  <C>                <C>
       SecureAlert                                   $          178,053 $           16,002
       Reagents                                                       -                  -
       Other (unallocated)                                    3,085,600          2,603,182
                                                    ------------------- -------------------
                                                    ------------------- -------------------

                                                     $        3,263,653 $        2,619,184
                                                    ------------------- -------------------
                                                    ------------------- -------------------


 Identifiable assets:
       SecureAlert (including goodwill and
         intangibles of $3,895,830)                  $        6,387,297
       Reagents                                                 141,382
       Other (unallocated)                                      140,155
                                                    -------------------
                                                    -------------------

                                                     $        6,668,834
                                                    -------------------
</TABLE>



17.   Subsequent Events

                    In October  2002 and June 2003,  the  Company  issued  notes
                    payable  to  a  financing  company,  which  is  a  principal
                    shareholder  of  the  Company  in  the  amount  $85,808  and
                    $250,000,  respectively.  These notes bear  interest at 12%,
                    mature on March 31,  2003 for those  issued in October  2002
                    and  September  for the  note  issued  in June  2003 and are
                    unsecured. On June 30, 2003, David Derrick, James Dalton and
                    ADP agreed to assume the notes and convert  them into common
                    shares  pursuant  to the  April 2, 2003  agreement  with the
                    Company as noted above.


                    On November 1, 2002 and February 13, 2003 the Company issued
                    notes  payable  of  $550,000  and  $175,000  to a  financing
                    company totaling  $725,000 bearing interest in the amount of
                    12%, and secured by the assets of the  Company.  On June 30,
                    2003 the Company  converted  the notes into  483,333  common
                    shares  (a $1.50 per  share)  which  are  redeemable  at the
                    option of the holder at $2.00 per share after  December  31,
                    2003 based on certain conditions.




                                      F-52
<PAGE>


17.   Subsequent Events, Continued

                    On December  31, 2002 the Company  entered into an agreement
                    with the former shareholders of SecureAlert which terminated
                    all  employment  and  consulting   agreements   with  former
                    employees,  shareholders,  and officers of  SecureAlert.  In
                    addition,  the purchase obligation due to former SecureAlert
                    shareholders was extinguished in the amount of $400,000. The
                    former SecureAlert  shareholders  agreed to modify the terms
                    of the notes due in the  aggregate of $500,000  (see Note 6)
                    in  which   payments  of  $40,000  per  month  are  required
                    beginning  March 11,  2003 until the notes are paid in full.
                    In addition,  the former  shareholders of SecureAlert agreed
                    to waive  their  rights to the  anti-dilution  provision  in
                    connection   with  the   Company's   original   purchase  of
                    SecureAlert  (see Note 3). The Company has an  obligation to
                    pay an entity, in which a former SecureAlert  shareholder is
                    a  shareholder,   $180,000.   This  amount  was  secured  by
                    inventory of the Company valued at approximately $180,000.

                    Corresponding   with   the   termination   of   the   former
                    shareholders  of  SecureAlert,   the  Company  modified  its
                    approach to its  consumer  electronics  business.  Under its
                    modified  approach,  on January 1, 2003 the Company  entered
                    into a  consumer  electronics  distribution  agreement  with
                    SecureAlert  Entertainment,  LLC, (SAE) an entity controlled
                    by the former  shareholders of Secure Alert,  Inc., a wholly
                    owned subsidiary of the Company.

                    Under the  distribution  agreement  the  Company  has sold a
                    right of  distribution  it holds  under  an  agreement  with
                    Philips  and  MemCorp  to  sell  and   distribute   consumer
                    electronic  products.  The initial term of the  agreement is
                    for one year after which SAE may directly  approach  Philips
                    and  MemCorp  to  obtain  direct   distribution  rights  for
                    Magnavox-branded   home   security   products.   Under   the
                    distribution   agreement   SAE  acquired  from  the  Company
                    payables and accrued  liabilities in the amount of $488,410;
                    assumed  $300,000 of the Sun Trust line of credit;  acquired
                    receivables  due from  prior  sales of  consumer  electronic
                    products  in  the  amount  of  $370,501;  acquired  consumer
                    electronic  inventory in the amount of $539,706 and acquired
                    equipment with a net book value of $183,484. In exchange the
                    Company  received  400,000  shares of the  Company's  common
                    stock held by the former  SecureAlert  shareholders  and the
                    extinguishment  of  the  remaining  purchase  obligation  in
                    connection with the SecureAlert purchase as noted above.



                                      F-53
<PAGE>


17.   Subsequent Events, Continued

                    Because the Company is not deemed to be the principal in the
                    transaction  through June 30, Events 2003,  revenues related
                    to consumer electronic sales will be recorded net of cost of
                    sales.  Continued On June 30, 2003, the Company  amended its
                    distribution  agreement with SAE whereon the Company assumed
                    additional     risks    and    rewards    and    fulfillment
                    responsibilities to SAE.

                    On March 3, 2003, the Company converted 58,333 shares of its
                    common stock to  redeemable  common stock to an  individual.
                    The individual has the option,  but not the  obligation,  to
                    put the  shares  back to the  Company  at  $3.00  per  share
                    beginning on September 30, 2003 through October 15. 2003.

                    On  March  11,  2003,   the  SunTrust  line  of  credit  was
                    refinanced  through a note due to Zions First National Bank.
                    The new note bears  interest at prime plus .25%,  matures on
                    March 11, 2004, and is secured by certificates of deposit.

                    On April 2,  2003 in  connection  with a  raising  of equity
                    funds for the Company, the Company entered into an agreement
                    with Mr. David G.  Derrick,  the Company's  Chief  Executive
                    Officer and  Chairman of the Board of  Directors,  and James
                    Dalton,  the  Company's  President  and Vice Chairman of the
                    Board of Directors,  and ADP Management Corporation (ADP), a
                    company  controlled by Mr. Derrick and Mr.  Dalton,  whereby
                    Dalton,  Derrick  and ADP agreed to  continue  to assist the
                    Company in its  financing  activities  and convert to common
                    stock  existing  debt owed to ADP of $709,986 and debt which
                    ADP  assumed  from  the  Company  of  $3,163,975,  including
                    $700,000 of which the  Company has not been  released by the
                    original  creditor.  In  addition,  on June  24,  2003,  the
                    Company  converted  $725,000 of debt into 483,333  shares of
                    redeemable common stock.

                    The put obligation  associated  with the  redeemable  common
                    stock was assumed by ADP.  However,  the original holder has
                    not released the company from the potential put  obligation.
                    In  addition,  ADP also  agreed to assume  the  subscription
                    receivable  due from MK financial in the amount of $338,300.
                    In  exchange  for  these  assumptions  and  conversions  the
                    Company  issued  8,113,999  shares of the  Company's  common
                    stock.  In  association  with the  issuance of stock in this
                    transaction,  the  Company  recognized  an  expense  for ADP
                    services  of  approximately  $846,000.  The number of shares
                    ultimately  retained by ADP is not known at this time as ADP
                    will  continue  to  negotiate  settlement  of the  debts and
                    obligations assumed by it and use the shares allocated to it
                    as consideration for such settlements.



                                      F-54
<PAGE>


17.   Subsequent Events, Continued

                    On April 4, the Company sold  185,000  shares to an investor
                    for $100,000. Concurrently with Events this transaction, the
                    Company  granted  the  investors  the  option,  but  not the
                    obligation,  to Continued put the shares back to the Company
                    at $.54 per share  after  September  30,  2003,  if  certain
                    conditions have not been satisfied.

                    On May 7, 2003,  the Company sold 100,000  shares to several
                    investors for $150,000.  Concurrently with this transaction,
                    the Company  granted the investors  the option,  but not the
                    obligation,  to put the shares  back to the Company at $1.50
                    per share after  December  31, 2003,  if certain  conditions
                    have not been satisfied.

                    On June 25,  2003,  the Company  entered  into a  consulting
                    agreement with an individual who has provided debt financing
                    to the Company.  The  consulting  agreement  shall  continue
                    through April 30, 2004 and requires 100,000 shares issued as
                    compensation and a monthly fee of $3,900 per month.

                    On  June  30,  2003  the  Company   converted   $442,750  of
                    short-term  notes  payable  including  accrued  interest and
                    penalties into 302,668 shares of the Company's common stock.