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, 2001

[ ]  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 12(b)   Name  of  each  exchange  on  which
     of the Act:                             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 Securities 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 X No

 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, 2001 were $1,247,633.

Registrant's common stock has not traded and there is no market for the common
stock at this time. On April 28, 2000, the registrant declared a one-for-five
reverse stock split of its common stock that reduced the number of issued and
outstanding shares as of that date. Outstanding common stock data in this report
have been adjusted to reflect the reverse stock split.

 There were 8,411,694 shares of common stock of the registrant outstanding as of
January 10, 2002.

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


<PAGE>




                                     Part I

 Item 1.    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", "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, the Company's ability to access capital
markets and other factors that may be referred to in the Company's 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.


Introduction


         RemoteMDx is a 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. The Company was incorporated in Utah in
July 1995 under the name Volu-Sol, Inc., as a wholly owned subsidiary of Biomune
Systems, Inc. ("Biomune"). Biomune spun off the Company by distributing shares
of the Company's common stock pro rata as a stock dividend to the holders of the
common stock of Biomune (the "Distribution"). As a consequence of the
Distribution, RemoteMDx commenced operations as a separate, independent company
in October 1997.


         The Company has been engaged in the business of manufacturing and
marketing medical diagnostic stains, solutions and related equipment for over 10
years. The Company continues to conduct its medical stains and solutions
business through a wholly owned subsidiary, Volu-Sol Reagents Corporation
("Reagents"), and operates its remote health monitoring and diagnostic business
under the names "Remote Medical Diagnostics" and "RemoteMDx." The Company also
owns SecureAlert, Inc. ("SecureAlert"), a wholly owned subsidiary engaged in the
business of manufacturing and marketing mobile emergency and personal security
systems, and consumer electronics products.


Business Strategy


         Historically, the Company's strategy was to capitalize on the global
medical diagnostic industry by providing "building block" stains and reagents
and growing through the selective acquisition of complementary businesses,
devices and product lines. Over the past two years, management has begun to
pursue a more expanded role in the medical diagnostic industry by developing
innovative ways to manage patient medical information as well as linking
patients, physicians and payors through remote monitoring devices. To reflect
this new emphasis, the Company changed its corporate name to "RemoteMDx, Inc."
and acquired SecureAlert II, Inc. ("SecureAlert II") in July.


New Business Direction


         Under its new business direction, RemoteMDx specializes in providing
personal security and monitoring products and services to meet the needs of a
rapidly growing elderly population. As this new emphasis expands, the Company


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<PAGE>

expects the Reagents business to become less significant in its total product
mix. The RemoteMDx family of products and services offered under the Magnavox(R)
brands include both wireless and wired modes of connecting the elderly by the
touch of a single button with emergency services, doctors, healthcare providers
and loved ones. By utilizing global positioning satellite or "GPS" technology,
the Company's Pal Services response center can locate the person in distress and
dispatch the closest emergency services to the caller's location. In addition,
through the Company's HomePal products, Pal Services will monitor on a daily
basis the vital signs of its clientele and report to care providers if their
health is within given parameters.


         RemoteMDx's next generation product being developed through its
strategic alliance with Battelle Memorial Institute ("Battelle"), is a wireless,
wristwatch-based monitoring device equipped with GPS technology that is designed
to be worn at all times by persons suffering from chronic health problems. This
device, known as "PalWatch(TM)" unobtrusively takes the vital signs of the
wearer and transmits the data wirelessly to a health care provider regardless of
where the wearer is located. The PalWatch enables the care provider to remind
the patient to take medications and provides monitoring capabilities in case of
emergencies. Voice contact can be established with the monitoring center at the
touch of a single button when vital signs are outside of established parameters
or in case of emergencies.


         The PalWatch gives the chronically ill patient the safety and mobility
to live a more normal life while being in constant contact with health care
providers. It also provides the assurance that if the wearer encounters an
emergency, a live Personal Assistant is available to help.


         The Company plans to be the first to provide a combination of emergency
response systems and remote monitoring of the chronically ill. RemoteMDx plans
to implement a quality technological solution to promote efficiency in an
industry that is failing to do so. It is expected that RemoteMDx's technology
products and services will provide more timely capture of patient condition data
leading to earlier and more cost effective treatments. This should result in
improved patient satisfaction and outcomes through consistent and convenient
access to healthcare, while creating a portable electronic trail to a patient's
medical history. This in turn is expected to lower the cost of patient and
physician interaction, reducing costs for healthcare payors and providers.


         The Company's SecureAlert subsidiary sells mobile and personal security
systems, as well as consumer electronics products from its headquarters in
Knoxville, Tennessee. In the first quarter of fiscal year 2002, SecureAlert
began distribution of its new emergency cellular devices with global positioning
satellite technology, the MobilePAL+GPS(TM). Other mobile security products
include the 911Phone and related services. New applications of the core
technology will also be introduced during fiscal year 2002, including technology
and services for remote monitoring of the chronically ill. In 2001, SecureAlert
generated a majority of its revenues from the sale of consumer electronics.
SecureAlert expects that by the end of fiscal year 2002 its product mix will be
approximately evenly divided between consumer electronics and mobile and
personal security products and services.


Strategic Alliances


Battelle Memorial Institute


         An important part of the Company's new business model is the creation
of strategic business alliances. The first strategic alliance was formed in 2000
with Battelle, a not-for-profit research organization located in Columbus, Ohio.
This alliance affords the Company the opportunity to work with Battelle in the
research and development of remote health monitoring and diagnostic systems. The
Company selected Battelle for this strategic alliance because of Battelle's
extensive medical diagnostic experience, as well as its experience in electronic
information capture and transfer technologies. Working together in this
alliance, Battelle and the Company have developed a prototype of the PalWatch.


         Battelle has a staff of approximately 7,500 scientists, engineers, and
support specialists. Each year, hundreds of technology projects are in progress
at Battelle's various business operations. These projects are performed for
nearly 2,000 companies and government agencies. Battelle's business volume is
nearly $1 billion a year. Typically, this work results in 50 to 100 patented
inventions each year.


                                       2
<PAGE>

         Under the terms of the agreement with Battelle, the Company initially
paid Battelle $400,000 cash and 400,000 restricted shares of the Company's
common stock for its research and development services in 2000. The Company also
granted options to Battelle to purchase 1,350,000 shares of common stock at
prices ranging from $3.00 to $7.00 per share. The agreement grants limited
antidilution rights to Battelle and the right to appoint a nominee to serve on
the Company's board of directors, although to date Battelle has not exercised
this right. During the years ended September 30, 2001 and 2000, the Company
incurred expenses of $687,453 and $591,231, respectively, for research and
development services performed by Battelle. Accounts payable to Battelle were
$115,976 at September 30, 2001.


Uniden


         Uniden is the largest manufacturer of cellular phones sold in Japan.
The Company has secured exclusive manufacturing arrangements with Uniden for the
manufacture of the RemoteMDx product lines in the United States. Uniden's sales
are in excess of $1 billion per year and it specializes in marine radios
equipped with GPS technology. Under this informal joint research and development
arrangement Uniden and RemoteMDx have created the first GPS phone
(MobilePal+GPS(TM)) to be sold in the United States. The Company began marketing
this product in October 2001 through its SecureAlert subsidiary. Under its
agreement with Uniden, the Company has agreed to purchase a minimum number of
65,000 mobile telephone units. If it fails to meet this minimum purchase
requirement, the Company must reimburse Uniden for the unamortized portion of
Uniden's original tooling costs.


Royal Philips Electronics


         Philips is the third largest consumer electronics manufacturer in the
world with revenues in excess of $35 billion. In the United States, Philips'
annual revenues are approximately $2 billion. As the owner of the Magnavox(R)
brand and the creator of some of the Company's core security and consumer
electronic products, Philips is an important strategic partner. By agreement,
the Company pays Philips a 4.5 percent royalty on costs of products that carry
the Magnavox brand. Philips also provides quality control and logistic services
for these product lines.


Aradiant Corp.


         Aradiant Corp., formerly known as the National Dispatch Center, is the
largest communications messaging center in the United States, handling in excess
of 180,000,000 calls per year and generating an estimated $30 million in
revenues. It is estimated that Aradiant controls approximately 85 percent of the
communications messaging market. Aradiant has numerous back-up and redundancy
systems from three separate call centers, insuring constant monitoring
regardless of the situation or circumstances. This alliance gives the Company
the capability to move forward in developing the Pal Service Network without
incurring significant infrastructure costs.


Bishop Engineering Group


         Ron Bishop is the owner and principal of Bishop Engineering. Bishop was
one of the early pioneers in the development of cellular technology. He was the
primary designer of cellular phones used in airplanes, and the inventor of the
emergency call boxes located along many highways in the United States and other
countries. Bishop has been extremely helpful to RemoteMDx in the development of
the MobilePal phone and the incorporation of GPS with telematics technologies.
Through the Company's agreement with Bishop Engineering, Ron Bishop serves as
the Chief Technical Officer of SecureAlert. The Company pays Bishop Engineering
$30,000 per month, subject to adjustment every six months based on actual
expenditures and ongoing needs for pending projects. The parties also have
agreed to share equally in the net profits of new technology or products
completed pursuant to mutually approved projects during the term of the
agreement and to make available a bonus pool for Bishop Engineering employees
based on profits generated by joint efforts between Bishop Engineering and
SecureAlert. Bishop Engineering has granted SecureAlert an exclusive license for
use of the Travel Guardian(TM) products and technologies developed by Bishop and
Bishop Engineering under a separate license agreement.




                                       3
<PAGE>

Other Relationships


         To enhance its marketing strength and augment its distribution
channels, the Company is in the process of developing marketing and distribution
alliance partners for its products and services. The Company is currently in
contact with regional health maintenance organizations and preferred provider
organizations with significant networks of physicians and patients and is
exploring an alliance with these and other organizations for testing and
receiving input on final technology design of its products. RemoteMDx is also in
the process of evaluating relationships with other entities that would be good
strategic fits with the Company's product development and distribution plans.


         The Company anticipates that these additional strategic alliance
partners will provide the following:

          o    A consortium of providers,  specific to chronically  ill care, to
               act as a focus  group on product  definition  matched to specific
               care areas.

          o    The   opportunity   to   conduct   prototype   review   and  gain
               decision-making  input  into  final  technology  design  for test
               markets.

          o    Sites  to  conduct  trials,  to  establish  protocols,  to  track
               outcomes and to act as early-adopter  organizations for acquiring
               the technology.

          o    Access to significant channels of distribution.


Acquisition of SecureAlert II


         In July 2001, the Company consummated a merger agreement to acquire
SecureAlert II and its affiliated entities. SecureAlert II is based in
Knoxville, Tennessee, and distributes a line of home safety and personal
security products, including products marketed under the Magnavox brand through
an exclusive distribution agreement with Philips. SecureAlert II also sells
consumer electronics products including televisions, home theater systems and
satellite television systems.


         The consideration for all of the issued and outstanding shares of
SecureAlert II included cash of $1,400,000 and 1,433,333 shares of common stock
of the Company. The cash and stock are to be issued to the holders of
SecureAlert II stock in proportion with their ownership of SecureAlert II in
seven installments. The first installment was paid on July 2, 2001. The
remaining installments were to be paid on the last day of each of six
consecutive calendar quarters, beginning September 30, 2001. In addition to cash
and common stock, the Company granted employment-based common stock purchase
warrants to former officers and directors and the former shareholders of
SecureAlert II for the purchase of an aggregate of 1,000,000 shares of common
stock at a purchase price of $3.00 per share. The warrants are fully vested and
may be exercised at any time and from time to time, in whole or in part, over
the next five years. The Company also partially repaid amounts outstanding on an
existing line of credit with SunTrust Bank of Tennessee ("SunTrust").
Certificates evidencing the shares of stock issuable under the agreement are
held in escrow to be delivered to the SecureAlert II shareholders according to
the terms of the agreement.


         The Company granted the former SecureAlert II shareholders limited
antidilution rights and agreed that through June 2003, if the Company issues or
sells any shares of common stock for consideration of less than $3.00 per share,
then it will issue additional shares to the SecureAlert II shareholders such
that the total value of the shares of common stock issued in the acquisition,
including the additional shares, if any, totals $4,299,999. The Company is not
required to issue additional shares in connection with the issuance or sale of
shares of common stock (1) deemed to have been issued by the Company in
connection with its stock option plans outstanding at the closing date, (2) upon
conversion of outstanding preferred stock, or (3) upon the conversion or
exercise of any options or warrants issued other than under the stock option
plan, provided the terms of those securities are not amended after the closing
date.


         The obligations of the Company under the agreement are secured by a
pledge of the outstanding shares of the Company's wholly owned subsidiary
through which it effected the acquisition. If the Company defaults in the
payment of any installment of the purchase price or commits other material


                                       4
<PAGE>

breaches as defined by the agreement as amended, and the breach remains uncured
for a period of 60 days following receipt of written notice given by the
shareholders of SecureAlert II, then the SecureAlert II shareholders may
terminate the transaction and retain the consideration received through the date
of termination.


         The Company failed to pay the required September 30, 2001 installment
payments of cash and shares under the purchase agreement and received a notice
of default on October 15, 2001. On November 30, 2001, the Company and the former
SecureAlert shareholders amended the merger agreement and the Company agreed to
(1) disburse the $200,000 and 200,000 share payments due originally on September
30, 2001 on or before December 5, 2001, (2) pay a fee of $10,000 to a former
shareholder of SecureAlert on or before December 5, 2001, for the extension
through December 14, 2001 of the shareholder's letter of credit in the amount of
$202,000 securing the SunTrust bank line of credit and (3) distribute the
$200,000 and 200,000 share payments originally due on December 31, 2001 on or
before December 14, 2001, provided that if the Company could not obtain a new
line of credit replacing the then current SunTrust line of credit, the due date
would be extended to December 31, 2001. In addition, Mr. Derrick and Mr. Dalton
agreed to personally establish letters of credit in the total principal amount
of $800,000 in favor of SunTrust and to use their best efforts to obtain the
release of the personal guarantees of four of the former SecureAlert
shareholders under the SunTrust line of credit. Additionally, the agreement was
amended to provide that in the event of default, if the former SecureAlert II
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 is personally guaranteed by four
former SecureAlert shareholders.


         The Company satisfied all of the above requirements of the amended
agreement. The remaining installments of shares and cash will be paid on the
last day of each of the remaining four consecutive calendar quarters, beginning
March 31, 2002.


Markets


Overview


         With increasing healthcare costs in the United States, cost containment
is a primary issue facing the healthcare industry. The Company expects that this
pressure will intensify during the 21st century as the first of the baby-boom
generation reach age 65 in 2011. Currently 35 million Americans are 65 years of
age or older, and this number is projected to increase to 54 million by the year
2020. By that year, one in six Americans will be over the age of 65 and by the
middle of the century, the number of elderly could reach 79 million, more than
double current numbers. The Company believes that these numbers are particularly
alarming considering that the average life expectancy is also increasing. With
an aging population and the fact that 80 percent of healthcare costs occur in
the last two years of life, the Company believes that viable cost saving options
are needed. To contain healthcare costs, healthcare providers have focused on
approaches that minimize the amount of hospitalization required by a given
individual. As a result, technologies that help to reduce or prevent
hospitalization are in high demand.


         RemoteMDx is focusing on two specific areas to capitalize on this
demand. The first is reducing the response time when a medical emergency occurs.
A study published in the New England Journal of Medicine in August 2000 stated
that it is fairly common in the United States for people living alone to be
found either helpless or dead. The incidence increases with age, averaging 14
incidents per 1,000 people living alone, and 31.6 incidents per 1,000 people
over age 65 living alone. Other key findings of the study include the following:

          o    Most  victims  were  elderly  white  women from fairly well to-do
               communities

          o    Median time spent incapacitated was 15 hours (two hours for those
               found alive; 18 hours for those found dead)

          o    Victims were found by family members only 11 percent of the time

          o    28 percent of victims died



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<PAGE>

          o    62 percent of survivors required hospitalization

          o    The average hospital stay was eight days at a cost of $9,985

          o    Among  survivors,  only 38 percent  were able to return to living
               independently

          o    The longer  victims  waited for  emergency  help,  the higher the
               hospitalization costs and higher the mortality rate.


          The second focus area is the need to monitor chronically ill patients.
Various industry studies have been conducted showing the cost savings that are
attributed to the daily remote monitoring of the chronically ill. One such study
conducted at the University of Illinois at Chicago in July 2000 had the
following conclusions regarding congestive heart failure patients who are
monitored daily versus those who are not:

          o    70 percent decrease in heart failure admissions to the hospital

          o    73 percent decrease in length of stay in the hospitals

          o    76 percent  decrease  in  hospital  charges  resulting  in a cost
               saving of $13,876 per patient per year


         It is estimated that of the 35 million Americans that are 65 years of
age or older, approximately 9 million live alone. Most of these persons are
still mobile but are at a high degree of risk of experiencing a medical
emergency of some kind.


         Industry studies indicate that the prevalence of chronic illnesses in
the United States is as follows:

                             Chronic Illness                  No. of Cases
                             ---------------                  ------------
                AIDS/HIV                                              650,000
                Asthma                                             14,400,000
                Cancer                                              7,400,000
                Congestive Heart Failure                            4,900,000
                Coronary Heart Disease                             13,900,000
                Diabetes                                           15,700,000
                Hepatitis B                                         1,000,000
                Hepatitis C                                         2,700,000
                Osteoporosis                                       10,000,000
                                                                   ----------
                Total                                              70,250,000
                                                                   ==========

         These statistics disclose that approximately one in every four
Americans suffers from a chronic illness. This is a primary reason total
healthcare industry expenditures in the United States now exceed $1 trillion and
are expected to grow to $2 trillion by 2007. Studies also show that chronic
illnesses account for 60 to 70 percent of total healthcare costs, with heart
disease, cancer, and diabetes making up more than $100 billion in annual
healthcare costs.


         RemoteMDx's target markets are further defined by the following market
statistics:

          o    The  home  healthcare  market  is $42  billon  (approximately  50
               percent of these cost are associated with the cost of labor)

          o    The telemedicine market is approximately $65 billion

          o    The personal  security  market is $ 6.1 billion and growing at an
               annual rate of 12 percent


         The Company believes routine monitoring of patients with chronic
conditions can substantially reduce these costs. Monitoring can lead to earlier
intervention, often precluding the need for more expensive in-hospital care.
Other factors identified by the Company that affect the industry include:



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<PAGE>

          o    Insurance  companies are  struggling to maintain  service  levels
               while controlling costs

          o    Patient access to timely healthcare is being limited

          o    Physicians are having their incomes reduced significantly

          o    Federal  government  has adopted a "Prospective  Payment  System"
               which is a flat fee payment that  capitates  and limits the costs
               Medicare and Medicaid will pay for home healthcare services

          o    In 2050, there will be 27 persons 85 years old and over for every
               100 persons age 50 to 64.


Market Opportunity--Healthcare Industry Challenges


         The Company believes that pressure from consumers, physicians and
insurance groups is mounting on the healthcare system and that this pressure is
driving changes in the methods, costs and availability of healthcare delivery.
Healthcare costs in the United States are rising and the Company believes that
cost containment is a primary issue facing the industry. Several factors
contributing to increasing healthcare costs include, in the Company's opinion,
the following:

          o    Errors in transcription of medical data

          o    Lack of patient compliance to prescribed healthcare

          o    Delayed detection and diagnosis of medical needs

          o    Lack of consistent monitoring of "at-risk" patients

          o    Shortage of qualified care providers

          o    Increased prevalence of chronic diseases, which account for 60 to
               70  percent  (approximately  $700  billion)  of total  healthcare
               costs,  with heart  disease,  cancer and diabetes  accounting for
               more than $100 billion in annual healthcare costs


         In addition to economic pressures, there are significant demographic
and life style pressures on the healthcare system. The baby boomers are now
aging. As a population we are living longer and becoming more proactive and
informed with our healthcare issues and choices. Average life expectancy is
moving upward. These factors combined present an opportunity for companies that
provide healthcare services and products to this large population segment. The
market includes:

          o    Seventy-five  million  babies born in the United States from 1946
               to 1964

          o    A  population  over age 65 that is  projected  to  increase to 54
               million  persons by 2020.  The growth rate of the elderly will be
               more than double that of the total population during this period.
               Beginning in 2011, the first members of the baby boom  generation
               will reach age 65.

          o    An elderly  population  in America that will include about one in
               six Americans by 2020.  By the middle of the century,  the number
               of elderly  could reach 79 million.  In 2050,  the final phase of
               the  gerontological  explosion will occur. The elderly population
               as a whole will number about 79 million people,  more than double
               its present size.


         The Company believes that a "window of opportunity" now exists for
planners, policy makers, and businesses to prepare for the aging of the
baby-boom generation.


         Currently 35 million Americans are 65 years of age or older and the
size of the over-85 population is also increasing. These population segments and
their accompanying health status, which clearly declines with increasing age,
indicate that a larger number of individuals will seek long-term care as part of
the continuum from independent living, to assisted living at home, to


                                       7
<PAGE>

institutional care. Additionally, with longer life expectancy and more persons
85 years old and over, it is likely that more and more people will have
surviving older relatives and be concerned with the daily monitoring of the
health status of these loved ones. In 1959, there were just three persons 85
years old and over for every 100 persons ages 50 to 64. In 2050, there will be
27 persons 85 years old and over for every 100 persons ages 50 to 64.


         About half of the over-85 population who live in their homes are frail
and need assistance with everyday activities. Their relatives, in their fifties
and sixties, face the difficulties of providing this care. As a person ages, the
number of office visits per year to a physician increases, according to the
National Ambulatory 1997 Medical Care Survey. When this trend is coupled with
the fact that the fastest growing segment of the population is those 65 years of
age and older, an explosion of office visits is anticipated. RemoteMDx believes
that it is poised to take advantage of the coming growth in patients seeking
medical office visits or other healthcare services and its products offer a
solution for dealing with this growth in a cost-effective manner. RemoteMDx
believes routine monitoring of patients with chronic conditions coupled with
emergency response services will substantially reduce these costs. This
monitoring should lead to earlier intervention and response, thus often
precluding the need for more expensive in-hospital care.


         The Company believes that the healthcare industry is being forced to
revolutionize its practices and that RemoteMDx is strategically positioned with
its vision and technology to ride the wave of revolution. RemoteMDx solutions of
health monitoring, diagnosis, and data management services are expected to have
the following impact on the industry:

          o    Improved  efficiencies  resulting  in  over  $1  billion  in cost
               savings.

          o    Improved accuracy, portability and communication of patient data.

          o    50 to 100 percent improvement in physician office efficiency.

          o    Peace of mind to patients and their caregivers.

          o    Quick response to medical and personal emergencies.

          o    Fast,  efficient  and staged  implementation  of home  healthcare
               delivery options.

          o    Fewer hospital visits.

          o    50 percent reduction in home healthcare delivery costs.


         Pressures are mounting on the healthcare industry to gain control over
costs, to meet the demands of a growing patient population and to improve
patient outcomes from the healthcare system. The Company believes that the
industry is realizing that the productivity gains that have occurred through
technology in other industries must also be leveraged to solve some of its own
challenges.


SecureAlert Products


         SecureAlert produces and distributes a line of personal security
devices with wireless and home applications. Its remote personal security
products allow seniors to live an active, mobile lifestyle without worrying
about being unprepared in an emergency situation. These products are intended to
provide the end user with the appropriate amount of security they desire.


Magnavox Mobile911


         This product has a target market to the elderly and youth markets that
cannot afford the monthly expense of a regular cell phone, but who want the
security to know that by the push of a button, emergency services are but
minutes away. This unique product has a one-time fee of $199 (retail) with no
monthly service fee necessary. Upon the push of a button, it immediately


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<PAGE>

connects the user to the nearest 911 emergency dispatch center, regardless of
where the user is located in the country. Four AAA batteries that have a battery
life in excess of one year power this telephone to answer the concerns of those
that may forget to recharge a regular cell phone and taking into consideration
the fact that average use is expected to be limited to only a few calls per
month.


Magnavox MobilePal


         Similar in design to the Mobile911, this device offers a concierge
service whereby the user pushes one button and is connected to a call center
open 24 hours a day, seven days a week ("24/7"). Whenever the user needs
personal assistance, there is no need to remember a phone number or mobile
dialing procedure - just press one button to be connected to a caring and
knowledgeable Personal Assistant. The Personal Assistant can then put the caller
into contact with a variety of services from dispatch to personal emergency
services, as well as access and provide personal health information at the users
option. In addition, it can link the caller to any phone number of his or her
choosing. The device operates on four AAA batteries that provide long-lasting
use. Service varies based on the monthly plan chosen.


Magnavox MobilePal+GPS


         This phone is the next generation of the MobilePal, capable of all the
functions of its predecessor with the addition of GPS technology capable of
triangulating signals from a constellation of 12 satellites, pinpointing exact
outdoor location within 30 feet. The phone is powered by four AAA alkaline
batteries, which will provide over a year of average use, an estimated 60
minutes of talk time, without recharging. Additional safety features include a
hands-free speakerphone and a built-in 95-decibel siren that can be used as a
deterrent or an alarm to alert help.


Monthly Service Plans


         Along with mobile security phones, the Company provides several
different monthly service plans at different rates. Security phone purchasers
can subscribe for the plan that best suits their projected needs or anticipated
use of the phone. Those plans include the "Personal Security Plan," the
"Personal Security Advantage Plan," and optional calling services.


Personal Security Plan

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

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

          o    Location of nearest hospital and veterinary services

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

          o    Personal  calling  to any  phone  number  selected  by  the  user
               including family and friends and caregivers


Personal Security Advantage Plan


         Includes all of the services of the Personal Security Plan plus:

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

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

          o    Product replacement in case of damage or loss


Optional Services


         For an additional per-minute charge, participants can purchase extended
services including:

                                       9
<PAGE>

          o    Roadside  Assurance--  includes  four  free  tows  or  four  free
               lock-out service calls annually

          o    Medical Data Link-- stores critical personal medical  information
               and communicates needs to emergency personnel


         The United States Postal Service ("USPS") has tested the Magnavox
MobilePal phone in Richmond, Virginia and Raleigh, North Carolina as part of a
government mandated emergency response and communications program. During the
quarter ended December 31, 2001, the USPS tested 60 units and the call center
over the course of 15 weeks and is currently evaluating the effectiveness of the
Magnavox MobilePal phone. The Company believes these tests will demonstrate the
MobilePal phone can be an important tool to provide an emergency communication
solution that the carriers and supervisors find effective, easy to use, and
simple to manage.


         The Company is working on several substantial orders for the MobilePal
and the MobilePal+GPS from companies such as TechnoBrands, Baptist Senior Plus,
and ADT, although as of the date of this report no orders had been finalized. In
the wake of the September 11, 2001 terrorist attacks and the subsequent creation
of the Homeland Security department, the Company believes its products could
become an integral part of a nationwide emergency response network.


HomePal Products


         RemoteMDx remote health monitoring services save people's time, money
and lives by sending vital health information electronically to doctors and
attending nurses. This product line includes the following.


PalWatch


         RemoteMDx will introduce its first version of the PalWatch in 2002.
This simple watch-sized device is worn on the wrist and works in combination
with the MobilePal+GPS communication device. The PalWatch has one easy-to-use
button that connects the user to the PalServices Network. The PalServices
Network is a response center with live Personal Assistants ready to give
immediate assistance 24/7. The PalWatch is a smart device that will
automatically detect if a user experiences a fall and will send out a signal
indicating the users exact location. This fall detection information and
location signal go immediately to a Personal Assistant who will attempt to
contact the user and determine their needs, or, if they do not respond, will
automatically send emergency assistance.


HomePal Monitor


         The simple and easy-to-use device transmits a patient's weight, blood
pressure, blood oxygen, pulse rate, airflow to lungs, medication compliance, and
glucose level via telephone to a care provider. This affordable and innovative
HomePal monitor along with its web-based management software benefits both the
consumer and the healthcare system by improving patient care and satisfaction,
improving patient clinical outcomes, and by decreasing the number of emergency
room visits, thereby reducing the total cost of care. The HomePal management
software gives healthcare systems the flexibility of managing patients
themselves or having their patients managed by the RemoteMDx nationwide Pal
Services Network.


The PalWatch Monitor


         RemoteMDx intends to combine its remote health monitoring services with
its mobile communication and security services by launching the ultimate
generation of the PalWatch. This version of the PalWatch will not only act as a
fall detection device, but will also constantly monitor the user's vital signs.
This noninvasive device will take the patient's vital signs by measuring
electronic pulses in the patient's skin and transmit the data to a healthcare
provider automatically without any initiation from the patient. These pulses are
then analyzed by a series of complex algorithms, and all the above-mentioned
vitals can be monitored. It will enable the care provider to remind the patient
to take medication and will provide monitoring capabilities in case of
emergencies or when the patient's vital signs go outside of established
parameters.


                                       10
<PAGE>

Other Products


         The Company is currently selling a variety of home electronic systems
through SecureAlert, with a special niche in the Manufactured Home market.


Research and Development


         With the change in emphasis to remote medical diagnostics and personal
security and monitoring products and services, the Company has made a
significant commitment to research and development. Research and development
expenditures in the year ended September 30, 2001 were $960,969 compared to
$2,069,231 in the year ended September 30, 2000. Research and development
expenses in 2000 were significantly higher than in 2001 due to compensation
expense associated with the warrants granted to Battelle under its strategic
alliance arrangement with the Company.


Intellectual Property


         RemoteMDx intends to protect the intellectual property it is developing
through extensive protection of patents and trade secrets. The Company owns US
Patent No. 6,044,257 and has two additional patents pending for technology
related to personal mobile security devices. The Company has filed a provisional
patent in the remote medical diagnostic arena and is working on additional
claims to that patent.


Competition


         The Company believes that several companies in the healthcare arena
have products overlapping markets served or intended to be served by the
RemoteMDx product family. The Company has not identified any companies that
compete directly with the services to be marketed in connection with the HomePal
Monitor ("PAL Service"). There are, however, several companies that have
products or services that deliver components included in the PAL Service.


         The Company has identified American TeleCare, Inc. as a company with an
existing product that may provide competition to the HomePal Monitor. The
Company has further identified Cyber-Care and the Eastman Kodak Company as
developing products that may compete with the Company in the future. To date,
Cyber-Care and Eastman Kodak are not selling their potentially competing
products to the general public. All of the companies mentioned above have
targeted chronic disease monitoring with their products, and have no proprietary
position in the acute diagnostics market.


         The Company believes that the industry has not embraced the products of
current competitors in the chronic monitoring space. The current competitors are
attempting to sell hardware units to healthcare providers. The healthcare
providers apparently prefer not to inventory, maintain or carry hardware on
their balance sheets--particularly the majority of home healthcare providers who
are small, cash constrained entities.


         After interviewing several home healthcare agencies and gaining an
understanding of their needs, the Company is approaching the chronic monitoring
market with a direct-to-consumer weekly service fee model. The Company expects
to be successful with this strategy due to its combined business model
comprising control over both product hardware and the monitoring service
network.


         The Company believes that, because of the nature of the healthcare
industry, competition will likely arise and intensify. The Company believes that
it will maintain advantages over its competition based on its alliance with
Battelle and other strategic partners and because of its unique business model
combining both technology development and a data management network. In
addition, the Company believes that several components in the RemoteMDx product
family will enjoy significant intellectual property protection from competition.
By establishing a basis for real, substantial cost savings and by providing
broad practical solutions to the crisis in healthcare, the Company believes its
products will flourish in current and future market conditions.


         Other competitors include Lifeline Systems, Inc., manufacturer of a
personal emergency response system (PERS) with approximately 300,000
subscribers, Card Guard Scientific Survival Ltd., a developer of telemedicine
systems for healthcare providers, Digital Angel Corporation, offering a
watch-sized device linked to a pager-sized companion equipped with GPS, heart


                                       11
<PAGE>

rate and temperature monitoring, fall detection, and a 911 panic button, and SHL
Telemedicine Ltd., offering advanced telemedicine systems and services to
subscribers.


         The Company believes its products and planned products and services,
together with the established distribution channels used for SecureAlert's
Magnavox branded products, give the Company some competitive advantages over
each of these companies. These companies have been in the market longer in some
cases and in some cases are also better capitalized than the Company and there
is no assurance that the Company will be successful in taking market share from
any or all of these competitors or from other competitors at present unknown to
the Company.


Dependence on Major Customers


          During the fiscal years ended September 30, 2000 and 2001, sales of
consumer electronic products to a single customer accounted for approximately 19
percent and 17 percent, respectively of net sales of the Company. In addition,
two customers at September 30, 2001 accounted for 17 and 10 percent of
outstanding accounts receivable of the Company. The loss of either of these
customers would result in lower revenues and limit the cash available to grow
the Company's business and to achieve profitability. The Company has no
arrangements or contracts with either of these customers that would require them
to purchase a specific amount of product from the Company and they are therefore
free to choose at will from among suppliers of like products.


Dependence on Major Suppliers


         From the date of the SecureAlert merger through September 30, 2001, the
Company purchased approximately $233,000 of inventory from Philips under a
purchase agreement. The Company also expects to purchase the majority of its
emergency telephone inventory from Uniden under a purchase agreement. After
September 30, 2001, the Company entered into a cellular switching access
agreement under which it expects to purchase substantially all of its cellular
access requirements in the next three years. If any of these significant
suppliers were to cease providing product or services, as the case may be, to
the Company, the Company 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 the business and
financial condition of the Company.


Employees


         At September 30, 2001, the Company had 17 full time employees and four
part-time employees. Of these employees, a total of nine full-time and three
part-time employees were employed by the Company's SecureAlert subsidiary. The
employees of the Company are not represented by a collective bargaining
arrangement, and the Company believes its relationship with its employees is
good.


Item 2.  Properties


         The Company's 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.


         The Company's SecureAlert subsidiary operates out of leased premises
located at 109 David Lane, Knoxville, Tennessee. 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.


         The Company believes the facilities described above are adequate to
accommodate presently expected growth and needs of its operations. As the
Company continues to grow, additional facilities or the expansion of existing
facilities will likely be required.




                                       12
<PAGE>

Item 3.  Legal Proceedings


         The Company is not a party to, and none of its 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 its financial condition, results
of operations or cash flows. SecureAlert is party to litigation incidental to
its distribution business. However, the Company does not believe the potential
liability, if any, of SecureAlert, or the costs incurred in connection with
those matters will be material.


Item 4.  Submission of Matters to a Vote of Security Holders


         In July 2001, the shareholders of the Company approved an amendment to
the Company's Articles of Incorporation changing the corporate name of the
Company to "RemoteMDx, Inc." The amendment was approved by written consent
solicited by the board of directors of the Company. A total of 2,472,894 shares
were voted in favor of the amendment out of a total of 3,820,421 shares entitled
to vote on the amendment. No votes were cast against the amendment.


                                     Part II


Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters


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


         Holders. As of September 30, 2001, there were approximately 879 holders
of record of the Company's common stock and approximately 7,841,585 shares
issued and outstanding. The Company also had 24,181 shares of Series A Preferred
Stock and 700,001 shares of Series B Preferred Stock at September 30, 2001. The
Series A Preferred Stock is held by 39 holders of record and is convertible into
8,946,970 shares of common stock. The Series B Preferred Stock is held by six
holders of record and is convertible into a total of 700,001 shares of common
stock.


         Dividends. Since its incorporation, the Company has not declared any
dividend on its common stock. The Company does not anticipate declaring a
dividend on its common stock for the foreseeable future. The Series A Preferred
Stock accrues dividends at the rate of 10 percent annually, which may be paid in
cash or additional shares of preferred stock at the option of the Company. To
date all such dividends have been paid by issuance of preferred stock. During
the fiscal year ended September 30, 2001 the Company declared and paid the 10
percent dividend by issuing 2,003 shares of Series A Preferred Stock on the
outstanding shares of Series A Preferred Stock. The Company does not pay
dividends with respect to the Series B Preferred Stock.


         Dilution. The Company has 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 the Company's stock. In addition, a significant number of shares of
common stock of the Company 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, RemoteMDx agreed with the NASD to issue
additional shares of common stock in connection the distribution to Biomune
shareholders of record on February 11, 1998. The Company has issued additional
shares of common stock under this agreement from time to time since February
1998. See "Recent Sales of Unregistered Securities."


         The issuance of any shares of common stock, whether in connection with
the Distribution, new equity offerings, acquisitions, or the exercise of
options, warrants, or conversion rights will result in dilution of the equity
and voting interests of existing shareholders.


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




                                       13
<PAGE>

Recent Sales of Unregistered Securities


         The following information sets forth certain information for all
securities sold by the Company during the past three years without registration
under the Securities Act of 1933, as amended (the "Securities Act").


Fiscal Year 1999


         During fiscal year 1999, the Company sold 797.5 shares of Series A
Preferred Stock for cash proceeds totaling $159,500. All sales were to
accredited investors. In addition, the Company issued 848 shares of Series A
Preferred Stock as a stock dividend to holders of the Series A Preferred Stock
and 2,460 shares of Series A Preferred Stock to certain employees, officers,
directors, and consultants as compensation for services rendered to the Company.
The Company also realized a subscription receivable of $402,200 for Series A
Preferred Stock with a note payable to Biomune in the principal amount of
$372,411, and accrued interest of $29,789.


         With respect to the foregoing offers and sales of restricted and
unregistered securities, the Company relied on the provisions of Sections 3(b)
and 4(2) of the Securities Act and rules and regulations promulgated thereunder,
including, but not limited to Rules 505 and 506 of Regulation D, in that such
transactions did not involve any public offering of securities and were exempt
from registration under the Securities Act. The offer and sale of the securities
in each instance was not made by any means of general solicitation, the
securities were acquired by the investors without a view toward distribution,
and all purchasers represented to the Company that they were sophisticated and
experienced in such transactions and investments and able to bear the economic
risk of their investment. A legend was placed on the certificates and
instruments representing these securities stating that the securities evidenced
by such certificates or instruments, as the case may be, have not been
registered under the Securities Act and setting forth the restrictions on their
transfer and sale. Each investor also signed a written agreement that the
securities would not be sold without registration under the Securities act or
pursuant to an applicable exemption from such registration.


         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. The
Company registered its common stock as a class under Section 12(g) of the
Exchange Act of 1934 by filing a Form 10-SB that was declared effective by order
of the SEC on December 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. The 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 such
date.


         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 after March 5, 1997 and before February 11, 1998, from accounts not then
held in "street name" and which did not, therefore, by operation of Depository
Trust procedures, send on the Company dividend shares when they were physically
received. Street name accounts were electronically credited with the dividend
shares.


         During the year ended September 30, 1999, the Company issued 100,219
shares of common stock as additional Distribution shares under its 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


                                       14
<PAGE>

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 2000


          During fiscal year 2000, the Company sold 1,330 shares of Series A
Preferred Stock for cash proceeds totaling $266,000. All sales were to
accredited investors. In addition, the Company 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 to the Company.


          During the year ended September 30, 2000, the Company sold 1,900,000
shares of common stock for $1,500,000. The Company 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. In addition, during fiscal year
2000, the Company issued 72,000 shares of common stock upon conversion of 288
shares of Series A Preferred.


         During the year ended September 30, 2000, the Company issued 1,746
shares of common stock as additional Distribution shares under its 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


         The Company issued 669,000 shares of common stock for services and
60,000 shares as inducement for conversion of debentures in fiscal year 2001.
The Company also issued 3,475 shares of Series A Preferred Stock to two
directors for services. See "Certain Relationships and Related Transactions."
From December 2000 through March 2001, the Company 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 the Company issued 160,001 shares of common stock
in connection with that conversion. Subsequent to September 30, 2001, the
holders of debentures with a face amount of $55,000 converted their notes and
the Company issued 19,939 shares of common stock in connection with the
conversion.


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


         In July and August 2001, the Company 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 shares of common stock 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, the Company issued 707,384 shares of common
stock upon conversion of 1,911 shares of Series A Preferred Stock. The Company
also issued 1,682,000 shares of common stock upon the exercise of stock options
held by officers and directors of the Company whereby the exercise price was
paid through the extinguishment of $1,682,000 in borrowings under the line of
credit. The Company 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


                                       15
<PAGE>

of Series A Preferred Stock upon a cashless exercise of warrants under the same
line of credit. See "Certain Relationships and Related Transactions." The offer
and sale of these securities were undertaken by the Company in reliance upon
exemptions from registration under the Securities Act as described above. The
Company 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, the Company issued 188,621
shares of common stock as additional Distribution shares under its 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.


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


         The following discussion and analysis should be read in conjunction
with the Company's audited financial statements and the notes thereto contained
elsewhere in this report. The discussion of these results should not be
construed to imply any conclusion that any condition or circumstance discussed
herein will necessarily continue in the future. The results of operations of the
Company discussed below include the operations of Reagents and SecureAlert,
since its acquisition in July 2001.


Results of Operations


Fiscal Year Ended September 30, 2001 Compared to Fiscal Year Ended September 30,
2000


Net Sales


         In the fiscal year ended September 30, 2001, RemoteMDx had net sales of
$1,247,633 compared to $496,211 for fiscal year ended September 30, 2000, an
increase of $751,422 or 151 percent. The increase in net sales resulted
primarily from the acquisition of SecureAlert II in July 2001. SecureAlert had
net revenues of $744,826 from the date of acquisition through September 30,
2001. Reagents had revenues for the fiscal year ended September 30, 2001 of
$502,807, relatively unchanged from the prior fiscal year. The Company
anticipates 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, 2001, RemoteMDx had cost of
goods sold of $959,167 compared to $291,213 for the fiscal year ended September
30, 2000, an increase of $667,954 or 229 percent. The increase in cost of sales
resulted primarily from the acquisition of SecureAlert II in July 2001.
SecureAlert's cost of goods sold totaled $632,230, or 85 percent of SecureAlert
net sales from the date of acquisition through September 30, 2001. Reagents'
cost of goods sold totaled $326,937 for the year ended September 30, 2001, an
increase of $35,724 or 12 percent 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, 2001 was
approximately 35 percent compared to 41 percent of revenues in fiscal year 2000.


Research and Development Expenses


         In the fiscal year ended September 30, 2001, RemoteMDx incurred
research and development expenses of $960,969 compared to $2,069,231 for the
fiscal year ended September 30, 2000, a decrease of $1,108,262 or 54 percent.
During the year ended September 30, 2000, research and development expenses
consisted primarily of the issuance of 400,000 shares of common stock valued at
$400,000, options to purchase 1,350,000 shares of common stock valued at
$1,077,960, and cash of $591,231 for research and development services performed
by Battelle. During the year ended September 30, 2001, research and development
expenses consisted of $687,453 in expenditures to Battelle, representing a
decrease of $1,381,778 from the prior fiscal year. These decreases were offset
in part by payments made to other research and development companies. Research
and development expenses for SecureAlert totaled $131,117 from the date of
acquisition through September 30, 2001. The Company anticipates that research


                                       16
<PAGE>

and development expenses may increase in the future due to expanded research and
development of its HomePal products.


Selling, General and Administrative Expenses


         In the fiscal year ended September 30, 2001, RemoteMDx incurred
selling, general and administrative expenses of $5,237,648, compared to
$1,596,601 for the fiscal year ended September 30, 2000, an increase of
$3,641,047 or 228 percent. This increase relates primarily to the following: (1)
$767,788 related to the repricing of common stock options, (2) $644,000 related
to the increase in common stock issued for services, (3) $475,000 related to the
increase in Series A Preferred Stock issued for services, (4) $323,734 related
to market research for the Company's HomePal products, (5) $547,750 related to
SecureAlert's expenses from the date of acquisition through September 30, 2001,
(6) $185,305 related to stock options issued for services, (7) $697,470
primarily related to increases in salaries and related benefits due to an
increase in personnel, as well as increases in travel and other expenses.


Interest Income and Expense


         In the fiscal year ended September 30, 2001, RemoteMDx incurred
interest expense of $2,619,184. This amount consists primarily of $2,233,000
related to the beneficial conversion features and preferred stock warrants
associated with a related-party line of credit and $180,000 related to the
induced conversion of $400,000 in Series A 15 % Convertible Debentures, together
with (1) interest related to borrowings under the related-party line of credit,
(2) interest related to borrowings under convertible debentures, (3)
amortization of a discount on the purchase obligation to former shareholders of
SecureAlert II, (4) interest related to borrowings under a line of credit with
SunTrust and (5) interest related to borrowings under two related-party
promissory notes.


Liquidity and Capital Resources


         RemoteMDx currently is unable to finance its operations solely from its
cash flows from operating activities. During the year ended September 30, 2001,
RemoteMDx financed its operations primarily through borrowings from a related
party and the sale of equity securities.


         As of September 30, 2001, the Company had cash of $59,977 and a working
capital deficit of $2,865,119 compared to cash of $278,421 and working capital
of $177,697 at September 30, 2000.


         During fiscal year 2001, the Company's operating activities used cash
of $2,612,483 compared to $1,492,509 in 2000. The increase was primarily a
result of the net loss of $8,520,097 adjusted by non-cash items totaling
$4,862,520, including compensation expense related to the repricing of stock
options, depreciation and amortization, interest expense related to the
beneficial conversion features and preferred stock warrants associated with a
related-party line of credit, common and preferred stock issued for services,
stock options issued coupled with certain increases and decreases in working
capital components.


         The Company's investing activities for the year ended September 30,
2001 used $459,590 of cash compared to $9,193 for the year ended September 30,
2000. This increase of $450,397 is the result of an increase in the purchase of
property, plant and equipment of $34,259 and the net cash used in the
acquisition of SecureAlert II of $416,138.


         The Company's financing activities for the year ended September 30,
2001 provided $2,853,659 of cash compared to $1,736,000 for the year ended
September 30, 2000. Of this amount in 2000, $1,500,000 was from the issuance of
common stock and $236,000 was from the issuance of shares of Series A Preferred
Stock. During the year ended September 30, 2001, the Company received cash of
$1,862,003 from the issuance of Series B Preferred Stock, $545,000 from the
issuance of its Series A 15% Convertible Debentures and $2,233,000 from
borrowings from a related party. This cash was decreased by $200,000 for
payments on obligations related to the SecureAlert II purchase agreement and by
$1,586,374 related to payments on the Company's line of credit with SunTrust.




                                       17
<PAGE>

         The Company incurred a net loss of $8,520,097 and had negative cash
flows from operating activities of $2,612,483 for the year ended September 30,
2001. As of September 30, 2001, the Company had a working capital deficit of
$2,865,119, a net tangible stockholders' deficit of $2,683,057 and an
accumulated deficit of $21,708,091. These factors, as well as the risk factors
set out elsewhere in this report raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements included in
this report do not include any adjustments that might result from the outcome of
this uncertainty.


         Management's plans with respect to this uncertainty include raising
additional capital from the sale of debt and equity securities. In furtherance
of this plan, subsequent to September 30, 2001, the Company raised additional
debt financing from Mr. Derrick and his affiliates, increased its borrowings
under a line of credit with SunTrust, borrowed $1,993,974 from two third
parties, and sold 32,000 shares of redeemable common stock to a third party for
proceeds of $96,000. Additionally, the Company is attempting to raise equity
financing through the sale of Series B Preferred Stock. The Company also plans
to enhance revenues and cash flows from the SecureAlert operation by increasing
its selling and marketing efforts related to existing products and services.
There can be no assurance that the Company will be able to raise sufficient
capital to meet its working capital needs, which include $800,000 in cash to
fund the purchase obligation associated with the Company's acquisition of
SecureAlert over the next twelve months. In addition, there can be no assurance
that the SecureAlert operations will improve and generate positive cash flows
from operating activities and that it will be successful introducing new
products into the market. Further, the Company may be unable to complete the
development and successful commercialization of any remote health monitoring
products.


         In February 2001, the Company entered into a loan agreement with ADP
Management, a Utah corporation owned and controlled by David Derrick, the
Company's CEO and Chairman, which was amended in March 2001 and again in June
2001. The Company may borrow up to $3,000,000 under this line of credit
arrangement. Under the amended agreement, the Company granted to ADP Management
the option to purchase one share of Series A Preferred Stock for every $200 in
principal loaned under the line of credit, which option has a cashless exercise
feature. Through June 1, 2001, the borrowings bore interest at 12 percent per
year. Subsequent to June 1, 2001, borrowings bear interest at the prime rate
(6.26 percent at September 30, 2001). Borrowings under the arrangement were due
on December 31, 2001. The Company did not repay the amounts outstanding under
the line of credit on December 31, 2001 and accordingly, the interest rate on
outstanding borrowings increased to 15 percent per year. The Company is
currently in the process of negotiating an amended line of credit.


         During the year ended September 30, 2001, the lender converted $535,000
of borrowings under the line of credit into 2,675 shares of Series A Preferred
Stock and used $1,682,000 as consideration for the exercise of existing options
to purchase 1,682,000 shares of common stock at an exercise price of $1.00 per
share. As of September 30, 2001, the outstanding balance on the related party
line of credit was $16,000. During the year ended September 30, 2001, the
Company recorded interest expense of $2,274,509, associated with this line of
credit. This amount includes $2,233,000 in non-cash interest expense related to
the beneficial conversion feature and the Series A Preferred Stock warrants.


         Subsequent to September 30, 2001, the Company increased borrowings
under the line of credit by $1,245,599. Of this amount the Company has repaid
$1,036,000. Although these borrowings were repaid within a relatively short
period of time, the Company may be required to grant an option to the lender to
purchase up to 6,228 shares of Series A Preferred Stock, pending the negotiation
of an amended line of credit agreement. See "Certain Relationships and Related
Transactions" for a more complete description of this arrangement and the
consideration granted by the Company to ADP Management in exchange for their
agreement to loan money to the Company. The Company is currently in the process
of negotiating the terms of an amended line of credit.


         SecureAlert has a line of credit agreement with SunTrust. As of
September 30, 2001, the Company had $593,587 outstanding under this line of
credit and borrowings under the agreement were limited to the lesser of $600,000
or a borrowing base equal to the sum of 60 percent of the Company's current
accounts receivable, as defined in the agreement, plus 40 percent of the
Company's current inventory, as defined in the agreement. The interest rate
associated with the line of credit was the 30-day average LIBOR rate plus 2.15
percent (4.79 percent as of September 30, 2001) and borrowings are due January


                                       18
<PAGE>

31, 2002. 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. As
of September 30, 2001, the Company was out of compliance with certain of its
covenants, however the bank subsequently waived the events of default for 90
days.


         As of September 30, 2001, the bank required the Company to maintain a
letter of credit in an amount not less than $200,000 that was provided by a
former shareholder of SecureAlert. In addition, borrowings under the line of
credit were personally guaranteed by four former shareholders of SecureAlert.


         Subsequent to September 30, 2001, the required letter of credit
provided by a former shareholder of SecureAlert was replaced by a letter of
credit from a trust, whose trustee is a relative of an officer of the Company.
The trust's letter of credit expires on June 30, 2002. See "Certain
Relationships and Related Transactions." In the event that the bank draws on the
letter of credit, the Company will repay the amount drawn together with interest
thereon at a rate of 12 percent per year until paid in full. Also, in December
2001, Mr. Derrick assigned two certificates of deposit totaling $500,000 to
SunTrust as additional collateral for borrowings on the line of credit. This
additional collateral replaced the personal guarantees of four former
shareholders of SecureAlert.


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, the Company was required to apply certain
provisions of the new standards for the acquisition of SecureAlert II. Under the
new 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 will continue to be amortized over their
useful lives. As allowed by these statements, the Company plans to adopt the
remaining provisions effective October 1, 2001, the beginning of its fiscal 2002
year. Management expects that there will be no impact on the Company's 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 Company's 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.
The Company will adopt the provisions of this statement on October 1, 2001, the
beginning of its fiscal 2002 year. Management does not expect the adoption of
this statement to have a material impact on the Company's results of operations,
financial position or liquidity.




                                       19
<PAGE>

Risk Factors


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


         "Going Concern" Issues. The financial statements of the Company
included in this report have been prepared on the assumption that it will
continue as a going concern. Additional financing is required if the Company is
to continue as a going concern. If additional funding is not obtained, the
Company will be required to scale back or discontinue its operations. To satisfy
its capital requirements, the Company 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 the Company's equity securities may be dilutive to shareholders
and debt financing, if available, may involve significant restrictive covenants
that limit the Company's ability to raise capital in other transactions.
Collaborative arrangements, if necessary to raise additional funds, may require
that the Company relinquish or encumber its rights to certain of the Company's
technologies, products or marketing territories. Any inability or failure to
raise capital when needed could also have a material adverse effect on the
Company's business, financial condition and results of operations. There can be
no assurance that any such financing will be available on terms satisfactory to
the Company, if at all.


         Absence of Profitable Operations and Uncertainty of Future Financial
Results. From its inception, RemoteMDx has not achieved profitable operations
and continues to operate at a loss. There can be no assurance that RemoteMDx
will ever achieve profitable operations or that it will not require additional
financing to achieve its business plan. Profitability depends upon many factors,
including the success of its marketing program, its ability to identify and
obtain the rights to additional products to add to its existing product line,
expansion of its distribution and customer base, maintenance or reduction of
expense levels and the success of its business activities. At September 30,
2001, RemoteMDx had a working capital deficit of $2,865,119 and an accumulated
deficit of $21,708,091. The Company had a net loss in fiscal year 2001 of
$8,520,097 and anticipates that it will continue to incur operating losses in
the future. RemoteMDx's ability to achieve profitable operations will also
depend on its ability to develop and maintain an adequate marketing and
distribution system. There can be no assurance that the Company will be able to
develop and maintain adequate marketing and distribution resources. If adequate
funds are not available, RemoteMDx may be required to materially curtail or
cease its operations.


         The issuance of shares upon conversion of the Series A Preferred Stock
may cause immediate and substantial dilution to our existing shareholders. The
Company has sold shares of Series A Preferred Stock and has granted two
affiliated parties options to acquire additional shares of Series A Preferred
Stock under a loan agreement. Each share of Series A Preferred Stock is
convertible at the election of the holder thereof into 370 shares of common
stock. The issuance of shares upon conversion of the Series A Preferred Stock
may result in substantial dilution to the interests of other shareholders since
the Series A Preferred shareholders may ultimately convert and sell the full
amount issuable on conversion. Although some Series A Preferred shareholders are
restricted from converting their preferred stock from time to time if such
conversion would cause them to own more than 4.9 percent of our outstanding
common stock, this restriction does not prevent them from converting some of
their holdings, selling the shares received or other shares of common stock
owned by them prior to conversion and then converting the rest of their Series A
Preferred holdings. In this way, the Series A Preferred shareholders could sell
more than the conversion limit while never holding more than this limit. There
is no aggregate limit on the number of shares that may be issued provided they
comply with the 4.9 percent limitation, which will have the effect of further
diluting the proportionate equity interest and voting power of the holders of
the common stock.


         Substantial Dilution from the Issuance of Additional Shares of Common
Stock, the Conversion of Outstanding Preferred Stock and Convertible Debentures,
and the Exercise of Outstanding Options and Warrants. A significant number of
shares of RemoteMDx's common stock are authorized but not issued. In addition,
there are a substantial number of shares of common stock of RemoteMDx reserved
for issuance upon the exercise of certain options, warrants and preferred stock
conversion rights. If and to the extent such options, warrants or rights are
exercised, or if the Board of Directors determines to issue authorized but
previously unissued shares of common stock in connection with acquisitions or
other transactions, such issuances could substantially dilute the voting power
of the existing shareholders of RemoteMDx. Furthermore, the possibility of such
issuances may adversely affect the market for RemoteMDx's common stock, should
such a market ever develop.




                                       20
<PAGE>

         All of the presently outstanding Series A Preferred Stock is
convertible into shares of common stock at a rate of 370 shares of common stock
for one share of preferred stock. In addition to the currently outstanding
shares of Series A Preferred Stock, the Company has granted rights to purchase
6,292 shares of Series A Preferred Stock to ADP Management under a loan
agreement. See "Certain Relationships and Related Transactions."


         The designation of the rights and preferences of the Series A Preferred
Stock limits the ability of the holder of shares of that series from converting
shares in excess of the number that would, upon conversion, result in the holder
or its affiliates from owning more than 4.9 percent of the issued and
outstanding common stock of the Company. Notwithstanding this limit on
conversion, the holder of Series A Preferred Stock is not prevented from
exercising its conversion rights up to the 4.9 percent limit at any time or from
time to time and it is possible, therefore, for the holder to dispose of
previously owned common shares and to again exercise its conversion rights until
all shares of Series A Preferred Stock have been converted. If all of the 24,181
shares of Series A Preferred Stock outstanding as of September 30, 2001 were
converted in this manner or otherwise, the Company would be required to issue a
total of 8,946,970 shares of common stock in excess of the 7,841,585 shares
outstanding as of September 30, 2001. In addition, if the options to purchase
shares of Series A Preferred Stock outstanding at September 30, 2001 were
exercised on a cashless basis, the Company would be required to issue 1,908,633
shares of common stock. There have been additional issuances of Series A
Preferred Stock since September 30, 2001. See "Certain Relationships and Related
Transactions."


         This conversion, regardless of when it occurs, will result in
substantial dilution to the equity interests of other holders of the common
stock. Specifically, public or private resales of common stock following the
conversion of the Series A Preferred Stock likely would depress the prevailing
market price of the common stock. Even prior to the time of actual conversions,
exercises and public or private resales, the market "overhang" resulting from
the mere existence of the Company's obligation to honor conversions or exercises
could depress the market price of the common stock if or when a market for the
common stock develops.


         Transition to a new business model requires devotion of resources and
energies to a business that is unfamiliar to current management. The Company is
now in the process of transitioning from its laboratory stain and reagent
business to a new business that is focused on providing personal security and
remote medical monitoring and diagnostic tools to physicians, consumers and
payors. In transitioning to this new business model, the Company is
substantially changing its business operations, sales and implementation
practices, customer service and support operations and management focus. The
Company is facing new risks and challenges, including a lack of meaningful
historical financial data upon which to plan future budgets, competition from a
wider range of sources, the need to develop strategic relationships and other
risks associated with a significant change of business plans. Failure to
successfully address these issues and risks would materially adversely affect
the Company's business, financial condition and results of operations. In
addition, because the Company is moving out of its current business model, the
available historical information relating to its operations is not indicative of
the operating results the Company might expect under the newly adopted business
plan.


         Changing the business model and adopting a new business plan means that
the Company should be regarded as a "start-up" venture, subject to the risks and
uncertainties associated with startups. The Company is subject to the risks,
uncertainties and difficulties frequently encountered by companies in their
early stages of development. If the Company is to be successful in this new
market, it must accomplish the following, among other things:

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

          o    Increase  awareness of the Company's  brand and develop  consumer
               loyalty;

          o    Respond to competitive and technological developments;

          o    Build an operational structure to support the Company's business;
               and

          o    Attract, retain and motivate qualified personnel.




                                       21
<PAGE>

If the Company fails to achieve these goals, that failure would have a material
adverse effect on the Company's business, prospects, financial condition and
operating results. There is no assurance that a market for or acceptance of
these products or services will ever develop or that demand for the Company's
products and services will emerge or be sustainable. If the market fails to
develop, develops more slowly than expected or becomes saturated with
competitors, or if the market does not accept the products and services, then
the Company's business, financial condition and operating results would be
materially adversely affected.


         Risks of technological uncertainty. The Company may not realize
revenues from the sale of any of its new products for several years, if at all.
Some of the products the Company is currently evaluating likely will require
further research and development efforts before they can be commercialized.
There can be no assurance that the Company's research and development efforts
will be successful or that the Company will be successful in developing any
commercially successful products. In addition, technology, particularly those
that are integrated or expected to be integrated with the Company's product and
service offerings, is rapidly changing and developing. The Company faces risks
associated with the possible obsolescence of its technology and the risks of
delay in the further development of its own technologies. Other difficulties and
uncertainties normally associated with new industries or the application of new
technologies in new or existing industries also threaten the Company's 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
the Company's new products and related services.


         Dependence upon strategic alliances. The Company's strategy for the
identification, development, testing, manufacture, marketing and
commercialization of its products and services includes entering into various
collaborations through corporate alliances. The Company has already entered into
a collaborative relationship with a significant engineering and product
commercialization company and the Company believes that this relationship
provides the Company with a strong strategic alliance for the design and
engineering of its products. The Company's alliance is with a large engineering,
consulting and research and development firm with close connections to the Food
and Drug Administration and other governmental agencies. There can be no
assurance, however, that this relationship will succeed or that the Company 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 the Company chooses not, or is unable to establish such
arrangements, the Company could experience increased capital requirements as a
result of undertaking such activities at its own risk and expense. In addition,
the Company may encounter significant delays in introducing products currently
under development into the marketplace or find that the development, manufacture
or sale of the Company's proposed products are adversely affected by the absence
of successful collaborative agreements.


         Need to attract and retain key personnel. The Company's future success
depends in significant part on the continued service of its senior management
and successfully recruiting additional senior management to oversee the
Company's move into a new business plan. The loss of the services of certain of
the Company's key employees could have a material adverse effect on its
business. The Company does not currently have key man insurance on any of its
employees and the Company does not anticipate obtaining such insurance in the
near future. The Company's future success also depends on its ability to attract
and retain highly qualified design, technical, sales, marketing, customer
service and managerial personnel with experience in its newly targeted markets.
The Company faces competition for qualified individuals from numerous medical
and clinical companies, universities and other research institutions.
Competition for such personnel is intense, and the Company cannot guarantee that
it will be able to attract or retain a sufficient number of highly qualified
employees in the future. Failure to hire and retain personnel in key positions
could materially adversely affect the Company's business, financial condition
and results of operations.


         Inability to manage rapid growth. To execute the Company's business
plan, it must grow significantly. This growth will place a significant strain on
the Company's personnel, management systems and resources. The Company expects
that the number of its employees, including management-level employees, will
continue to increase for the foreseeable future and that it may need additional
office space and expanded technology infrastructure. Failure to manage growth
effectively will materially adversely affect the Company's business, results of
operations and financial condition.




                                       22
<PAGE>

         Current and possibly future government regulation. The Company intends
to market devices that may be regulated by a number of governmental agencies,
including the United States Food & 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 bodies 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 the Company 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, the Company
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. The
Company may encounter similar delays in foreign countries. Furthermore, approval
may entail ongoing requirements for, among other things, post-marketing studies.
Even if the Company obtains regulatory approval of a marketed product, its
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 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 the
Company. Any such events, were they to occur, could have a material adverse
effect on the Company's business, financial condition and results of operations.


         The Company 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 the Company's products
or supplying materials or components for such products may also be subject to
these manufacturing practices and mandatory procedures. If the Company, its
management or its third party manufacturers fail to comply with applicable
regulations regarding these manufacturing practices, it 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.


         The Company's 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. The Federal
Communications Commission regulates the licensing, operation, acquisition and
sale of our specialized mobile business. The Company must meet build-out
requirements within specified time limitations to retain licenses. Future
changes in regulation or legislation and Congress' and the Federal
Communications Commission's continued allocation of additional spectrum for
commercial mobile radio services, which include specialized mobile radio,
cellular or personal communication services, could impose significant additional
costs either in the form of direct out of pocket costs or additional compliance
obligations. These regulations also can have the effect of introducing
additional competitive entrants to the already crowded wireless communications
marketplace. It is possible that, in the future, we may face additional
regulatory prohibitions or limitations on our services. If any new regulations
prohibit us from providing planned services, it could be more difficult for us
to compete. Further, some local jurisdictions have adopted legislation
restricting or prohibiting the use of portable communications devices while
driving motor vehicles. If similar laws are enacted in other jurisdictions, we
may experience reduced subscriber usage and demand for our services, which could
have a material adverse effect on our results of operations.


         Limited in-house research, development or manufacturing capability. The
Company has only limited in-house research, development or manufacturing
capability or capacity to produce any products. The Company initially intends to
establish relationships with other companies to provide research, development
and manufacturing services in connection with its components and products. Any
delay in availability of products may result in a delay in the submission of
products for any required regulatory approval or market introduction, subsequent
sales of such products, which could have a material adverse effect on the
Company's business, financial condition and results of operations. These
manufacturing processes may be labor intensive and, if so, significant increases
in production volume would likely require changes in both product and process
design in order to facilitate increased automation of the production processes.
There can be no assurance that any such changes in products or processes or
efforts to automate all or any portion of these manufacturing processes would be
successful, or that manufacturing or quality problems will not arise as the


                                       23
<PAGE>

Company initiates production of any products it might develop.


         Lack of experienced sales and marketing capability for the Company's
new product and service lines. The Company currently has no experience in sales,
marketing or distribution in its intended markets. To market any of its new
products or services directly, the Company would be required to develop a
marketing and sales force with technical expertise and with supporting
distribution capability. Alternatively, the Company may obtain the assistance of
other companies with established distribution and sales forces, in which case
the Company 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 the Company will be able to establish in-house sales and
distribution capabilities, or that the Company will be successful in gaining
market acceptance for its products through the use of third parties. There can
be no assurance that the Company will be able to recruit, train and maintain
successfully any such sales and marketing personnel, or that the efforts of such
personnel will be successful.


         Risks and uncertainties associated with the protection of intellectual
property and related proprietary rights. The Company believes that its success
will depend, in large part, on the Company's 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 the Company's patent rights depends, in part, upon the
breadth and scope of protection provided by the patent and the validity of its
patents, if any. The Company's inability to obtain or to maintain patents on its
key products could adversely affect its business. The Company intends to file
patent applications in the United States and in key foreign jurisdictions
relating to its technologies, improvements to those technologies and for
specific products the Company 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 the Company's profitability and the results of its
operations. In addition, there can be no assurance that the rights afforded by
any patents will guarantee proprietary protection or competitive advantage.


         The Company's success will also depend, in part, on its ability to
avoid infringing the patent rights of others. The Company must also avoid any
material breach of technology licenses it may enter into with respect to its new
products and services. Existing patent and license rights may require the
Company to alter the designs of its 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 the Company's own, it 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 the Company 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 the Company's
products may have a material adverse impact on its 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 the Company
or to determine the scope or validity of third party proprietary rights. If the
Company's competitors prepare and file patent applications in the United States
that claim technology also claimed by the Company, it 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 the
Company eventually prevails. An adverse outcome could subject the Company to
significant liabilities to third parties, require disputed rights to be licensed
from third parties or require that the Company cease using such technology.


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


         The Company intends 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


                                       24
<PAGE>

with employees, collaborative partners, consultants and certain contractors.
There can be no assurance that these agreements will not be breached, that the
Company will have adequate remedies for any breach, or that the Company's trade
secrets and other confidential and proprietary information will not otherwise
become known or be independently discovered or reverse-engineered by
competitors.


         No certainty that the market will accept the Company's products and
services. The Company's targeted markets may never accept its products.
Insurance companies, physicians, nurses, patients and consumers may not use the
Company's 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 diagnostic devices can be influenced by government administrators,
regulatory factors, and other factors largely outside the Company's control. No
assurance can be given that key decision-makers or third party payors will
accept the Company's new products, which could have a material adverse effect on
the Company's business, financial condition and results of operations.


         Intense competition. The Company's expected product markets are rapidly
changing. Existing products and emerging products will compete directly with the
products the Company is seeking to develop and market. The Company's technology
will compete directly with other technology, and, although the Company believes
its technology has or will have advantages over these competing systems, there
can be no assurance that the Company's technology will have advantages that are
significant enough to cause users to adopt its use. Competition from such
products 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 the Company. 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
institutions may be in the process of developing technology that could be
developed more quickly or be ultimately more effective than the Company's
planned products.


         The Company faces 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 the Company's competitors will not develop more effective or more
affordable products, or achieve earlier patent protection or product
commercialization.


         Uncertainties Related to Ability to License Proprietary Technology.
RemoteMDx historically has not been involved in research and development of new
technologies. Consequently, the Company's success in adding to its existing
product line depends on its ability to acquire or otherwise license competitive
technologies and products and to operate without infringing the proprietary
rights of others, both in the United States and internationally. No assurance
can be given that any licenses required from third parties will be made
available on terms acceptable to RemoteMDx, or at all. If RemoteMDx does not
obtain such licenses, it could encounter delays in product introductions while
it attempts to adopt alternate measures, or could find that the manufacture or
sale of products requiring those licenses is not possible. Litigation may be
necessary to defend against claims of infringement, to protect trade secrets or
know-how owned by RemoteMDx, or to determine the scope and validity of the
proprietary rights of others. Litigation could have an adverse and material
impact on the Company and its operations.


         Inability to Adequately Protect Proprietary Information. RemoteMDx
relies upon unpatented trade secrets and improvements, unpatented know how and
continuing technological innovation to develop and maintain its competitive
position, which it seeks to protect, in part, by confidentiality agreements with
its employees and consultants. There can be no assurance that these agreements
will not be breached or that they will be enforceable by the Company, or that
the Company's trade secrets and know how will not otherwise be compromised.


                                       25
<PAGE>

         Environmental Risks. The chemical manufacturing processes of the
Company involve the controlled use of hazardous materials. RemoteMDx is subject
to federal, state and local laws and regulations governing the use, manufacture,
storage, handling and disposal of such materials and certain waste products.
Although RemoteMDx believes that its activities currently comply with the
standards prescribed by such laws and regulations, the risk of accidental
contamination or injury from these materials cannot be eliminated. In the event
of an accident, RemoteMDx could be held liable for any damages that result and
any such liability could exceed the resources of the Company. In addition, there
can be no assurance that RemoteMDx will not be required to incur significant
costs to comply with environmental laws and regulations in the future.


         Sufficiency of Marketing and Sales Capabilities. RemoteMDx sells some
of its products to independent distributors who are free to resell the products.
In order to achieve profitable operations, the Company must maintain its current
base of distributors and must expand that base in the future. RemoteMDx's sales
staff competes with other companies that currently have experienced and well
funded marketing and sales operations. To the extent that the Company enters
into co-promotion or other marketing and sales arrangements with other
companies, any revenues to be received by the Company will be dependent on the
efforts of others, and there can be no assurance that such efforts will be
successful.


         Potential Product Liability Exposure and Limited Insurance Coverage.
The use of any of the Company's existing or potential products in laboratory or
clinical settings may expose the Company to liability claims. These claims could
be made directly by persons who assert that inaccuracies or deficiencies in
their test results were caused by defects in its products. Alternatively,
RemoteMDx could be exposed to liability indirectly by being named as a
third-party defendant in actions brought against companies or persons who have
purchased its products. RemoteMDx has obtained limited product liability
insurance coverage for such events. However, insurance coverage is becoming
increasingly expensive and no assurance can be given that RemoteMDx will be able
to maintain insurance coverage at a reasonable cost or in sufficient amounts to
protect RemoteMDx against losses due to liability. There can also be no
assurance that RemoteMDx will be able to obtain commercially reasonable product
liability insurance for any products added to its product line in the future. A
successful product liability claim or series of claims brought against RemoteMDx
could have a material adverse effect on its business, financial condition and
results of operations.


Item 7.  Financial Statements


         The Company's 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


         Effective August 2, 2001, RemoteMDx changed its certifying independent
accountant from Tanner + Co. to Arthur Andersen LLP.


         The board of directors approved this change and determined that Arthur
Andersen LLP could better serve the Company on a national and international
basis. During the Company's two most recent fiscal years and the interim period
through August 2, 2001, management of the Company did not consult with Arthur
Andersen on any accounting or auditing issue as described in Item 304(a)(2)(i)
and (ii) of Regulation S-B.


         Neither Tanner + Co.'s report on the Company's financial statements for
the year ended September 30, 2000, nor its report for the year ended September
30, 1999, contained an adverse opinion or a disclaimer of opinion, and neither
report was qualified or modified as to uncertainty, audit scope or accounting
principles, except that both reports were modified as to uncertainty regarding
the ability of the Company to continue as a going concern.


         During the years ended September 30, 2000 and September 30, 1999, and
the subsequent interim periods preceding Tanner + Co.'s dismissal, there were no
disagreements with Tanner + Co. 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 Tanner + Co., would have
caused Tanner + Co. to make reference to the subject matter of the disagreement
in connection with its report.


                                       26
<PAGE>

     The Company  requested that Tanner + Co. furnish it with a letter addressed
to the Securities  and Exchange  Commission  stating  whether it agreed with the
foregoing statements.




                                       27
<PAGE>


                                    Part III

Item 9.  Directors and Executive Officers

Executive Officers, Key Employees and Directors

         The executive officers and directors of RemoteMDx as of January 10,
2002 are as follows:

            Name                 Age               Position


David G. Derrick        49      Chief Executive Officer and Chairman (Director)
James J. Dalton         59      Vice Chairman (Director)
Thomas Natale           57      President
Wilford W. Kirton, III  41      Director and President of Medical Products
Brian Boling            45      President of SecureAlert
Michael G. Acton        38      Chief Financial Officer, Secretary-Treasurer
Peter McCall            44      Director
Robert E. Childers      57      Director

David G. Derrick


         Mr. Derrick has been CEO and Chairman of the Company since February 16,
2001. Previously he had served as CEO and Chairman of the Board of Directors of
Biomune from 1989 until 1998. From 1996 to 1999, Mr. Derrick also served as
Chairman of the Board of Directors of Purizer Corporation. From 1979 to 1982,
Mr. Derrick was a faculty member at the University of Utah College of Business.
Mr. Derrick graduated from the University of Utah with a BA degree in Economics
in 1975 and with an MBA degree with an emphasis in Finance in 1976.


James Dalton


         From 1987 to 1997, Mr. Dalton has been the owner and President of
Dalton Development, a real estate development company. Mr. Dalton served as the
President and coordinated the development of the Pinnacle project in Deer
Valley, Utah. The Pinnacle is an 86-unit condominium project developed at a cost
of $50 million. Mr. Dalton also served as the President and equity owner of Club
Rio Mar in Puerto Rico. Club Rio Mar is a 680-acre beach front property that
includes 500 condominiums, beach club, numerous restaurants, pools and a Fazio
designed golf course. Finally as the founder and owner of the Deer Valley Club
in Deer Valley Utah, Mr. Dalton developed a high-end and world class ski
project. This development included 25 condominiums that have a ski-in and
ski-out feature. More recently, Mr. Dalton served as an officer and director of
Biomune.


Thomas Natale


         Mr. Natale has been the President of the Company since August 2001. He
co-founded SecureAlert in 1997. His responsibilities included developing the
infrastructure including management structure, systems development,
policy/procedure development and finance/accounting. Prior to founding
SecureAlert, Mr. Natale held a number of positions of increased responsibility
with Philips Consumer Electronics Co. from 1989 to 1997, culminating with Senior
Vice President Supply Management and was responsible for purchases of over $1.5
billion in commodities, components and finished goods; the management of all of
Philips' North American factories of 9,000 employees and the logistics operation
which delivered 20 million finished products per year. From 1965 to 1989, Mr.
Natale worked for General Electric Co. in various businesses including the
Aerospace Business Group, Motor Group, Dishwasher Department, and Refrigeration
Department, in various capacities, most recently as Manager of Purchasing &
Sourcing. In that position he established a central purchasing function which
took the lead role which was responsible for an average $1.88 billion of
purchases for 18 departments of the Aerospace Group while increasing sourcing
opportunities from both domestic and foreign business. Mr. Natale earned a MEEM
(Masters of Engineering Management) Degree in 1972 from the University of
Louisville, and a BSIE Degree (Industrial Engineering) from Pennsylvania State
University in 1965.




                                       28
<PAGE>

Wilford W. Kirton, III


         Mr. Kirton became a director and the Chief Executive Officer of
RemoteMDx in January  1998.  Mr.  Kirton holds a bachelor's  degree in Political
Science from the University of Utah. Prior to joining RemoteMDx,  Mr. Kirton was
the proprietor and President of Travel Systems Network, a travel agency and tour
operator from 1987 to February 1994. From February 1994 to June 1996, Mr. Kirton
was Vice President of Old Republic Title, a real estate title company. From July
1996 to March 1997, Mr. Kirton was a sales  representative for Schwanns Foods, a
food  distributor  in Utah.  Mr.  Kirton was an officer  of Optim  Nutrition,  a
subsidiary of Biomune,  from March 1997 until joining RemoteMDx in January 1998.
Mr. Kirton is the brother-in-law of Mr. Derrick.


Brian Boling


         Mr. Boling is the President of SecureAlert.  Mr. Boling was one of the
founders of SecureAlert II in 1996. From 1980 to 1997, Mr. Boling was associated
with N.V.  Phi1ips in various  capacities in Holland,  Singapore,  Belgium,  and
Tennessee. From 1996 to 1997, as Senior Vice President and General Manager Color
TV of Philips International,  Mr. Boling reported to the Chief Executive Officer
of the Philips Consumer Electronics  Corporation.  From 1995 to 1996, Mr. Boling
was Vice President of New Business,  reporting to the Chief  Executive  Officer,
Philips Consumer  Electronics  Corporation.  During this period,  Mr. Boling was
responsible for the negotiations,  which led to a deal that launched Web TV into
the U.S. market.  Mr. Boling also served as President of Philips Speaker Systems
in Singapore  and held other  positions in the Philips  organization,  including
General Manager, Philips Singapore, Director of Strategy and Planning, Logistics
Project Manager,  Materials Manager,  and Philips Management Trainee. Mr. Boling
earned a bachelor's degree and an MBA from the University of Tennessee.


Michael G. Acton


         Mr. Acton has been Secretary, Treasurer since March 3, 1999. He has
been the Chief Financial Officer of the Company since March 2001, having served
as acting principal accounting officer prior to that date. He was the President
of RemoteMDx from March 1996 until March 1997 and Chief Executive Officer and
Chairman of RemoteMDx from March 1997 to January 1998. From June 1998 until
November 2000, Mr. Acton was Chief Executive Officer of Biomune, where he also
served as Chief Financial Officer from July 1997 through November 2000. From
October 1994 to July 1997, he was the Controller of Biomune. From June 1989
through October 1994, Mr. Acton was employed by Arthur Andersen LLP in Salt Lake
City, Utah, where he performed various tax, audit and business advisory
services. Mr. Acton received a Bachelor of Science Degree in Accounting in 1988
and a Masters of Professional Accountancy Degree in 1989, both from the
University of Utah. He is a Certified Public Accountant in the State of Utah.


Peter McCall


         Mr. McCall joined the board of directors in July 2001.  He holds a
Bachelor degree from Columbia  University.  From 1982 until 1988, Mr. McCall was
Vice President for General Electric Capital Corp.,  where he was responsible for
mortgage  and  structured  finance  transactions.  From  1988  to 1998 he was an
officer of Financial Security Assurance and Nomura Securities  International and
was  responsible  for insured  structured  finance  transactions.  Mr. McCall is
currently the owner of McCall  Partners LLC,  which  focuses on  investments  in
start up companies.


Robert E. Childers


         Mr. Childers joined the board of directors in July 2001.  He is the
Chief  Executive  Officer  of  Structures  Resources  Inc.  and has 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. Mr. Childers  founded  Structures  Resources Inc. a design build
construction  firm,  in 1972  and has  served  as its  president  for 28  years.
Structures Resources,  Inc. has successfully completed projects such as 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  also  co-founded  Life  Science  Group,  a  boutique  biotech


                                       29
<PAGE>

investment-banking  firm and is the third largest shareholder.  Mr. Childers was
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.  A former  naval  officer  serving in  Atlantic  Fleet
submarines,  Mr. Childers  received a Bachelor of Engineering  Science degree in
Operations Research from Johns Hopkins University.


Section 16(a) Beneficial Ownership Reporting Compliance


         Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers, directors and persons who beneficially own more than 10
percent of a registered class of the Company's equity securities to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission. Officers, directors and greater than 10 percent shareholders are
required by regulation of the Securities and Exchange Commission to furnish the
Company 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 some reports
required to be filed by these individuals and persons under Section 16(a) have
not yet been filed. The Company expects that those directors, executive officers
or 10 percent holders, who engaged in transactions which would require the
filing of any report pursuant to Section 16(a) during the fiscal year ended
September 30, 2001, that were not filed with the Commission, will file the
delinquent reports as soon as practicable following the filing of this report.
Disclosure of these delinquent filings will be contained in the next definitive
proxy statement filed by the Company.


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 three regular meetings of the board of directors held during
the fiscal year ended September 30, 2001. No director attended fewer than 75
percent of the meetings during the fiscal year. The board also acted during 2001
by unanimous written consent in lieu of a meeting, as permitted by Utah law and
the Company's bylaws. The board has no formal Nominating Committee. The board
has an Audit Committee, comprised of Mr. McCall, Mr. Childers and Mr. Derrick.
The Audit Committee was formed in July 2001 and did not hold any meetings during
fiscal year 2001.


         The functions of the Audit Committee are (1) to review and approve the
selection of, and all services performed by, the Company's independent auditors,
(2) to review the Company's internal controls, and (3) to review and report to
the board of directors with respect to the scope of audit procedures, accounting
practices and internal accounting and financial controls of the Company.


Remuneration


         The board of directors has determined that during the fiscal year
ending September 30, 2002, non-employee directors will be paid $1,500 per
meeting and receive a grant of an option to acquire 30,000 shares of common
stock for each completed year of service on the board. The Company will 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
report. James Dalton, the Vice Chairman of the board is paid a fee of $100,000
per year. Mr. Dalton also receives consulting fees and reimbursed expenses under
a consulting agreement. See "Certain Relationships and Related Transactions."
During the year ended September 30, 2001, the Company also granted options to
Mr. Dalton to purchase 663,474 shares of common stock at a purchase price of
$1.00 per share. Mr. Dalton subsequently assigned those options to ADP


                                       30
<PAGE>

Management, who then exercised the options to purchase 663,474 shares of common
stock. Subsequent to September 30, 2001, the board of directors granted options
to two new directors to purchase a total of 400,000 shares of common stock at an
exercise price of $3.00 per share. See "Certain Relationships and Related
Transactions."


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 the Company's chief
executive officer during the year ended September 30, 2001 as well as the
Company's 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,
2001, whose total annual salary and bonus for the year then ended exceeded
$100,000 (the "Named Executive Officers").


<TABLE>
<CAPTION>
                        Summary Compensation Table

                                                                Annual Compensation               Long Term
                                                                                             Compensation Awards

                                                                            Other Annual        Securities
                 Name and                              Salary     Bonus     Compensation        Underlying            All other
            Principal Position                  Year      ($)       ($)         ($)          Options/SARs (#)      compensation ($)
                   (a)                          (b)       (c)       (d)         (e)                (f)                   (g)
---------------------------------------------- ------- ---------- -------- --------------- --------------------- ------------------
<S>                                            <C>     <C>        <C>      <C>             <C>                   <C>
Wilford Kirton III                                1999      48,000       --      --
   President, Chief Operating Officer (1)         2000      89,000       --      --
                                                  2001     107,654   21,500   10,650              400,000/0

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

Michael G. Acton, Chief Financial Officer (3)     2001      62,180   12,500  100,000              240,496/0
</TABLE>


          (1)  Mr.  Kirton served as Chief  Executive  Officer from January 1998
               until  February  2001. He has served as Chief  Operating  Officer
               since February 2001.

          (2)  Mr.  Derrick  became Chief  Executive  Officer in February  2001.
               Amounts  indicated  in column (g)  include  reimbursed  expenses.
               Table  does  not  include  amounts  that may be  received  by Mr.
               Derrick  indirectly  through ADP  Management  under a  consulting
               agreement. See "Certain Relationships and Related Transactions."

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


Employment Agreements


         In connection with the acquisition of SecureAlert II in July 2001, the
Company entered into employment agreements with three former officers and
directors of SecureAlert II. One of these individuals is Tom Natale, who now
serves as the Company's President. Under his employment agreement, which expires
in July 2003, Mr. Natale is paid an annual base salary of $100,000 and is
entitled to receive compensation and benefits if the agreement is terminated
without cause prior to the expiration of its term.


Stock Option Grants in Fiscal Year 2001


         During the year ended September 30, 2001, options to purchase 2,397,223
shares of common stock were granted to employees, officers, outside directors
and consultants of the Company. Options for the purchase of a total of 403,333
shares of common stock were granted to consultants and the Company's investment
bankers during the fiscal year ended September 30, 2001. The options give the
grantee the right to purchase common stock of at a stated price per share during


                                       31
<PAGE>

the term of the option agreement. The weighted average per share exercise price
of these options was $1.59. The exercise prices of the options range from $1.00
to $7.00.


         The following table sets forth information concerning grants of stock
options made during the fiscal year ended September 30, 2001 to the Named
Executive Officers.




                      Option/SAR Grants in Last Fiscal Year

<TABLE>
<CAPTION>
                                                                                     Potential Realizable Value at Assumed
                                                                                     Annual Rates of Stock Price Appreciation
                                               Individual Grants                              for Option Term
                               --------------------------------------------   --------------------------------------------------

                               Number of           % of Total
                               Securities          Options/SARs
                               Underlying          Granted to     Exercise
            (a)                Options/SARs        Employees in   or Base     Expiration
           Name                Granted (#)         Fiscal Year    Price       Date (1)              5%              10%
----------------------------   --------------      ------------   ---------   ------------   --------------  ---------------
<S>                                  <C>                 <C>        <C>         <C> <C>           <C>              <C>
David G. Derrick                     679,924             34.1%      $ 1.00      3/1/2006          $187,850         $415,100
Wilford W. Kirton, III               400,000             20.1%      $ 1.00      3/1/2006          $110,513         $244,204
Michael G. Acton                     240,496             12.1%      $ 1.00      3/1/2006          $ 66,445         $146,825
</TABLE>


Stock Options Outstanding and Options Exercised in Fiscal Year 2001


         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, 2001. The Company has not granted any stock
appreciation rights ("SAR's").

<TABLE>
<CAPTION>
                                                                      Number of Securities
                                                                      Underlying               Value of Unexercised
                                                                      Unexercised Options      In-the-Money Options /
                          Shares                                      At 9/30/2001             SARs At 9/30/2001
                          Acquired on           Value Realized        (#) Exercisable /        ($) Exercisable /
         Name             Exercise (#) (1)            ($)             Unexercisable            Unexercisable
-----------------------   -------------------  -------------------    -----------------------  ------------------------
<S>                               <C>              <C>                   <C>                     <C>
David G. Derrick                  1,682,000        $5,046,000                           -                    -
Michael G. Acton                         -                 -             151,894 / 151,894       303,788 / 303,788
</TABLE>






(1)      Includes the exercise of options for the purchase of 250,000 shares
         assigned to ADP Management by Wilford Kirton, an officer and director
         of the Company, as well as options assigned by Michael Acton (88,602
         shares) and James Dalton (663,474 shares). Value is based on the fair
         market value of the Company's common stock on September 30, 2001,
         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, 2001. The
         exercise prices for the options listed above are $1.00 per share.

Report on Repricing of Options

         In March 2001, the board of directors canceled options for the purchase
of a total of 383,894 shares of common stock, previously granted under the to
certain individuals, including two of the Named Executive Officers as disclosed
in the table below. The board issued new options with an exercise price of $1.00
per share, which the board determined to be the current fair market price for
the Company's common stock on the date of the new option grants. The board
issued the new options to provide incentive for the persons who had held the
canceled options. The exercise price was based on recent sales of the Company's


                                       32
<PAGE>

common stock and the exercise price of options granted at approximately the same
time as the grant of the new options. The cancellation and grant of options in
this manner is deemed to be a repricing of the original options. The following
table summarizes information concerning the canceled and newly issued options.


                      Option Repricings in Last Fiscal Year
<TABLE>
<CAPTION>

                                                       Number of         Market
                                                      Securities         Price          Exercise
                                                      Underlying           Of            Price                        Length of
                                                       Options/         Stock at        At Time                        Original
                                                         SARs           Time of            Of            New         Option Term
                                                      Repriced or      Repricing       Repricing      Exercise       Remaining at
                                                        Amended      Or Amend-ment   Or Amend-ment      Price     Date of Repricing
           Name and Position               Date           (#)             ($)             ($)            ($)         or Amendment

<S>                                       <C>            <C>             <C>             <C>            <C>            <C>
David G. Derrick, Chief Executive
   Officer and Chairman of the board
   of directors                           3/30/01        179,924         $1.00           $5.80          $1.00          4 months

Michael G. Acton, Chief Financial
   Officer                                3/30/01         40,496         $1.00           $5.80          $1.00          4 months
</TABLE>




Stock Plans


The 1997 Volu-Sol, Inc. Transition Plan


         At the time of the Company's 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 the Company's 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 of the Company.


         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 the Company's 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. The Company 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.




                                       33
<PAGE>

         At September 30, 2001, Add-on RemoteMDx Options for the purchase of
14,250 shares of common stock granted under the Transition Plan remained
outstanding. These options expired in October 2001. No shares were issued upon
exercise of Add-on RemoteMDx Options during the fiscal year ended September 30,
2001.


The 1997 Volu-Sol, Inc. Stock Incentive Plan


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


         The 1997 Plan provides for the award of incentive stock options to the
Company's 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 the
Company's subsidiaries or the Company. A total of 5,000,000 shares are available
for issuance pursuant to awards granted under the 1997 Plan. During fiscal year
2001, options for the purchase of 610,000 shares of common stock were granted
under the 1997 Plan and options were exercised for the purchase of 298,106
shares. As of September 30, 2001, options for the purchase of 311,894 shares of
common stock were outstanding and exercisable under the 1997 Plan.


Item 11.    Security Ownership of Certain Beneficial Owners and Management


         The following table sets forth information with respect to the
beneficial ownership of the Company's common stock as of January 10, 2002 by (1)
Each person, or group of affiliated persons, who is known by the Company to own
beneficially more than 5 percent of the common stock; (2) each director; (3)
Each executive officer; and (4) all directors and executive officers as a group.
Unless otherwise noted, the address of each beneficial owner listed below is c/o
RemoteMDx, Inc., 5095 West 2100 South Salt Lake City, Utah 84120.


<TABLE>
<CAPTION>
                                                                                    Of shares
                                                                                  beneficially
                                                                Number of      owned, amount that
                                                                  Shares         may be acquired      Percent of
                                                               Beneficially     within 60 days by    Outstanding
                     Name of Beneficial Owner                     Owned          option exercise      Shares (2)
                     ------------------------                     -----          ---------------      ----------

<S>                                                                <C>                   <C>            <C>
        David G. Derrick (3)                                        6,363,051                    -      49.3%

        James J. Dalton (4)                                         1,959,097                    -      20.2%

        Wilford W. Kirton, III (5)                                    150,003              150,000        1.8%

        Michael G. Acton (6)                                          237,401              151,894        2.8%

        Tom Natale (7)                                                354,799              198,367        4.1%

        Peter McCall (8)                                              770,050              300,000        8.5%

        Robert E. Childers (9)                                        335,000              100,000        3.9%

        Brian Boling (10)                                             338,860              194,275        3.9%
        Battelle Memorial Institute (11)
        505 King Avenue                                             1,750,000            1,350,000      17.9%
        Columbus, OH 43201-2693

        All officers and directors as a group (8 persons)          10,508,261              888,903      66.3%
        (12)
</TABLE>



                                       34
<PAGE>

Percentages are rounded to the nearest 1/10th of one percent. The table above is
based on 8,411,694 shares outstanding as of January 10, 2002. Beneficial
ownership generally includes voting or investment power with respect to
securities, subject to community property laws where applicable. Subject to the
limitation described in note (1), shares of common stock subject to options or
warrants that are presently exercisable or exercisable within 60 days, as shown
in the third column above, as well as shares of common stock that may be
acquired upon conversion of or in exchange for outstanding shares of Series A or
Series B Preferred Stock, are deemed to be beneficially owned by the person
holding such options, warrants, or preferred stock, for the purpose of computing
the percentage ownership of such person, but are not treated as outstanding for
the purpose of computing the percentage of any other person.


Footnotes to table:

          (1)  The  number  and  percentage  of  shares  beneficially  owned  is
               determined  in  accordance  with  Rule  13d-3  of the  Securities
               Exchange  Act of 1934,  and the  information  is not  necessarily
               indicative of beneficial  ownership for any other purpose.  Under
               this rule,  beneficial  ownership includes any shares as to which
               the  shareholder  has sole or shared  voting power or  investment
               power and also any shares that the  shareholder  has the right to
               acquire  within 60 days.  The Series A Preferred  Stock issued by
               the Company  generally  may be converted at any time or from time
               to time at the election of the holder of such stock. However, the
               designation  of rights and  preferences of the Series A Preferred
               Stock  restricts  the  ability  of the  holder  of such  stock to
               convert and receive  shares of common  stock as follows:  " . . .
               any single  holder (or  affiliated  holders)  may not at any time
               hold shares of the Company's  common stock  exceeding 4.9 percent
               of the total  number of issued and  outstanding  shares of common
               stock.  Thus, any holder or group of affiliated holders will only
               be  allowed to convert  shares of Series A  Preferred  Stock into
               shares of  common  stock in an  amount  such  that such  holder's
               ownership  of shares of common  stock does not exceed 4.9 percent
               of the total  number of issued and  outstanding  shares of common
               stock."  As a result  of this  restriction,  the  ability  of the
               shareholders  in this table to exercise their  conversion  rights
               may from  time to time be  limited  based on their  ownership  of
               shares of common stock prior to or at the time of conversion.

          (2)  Assumes a total of 8,411,694 shares issued and outstanding,  with
               percentages  for  each  person  calculated  as  described  in the
               preceding paragraph.

          (3)  Mr. Derrick is CEO and the chairman of the board of directors. He
               owns  355,672  shares  directly.  In  addition,  the amount shown
               includes (i) 1,500,000  shares owned directly by ADP  Management,
               Inc., an entity owned and controlled by Mr. Derrick, (ii) 659,196
               shares  issuable upon  conversion of 1,781.61  shares of Series A
               Preferred Stock owned of record by ADP  Management,  (iii) 17,057
               shares  issuable  upon  conversion  of 46.1  shares  of  Series A
               Preferred Stock owned of record by MK Financial,  Inc., a private
               corporation  controlled  by Mr.  Derrick,  (iv) 33,333  shares of
               common stock issuable upon  conversion of 33,333 shares of Series
               B Preferred  Stock owned directly by Mr.  Derrick,  (v) 1,908,633
               shares of common stock that may be acquired  upon  conversion  of
               6,292 shares of Series A Preferred  Stock that may be acquired by
               the cashless  exercise of options granted to ADP Management under
               a loan agreement between the Company  outstanding as of September
               30, 2001, and (vi) 1,889,160 shares of common stock issuable upon
               the  conversion of 6,228 shares of Series A Preferred  Stock that
               the  Company  might be required  to issue to ADP  Management  for
               amounts borrowed under the related-party line of credit agreement
               after September 30, 2001. See "Certain  Relationships and Related
               Transactions."

          (4)  Mr. Dalton is a director of the Company.  Mr. Dalton owns 663,934
               shares of common stock  directly.  The table  includes  1,295,163
               shares  issuable upon  conversion of 3,500.44  shares of Series A
               Preferred  Stock  owned  by Mr.  Dalton.  By  agreement  with ADP
               Management,   Mr.  Dalton  may  also   participate  in  the  loan
               transactions  between ADP Management  and the Company,  including
               the options and  warrants  granted  under that  agreement  to ADP
               Management. See "Certain Relationships and Related Transactions."



                                       35
<PAGE>

          (5)  Mr. Kirton owns 3 shares of common stock  directly.  In addition,
               he has a fully vested option to purchase 150,000 shares of common
               stock.

          (6)  Mr.  Acton  owns  40,507  shares of  common  stock  directly.  In
               addition, he has a fully vested option to purchase 151,894 shares
               of common stock.  Mr. Acton directly owns 45,000 shares of Series
               B  Preferred  Stock,  convertible  into  45,000  shares of common
               stock.

          (7)  Mr.  Natale has been the  President  of the Company  since August
               2001. Of the total indicated, 156,432 shares are held in the name
               of Natale  Investments,  LLC, a private entity  controlled by Mr.
               Natale.  The table also includes  shares of common stock issuable
               upon  exercise  of stock  purchase  warrants.  The shares and the
               warrants  were  issued  in  connection  with the  acquisition  of
               SecureAlert  II. The warrants are exercisable for five years at a
               price of $3.00 per share.

          (8)  Mr.  McCall is a director of the Company since July 2001. He owns
               150,000  shares of common stock  directly.  The amount  indicated
               includes  320,050 shares of common stock issuable upon conversion
               of 865 Series A Preferred Stock owned by Mr. McCall.

          (9)  Mr. Childers is a director of the Company since July 2001. Of the
               total  amount  indicated,  50,000  shares are held in the name of
               Robert E.  Childers  Living Trust,  of which Mr.  Childers is the
               trustee. The Robert E. Childers Living Trust also owns 500 shares
               of Series A  Preferred  Stock  convertible  to 185,000  shares of
               common stock.

          (10) Mr. Boling is a director and the President of SecureAlert. Of the
               total  indicated,  139,585  shares are held in the name of Boling
               Investments,  LLC, a private entity controlled by Mr. Boling. The
               table also includes  shares  issuable under common stock purchase
               warrants  owned by the same  entity.  The shares and the warrants
               were issued in connection with the acquisition of SecureAlert II.
               The warrants are  exercisable  for five years at a price of $3.00
               per share.

          (11) Battelle  Memorial  Institute owns 400,000 shares of common stock
               directly.  The options are for the purchase of 450,000  shares of
               common  stock at $3.00  per  share,  450,000  shares at $5.00 per
               share, and 450,000 shares at $7.00 per share.

          (12) Does not  include  duplicate  entries.  Assumes  exercise  of all
               options  and  warrants  and  conversion  of all  preferred  stock
               indicated.


Item 12.  Certain Relationships and Related Transactions


Battelle


         On April 17, 2000, the Company entered into a Technical Services
Agreement for research and development with Battelle. This agreement forms the
basis of the Company's mutual cooperation in the further research and
development of a remote access diagnostic system for medical professionals and
consumers to further the Company's new business plan. Under the terms of this
agreement, the Company pays Battelle for its services in furthering the research
and development of the project. The initial payment of $400,000 cash and 400,000
restricted shares of common stock was made in 2000. The Company also granted
options to Battelle to purchase 1,350,000 shares of common stock at prices
ranging from $3.00 to $7.00 per share. The agreement also grants certain
anti-dilution rights to Battelle. Based on the shares issued or available for
issuance under the agreement, Battelle is the beneficial owner of approximately
19.5 percent of the common stock of the Company, assuming the exercise of all
options held by Battelle. Battelle may also appoint a nominee to serve on the
Company's Board of Directors, although to date it has not exercised this right.
In addition to the payments indicated above, during the years ended September
30, 2001 and 2000, the Company incurred expenses of $687,453 and $591,231,
respectively, for research and development services performed by Battelle. At
September 30, 2001, the Company owed Battelle an additional $115,976 for
services provided prior to that date.




                                       36
<PAGE>

David Derrick, James Dalton, and Affiliates


         David G. Derrick is Chief Executive Officer and Chairman of our board
of directors, positions he has occupied since February 13, 2001. At the time of
the divestiture of the Company by Biomune in 1997, Mr. Derrick was the president
and chairman of Biomune. Entities affiliated with Mr. Derrick were significant
shareholders of Biomune and these entities received shares of the Company's
common stock in the spin-off. In addition, from time to time, the Company has
engaged in transactions with entities affiliated with or controlled by Mr.
Derrick, including, ADP Management and MK Financial.


Financing Transactions


         Fiscal Year 1999. During the year ended September 30, 1999, the Company
borrowed $70,000 from Biomune under a promissory note. On March 31, 1999,
Biomune sold the note relating to this obligation to Bioxide Corporation in
exchange for shares of Bioxide Corporation common stock. Subsequently, Bioxide
Corporation assigned the note to MK Financial in satisfaction of an obligation
owed to MK Financial by Bioxide Corporation. At that time, Mr. Derrick was a
director and significant shareholder of Bioxide. MK Financial accepted the
issuance of 2,011 shares of Series A Preferred Stock from the Company in full
satisfaction of the note. MK Financial has since sold all but 38.1 of these
shares of Series A Preferred Stock. At September 30, 2001, MK Financial owed the
Company $338,000 under the terms of a securities purchase agreement for the
purchase of Series A Preferred Stock. The Company expects this amount to be paid
in full during the year ending September 30, 2002.


         Fiscal Year 2000. During March 2000, the Company sold 1,500,000 shares
of common stock to ADP Management. At the same time the Company also sold
400,000 shares of common stock to James J. Dalton. At the time of the sale of
these shares, Messrs. Derrick and Dalton were not directors or officers of the
Company. The Company received gross proceeds of $1,900,000 in these
transactions. By agreement with these investors, the Company also paid them
commissions totaling $400,000. As a result, the net proceeds of sale of these
1,900,000 shares to the Company were $1,500,000.


         Fiscal Year 2001. In February 2001, the Company 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 the Company 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, the Company 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. The Company
and ADP Management 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 may be
exercised using a cashless exercise feature. See "Management's Discussion and
Analysis or Plan of Operation." By agreement between ADP Management and James
Dalton, a director of the Company, Mr. Dalton may participate in the loan
transactions with ADP Management, including the options and other consideration
paid by the Company to ADP Management under the terms of the agreement. The
Company is currently negotiating the terms of an amended line of credit
agreement.


         In connection with the Company's offering of Series B Preferred Stock
in fiscal year 2001, the placement agent notified the Company that the minimum
$2,000,000 in proceeds had not been met. In order to complete 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.




                                       37
<PAGE>

Consulting Agreements


         In March 2000, the Company entered into consulting arrangements with
ADP Management for assisting the Company to develop its new business direction
and business plan and to provide introductions to strategic technical and
financial partners. By agreement, ADP would provide these services through Mr.
Derrick. Under the terms of this arrangement, the Company paid ADP Management a
consulting fee of $10,000 per month and the Company agreed to reimburse the
expenses incurred by ADP Management in the course of performing services under
the consulting agreement. A similar consulting arrangement was also entered into
with Mr. Dalton, also for $10,000 per month. The board of directors, which at
the time did not include either Mr. Derrick or Mr. Dalton, approved both of
these arrangements. During the year ended September 30, 2000, the Company
incurred consulting fees and expenses under these agreements totaling $90,000.


         In October 2000, as additional consideration for their services to the
Company under their respective consulting arrangements, the Company granted to
each of ADP and Mr. Dalton options to purchase 500,000 shares of common stock at
$1.00 per share. The options expire five years from the date of grant and were
immediately vested.


         During the year ended September 30, 2001, the fees and expenses of the
Company under these consulting agreements totaled $1,087,000. The Company paid
$695,000 of these fees and expenses by issuing to ADP Management and Mr. Dalton,
or their respective assignees, 3,475 shares of Series A Preferred Stock. Of the
remaining amount, $272,000 was deemed an advance under the line of credit with
ADP Management and $120,000 remained as an accrued liability as of September 30,
2001.


Related-Party Sales


         During the year ended September 30, 2001, the Company recorded sales of
$121,637 through SecureAlert to an entity owned by the son of Tom Natale, the
Company's president. Accounts receivable from this entity were $35,154 at
September 30, 2001.


Subsequent Events


         In December 2001, Mr. Derrick assigned two certificates of deposit
totaling $500,000 to SunTrust as additional collateral for borrowings under a
line of credit agreement with SunTrust, whereupon the bank released the former
guarantors who were shareholders or affiliates of SecureAlert II. The Company
also obtained a standby letter of credit from the Calvin Black Trust, a private
trust and shareholder of the Company, in the amount of $300,000 as additional
collateral for the SunTrust line of credit. The Trustee of the Calvin Black
Trust is the brother of the Company's Chief Financial Officer. Upon the
establishment of the standby letter of credit and the assignment of the
certificates of deposit, the bank increased the amount available under the line
from $600,000 to $800,000. As consideration for the establishment of its standby
letter of credit, the Calvin Black Trust received 15,000 shares of restricted
common stock with the right to put the shares back to the Company at $3.00 per
share at June 14, 2002; provided that if the common stock is then traded in the
over-the-counter market or other exchange and the market price for the common
stock is $3.00 or more per share, then the put option will terminate. The letter
of credit established by the trust is secured by a subordinated security
interest in the accounts receivable, inventory and other assets of SecureAlert.
In connection with the transaction in which the trust established its letter of
credit, the Company also paid a consultant who assisted in arranging the
transaction a fee in the form of 55,000 restricted shares of common stock, with
a put option on the same terms as the option granted to the trust and described
above.


         Subsequent to September 30, 2001, the Company entered into an $800,000
promissory note, which is personally guaranteed by Messrs. Derrick and Dalton
and is collateralized by 1,000,000 shares of the Company's common stock held by
them. Additionally, the Company entered into an agreement with a company whereby
the Company borrowed $1,543,974. Two officers of the Company personally
guarantee the borrowings, however, Messrs. Derrick and Dalton indemnify the two
officers from their personal guarantees.




                                       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 the  Company's  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  the  Company's  Registration
          Statement on Form 10-SB, effective December 1, 1997)

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

10.02     1997 Stock Incentive Plan of the Company,  (incorporated  by reference
          to the Company's Registration Statement and Amendments thereto on Form
          10-SB, effective December 1, 1997).

10.03     1997  Transition  Plan  (incorporated  by reference  to the  Company's
          Registration Statement and Amendments thereto on Form 10-SB, effective
          December 1, 1997).

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

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

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

10.07     Loan  Agreement  (as amended)  dated June 2001 between ADP  Management
          and the Company (filed herewith)

10.08     Amended and Restated Loan and Security  Agreement  (SunTrust  Bank and
          SecureAlert), dated August 3, 2001 (filed herewith)


(b)      Reports on Form 8-K


         During the quarter ended September 30, 2001, the Company filed the
following reports on Form 8-K:

          o    July 26, 2001, reporting the acquisition of SecureAlert II


                                       39
<PAGE>

          o    August 3, 2001,  reporting  the change of the  corporate  name to
               RemoteMDx, Inc.

          o    August 7, 2001, reporting change of the Company's auditors


                                       40

<PAGE>


                                   SIGNATURES

         In accordance with Section 13 and/or 15(d) of the Securities Exchange
Act, the registrant caused this report 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: January 21, 2002

         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.

Signature                          Title                    Date


/s/ David G. Derrick      Director, Chairman, and           January 21, 2002
-------------------------
David G. Derrick          Chief Executive Officer


/s/ James Dalton          Director, Vice Chairman           January 21, 2002
-------------------------
James Dalton


/s/ Wilford W. Kirton III Director                          January 21, 2002
-------------------------
Wilford W. Kirton, III


/s/ Peter McCall          Director                          January 21, 2002
-------------------------
Peter McCall


/s/ Robert E. Childers    Director                          January 21, 2002
-------------------------
Robert E. Childers


/s/ Michael G. Acton      Chief Financial Officer           January 21, 2002
-------------------------
Michael G. Acton


                                       41
<PAGE>

REMOTEMDX, INC.

Consolidated Financial Statements
As of September 30, 2001
And for The Years Ended September 30, 2001 and 2000

Together with Reports of
Independent Public Accountants



<PAGE>





REMOTEMDX, INC.

Index to Consolidated Financial Statements


                                                            Page
Reports of Independent Public Accountants                    F-2

Consolidated Balance Sheet                                   F-4

Consolidated Statements of Operations                        F-5

Consolidated Statements of Stockholders' Equity              F-6

Consolidated Statements of Cash Flows                        F-8

Notes to Consolidated Financial Statements                  F-10


                                                                             F-1

<PAGE>



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

                                                                             F-2

<PAGE>


Report of Independent Public Accountants

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

We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of RemoteMDx, Inc. and subsidiary, formerly
Volu-Sol, Inc. (the "Company"), for the year ended September 30, 2000. 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.

We conducted our audit in accordance with generally accepted auditing standards.
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 results of the operations and the cash
flows of RemoteMDx, Inc. and subsidiary for the year ended September 30, 2000 in
conformity with generally accepted accounting principles.

The accompanying 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, 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
December 8, 2000

                                                                             F-3

<PAGE>




REMOTEMDX, INC.

Consolidated Balance Sheet
As of September 30, 2001

<TABLE>
<CAPTION>
<S>                                                                                        <C>
Assets
Current assets:
    Cash                                                                                   $           59,977
    Accounts receivable, net of allowance for doubtful accounts of $107,000                           336,054
    Inventories                                                                                       999,776
    Prepaid expenses                                                                                   66,517
                                                                                           ---------------------
                      Total current assets                                                          1,462,324
Property and equipment, net of accumulated depreciation and amortization of $433,178                  354,434
Core technology, net of amortization of $46,667                                                       513,333
Goodwill                                                                                            7,776,209
                                                                                           ---------------------
                      Total assets                                                         $       10,106,300
                                                                                           =====================
Liabilities and Stockholders' Equity
Current liabilities:
    Current portion of purchase obligation to former SecureAlert shareholders,
          net of discount of $56,431                                                       $          943,569
    Bank line of credit                                                                               593,587
    Related-party convertible notes payable                                                           500,000
    Series A 15% convertible debentures                                                                95,000
    Related-party line of credit                                                                       16,000
    Accounts payable                                                                                1,181,626
    Accrued payroll and related benefits                                                              480,180
    Accrued liabilities                                                                               434,321
    Deferred revenues                                                                                  83,160
                                                                                           ---------------------
                      Total current liabilities                                                     4,327,443
                                                                                           ---------------------
Purchase obligation to former SecureAlert shareholders, net of discount of $27,628
     and current portion                                                                              172,372
                                                                                           ---------------------
Commitments and contingencies (Notes 1, 3, 11, 13 and 15) Stockholders' equity:
    Preferred stock:
      Series A; 10% dividend, convertible, non-voting; $0.0001 par value; 30,000
         shares designated; 24,181 shares issued and outstanding (aggregate
         liquidation preference of $6,432,146)                                                              2
      Series B; convertible; $0.0001 par value; 2,000,000 shares designated;
         700,001 shares issued and outstanding
         (aggregate liquidation preference of $2,100,003)                                                  70
    Common stock, $0.0001 par value; 50,000,000 shares authorized,
         7,841,585 shares issued and outstanding                                                          784
    Additional paid-in capital                                                                     27,652,020
    Series A preferred stock subscription receivable                                                 (338,300)
    Accumulated deficit                                                                           (21,708,091)
                                                                                           ---------------------
                      Total stockholders' equity                                                    5,606,485
                                                                                           ---------------------
                      Total liabilities and stockholders' equity                           $       10,106,300
                                                                                           =====================
</TABLE>

See accompanying notes to consolidated financial statements.                F-4

<PAGE>




REMOTEMDX, INC.

Consolidated Statements of Operations
For The Years Ended September 30, 2001 and 2000
<TABLE>
<CAPTION>

                                                                                          2001                    2000
                                                                                ------------------------  -----------------------
<S>                                                                             <C>                       <C>
Net sales                                                                       $          1,247,633      $          496,211
Cost of goods sold                                                                           959,167                 291,213
                                                                                ------------------------  -----------------------
                     Gross profit                                                            288,466                 204,998

Research and development expenses                                                            960,969               2,069,231
Selling, general and administrative expenses                                               5,237,648               1,596,601
                                                                                ------------------------  -----------------------
                      Loss from operations                                                (5,910,151)             (3,460,834)

Other income (expense):
    Interest income                                                                            9,238                  15,482
    Interest expense                                                                      (2,619,184)                    -
                                                                                ------------------------  -----------------------
                      Net loss                                                            (8,520,097)             (3,445,352)

Dividends and beneficial conversion features on Series A preferred stock                  (4,673,374)               (430,296)
                                                                                ------------------------  -----------------------
                     Net loss attributable to common stockholders               $        (13,193,471)     $       (3,875,648)
                                                                                ========================  =======================
Net loss per common share - basic and diluted                                   $            (3.26)       $          (2.85)
                                                                                ========================  =======================
Weighted average shares - basic and diluted                                                4,052,992               1,359,530
                                                                                ========================  =======================
</TABLE>

See accompanying notes to consolidated financial statements.                 F-5

<PAGE>




REMOTEMDX, INC.

Consolidated Statements of Stockholders' Equity
For The Years Ended September 30, 2001 and 2000

<TABLE>
<CAPTION>
                                                                                      Preferred Stock
                                                                 -------------------------------------------------------------
                                                                           Series A                      Series B
                                                                 -------------------------------------------------------------
                                                                   Shares        Amount           Shares          Amount
                                                                 -----------  ----------------  --------------   -------------
<S>                      <C>                                     <C>          <C>               <C>              <C>
Balance at September 30, 1999                                        12,703   $             2             -      $        -
Additional shares issued as a result of the
    divestiture of the Company's common stock                           -                 -               -               -
Issuance of common stock for:
    Cash                                                                -                 -               -               -
    Services                                                            -                 -               -               -
    Conversions of Series A preferred stock                            (288)              -               -               -
Issuance of preferred stock for:
    Cash, net                                                         1,330               -               -               -
    Services                                                          1,100               -               -               -
    Payment of dividends (in lieu of cash)                            1,293               -               -               -
Issuance of common stock options for services                           -                 -               -               -
Beneficial conversion features on Series A
     preferred stock                                                    -                 -               -               -
Net loss                                                                -                 -               -               -
                                                                 -----------  ----------------  --------------   -------------
Balance at September 30, 2000                                        16,138   $             2             -      $         -
                                                                 -----------  ----------------  --------------   -------------
</TABLE>



<TABLE>
<CAPTION>
                                                                          Common Stock            Additional
                                                                 -----------------------------     Paid-In
                                                                       Shares        Amount         Capital
                                                                 -----------------   ---------   -------------
<S>                                                              <C>                 <C>         <C>
Balance at September 30, 1999                                             542,500    $     54    $  5,201,162
Additional shares issued as a result of the
    divestiture of the Company's common stock                               1,746         -                -
Issuance of common stock for:
    Cash                                                                1,900,000         190       1,499,810
    Services                                                              425,000          43         424,957
    Conversions of Series A preferred stock                                72,000           7             (7)
Issuance of preferred stock for:
    Cash, net                                                                 -           -           236,000
    Services                                                                  -           -           220,000
    Payment of dividends (in lieu of cash)                                    -           -           258,550
Issuance of common stock options for services                                 -           -         1,077,690
Beneficial conversion features on Series A
     preferred stock                                                          -           -           171,746
Net loss                                                                      -           -                -
                                                                 -----------------   ---------   -------------
Balance at September 30, 2000                                           2,941,246    $    294    $  9,089,908
                                                                 -----------------   ---------   -------------
</TABLE>

<TABLE>
<CAPTION>
                                                            Series A Preferred
                                                                 Stock
                                                              Subscription         Accumulated
                                                               Receivable            Deficit
                                                            -----------------   -----------------
<S>                                                         <C>                 <C>
Balance at September 30, 1999                               $       (338,300)   $    (4,638,972)
Additional shares issued as a result of the
    divestiture of the Company's common stock                               -                 -
Issuance of common stock for:
    Cash                                                                    -                 -
    Services                                                                -                 -
    Conversions of Series A preferred stock                                 -                 -
Issuance of preferred stock for:
    Cash, net                                                               -                 -
    Services                                                                -                 -
    Payment of dividends (in lieu of cash)                                  -          (258,550)
Issuance of common stock options for services                               -                 -
Beneficial conversion features on Series A
     preferred stock                                                        -          (171,746)
Net loss                                                                    -        (3,445,352)
                                                            -----------------   -----------------
Balance at September 30, 2000                               $       (338,300)   $    (8,514,620)
                                                            -----------------   -----------------
</TABLE>

See accompanying notes to consolidated financial statements.                 F-6

<PAGE>


REMOTEMDX, INC.

Consolidated Statements of Stockholders' Equity
For The Years Ended September 30, 2001 and 2000 (Continued)

<TABLE>
<CAPTION>
                                                                                          Preferred Stock
                                                                     -------------------------------------------------------------
                                                                               Series A                      Series B
                                                                     -------------------------------------------------------------
                                                                       Shares        Amount           Shares          Amount
                                                                     -----------  ----------------  --------------   -------------
<S>                                                                  <C>          <C>               <C>              <C>
Balance at September 30, 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 warrants
    associated with borrowings under a related-party line of credit          -                 -               -              -
Beneficial conversion features on Series A preferred stock                   -                 -               -              -
Net loss                                                                     -                 -               -              -
                                                                      ------------------------------------------------------------
Balance at September 30, 2001                                             24,181  $              2         700,001 $           70
                                                                      ============================================================
</TABLE>





<TABLE>
<CAPTION>
                                                                                  Common Stock               Additional
                                                                      ---------------------------------         Paid-In
                                                                           Shares          Amount               Capital
                                                                      -----------------   -------------   ---------------
<S>                                                                   <C>                 <C>             <C>
Balance at September 30, 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                     -           -              2,000,001
    offering
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 warrants
    associated with borrowings under a related-party line of credit                -           -              2,233,000
Beneficial conversion features on Series A preferred stock                         -           -              4,272,848
Net loss                                                                           -           -                     -
                                                                      -----------------   -------------   ---------------
Balance at September 30, 2001                                                7,841,585    $    784        $  27,652,020
                                                                      =================   =============   ===============
</TABLE>


<TABLE>
<CAPTION>
                                                                      Series A Preferred
                                                                          Stock
                                                                      Subscription              Accumulated
                                                                        Receivable                Deficit
                                                                      -------------------   ------------------
<S>                                                                   <C>                   <C>
Balance at September 30, 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 warrants
    associated with borrowings under a related-party line of credit             -                         -
Beneficial conversion features on Series A preferred stock                      -                 (4,272,848)
Net loss                                                                        -                 (8,520,097)
                                                                      -------------------   ------------------
Balance at September 30, 2001                                         $   (338,300)         $    (21,708,091)
                                                                      ===================   ==================
</TABLE>

See accompanying notes to consolidated financial statements.                 F-7


<PAGE>




REMOTEMDX, INC.

Consolidated Statements of Cash Flows
For The Years Ended September 30, 2001 and 2000

<TABLE>
<CAPTION>
                                                                                            2001                    2000
                                                                                     ------------------   ----------------------
Cash flows from operating activities:
<S>                                                                                  <C>                  <C>
    Net loss                                                                         $    (8,520,097)     $       (3,445,352)
    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                                                           99,924                  59,262
      Amortization of debt discount                                                           32,503                     -
      Interest expense related to the beneficial conversion features and
          preferred stock warrants associated with borrowings under a
          related-party line of credit                                                     2,233,000                     -
      Common stock issued for services                                                       669,000                 425,000
      Common stock issued as conversion inducement for Series A convertible
          debenture                                                                          180,000                     -
      Common stock options issued for services                                               185,305               1,077,690
      Preferred stock issued for services                                                    695,000                 220,000
         Changes in operating assets and liabilities, net of effects of
            acquisition of SecureAlert:
               Accounts receivable, net                                                       47,752                  (2,408)
               Inventories                                                                  (276,777)                  5,330
               Prepaid expenses                                                              (35,543)                    950
               Accounts payable                                                              768,405                 156,264
               Accrued liabilities                                                           545,234                  10,755
               Deferred revenues                                                              (3,977)                    -
                                                                                     ------------------   ----------------------
                      Net cash used in operating activities                               (2,612,483)             (1,492,509)
                                                                                     ------------------   ----------------------
Cash flows from investing activities:
    Net cash paid in the acquisition of SecureAlert                                         (416,138)                    -
    Purchase of property and equipment                                                       (43,452)                 (9,193)
    Proceeds from repayment of related-party note receivable                                     -                   200,000
    Issuance of related-party note receivable                                                    -                  (200,000)
                                                                                     ------------------   ----------------------
                      Net cash used in investing activities                                 (459,590)                 (9,193)
                                                                                     ------------------   ----------------------
Cash flows from financing activities:
    Payments on purchase obligation to former SecureAlert shareholders                      (200,000)                    -
    Borrowings under a related-party line of credit                                        2,233,000                     -
    Net payments on a bank line of credit                                                 (1,586,374)                    -
    Proceeds from issuance of common stock                                                       -                 1,500,000
    Proceeds from issuance of convertible debentures                                         545,000                     -
    Proceeds from issuance of Series A preferred stock, net of cash
          offering costs                                                                         -                   236,000
    Proceeds from issuance of Series B preferred stock, net of cash
          offering costs                                                                   1,862,003                     -
                                                                                     ------------------   ----------------------
                      Net cash provided by financing activities                            2,853,629               1,736,000
                                                                                     ------------------   ----------------------
Net increase (decrease) in cash                                                             (218,444)                234,298
Cash, beginning of year                                                                      278,421                  44,123
                                                                                     ------------------   ----------------------
Cash, end of year                                                                    $        59,977      $          278,421
                                                                                     ==================   ======================
</TABLE>

See accompanying notes to consolidated financial statements.                 F-8

<PAGE>


REMOTEMDX, INC.

Consolidated Statements of Cash Flows
For The Years Ended September 30, 2001 and 2000 (Continued)

<TABLE>
<CAPTION>
                                                                                        2001                    2000
                                                                              -------------------------------------------------
Supplemental disclosure of cash flow information:
<S>                                                                           <C>                     <C>
    Cash paid for interest                                                    $              27,386   $                 -
Supplemental schedule of non-cash investing and financing activities:
    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
       converted into shares of common stock                                                480,003                       -
    Series A preferred stock issued in lieu of cash dividends                               400,526                 258,550
    Series A preferred stock beneficial conversion features                               4,272,848                 171,746
    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 sock offering (Note 8)                                 2,138,059                       -
</TABLE>

See accompanying notes to consolidated financial statements.                 F-9

<PAGE>


REMOTEMDX, INC.

Notes to Consolidated Financial Statements

(1)         Organization and Nature of Operations

RemoteMDx, Inc. was originally incorporated in Utah in July 1995 under the name
Volu-Sol, Inc. ("Volu-Sol"), as a wholly owned subsidiary of Biomune Systems,
Inc. ("Biomune"). 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 consumer electronics products. The Company's
revenues for the year ended September 30, 2001, were generated primarily from
the sale of consumer electronics and personal security products and to a lesser
extent from medical stains and reagents (see Note 14). The Company is pursuing
the development of remote health monitoring products.

The Company incurred a net loss of $8,520,097 and had 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 factors, as well as the risk factors described below,
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.

Management's plans with respect to this uncertainty include raising additional
capital from the sale of debt and equity securities. Subsequent to September 30,
2001, the Company has raised additional debt financing from ADP Management, an
entity controlled by Mr. David G. Derrick, the Company's chief executive officer
and chairman of the board of directors (see Note 5), increased its borrowings
under a bank line of credit (see Note 4), borrowed $1,993,974 from unrelated
lenders (see Note 15) and sold 32,000 shares of redeemable common stock to a
third party for $96,000 (see Note 15). Additionally, the Company is attempting
to raise additional equity financing through the sale of Series B Preferred
Stock. The Company also plans to enhance revenues and cash flows from its
recently acquired SecureAlert operations by increasing selling and marketing
efforts related to new and existing products and services.

There can be no assurance that the Company will be able to raise sufficient
capital to meet its working capital needs, which include $1,200,000 in cash to
fund the purchase obligation associated with the Company's acquisition of
SecureAlert. In addition, there can be no assurance that the SecureAlert
operations will improve and generate positive cash flows from operating
activities and that it will be successful introducing new products into the
market. Further, the Company may be unable to complete the development and
successful commercialization of any remote health monitoring products.



                                                                            F-10

<PAGE>

In addition to the uncertainties of obtaining sufficient capital and improving
operations, the Company is subject to various risk factors due to the recent
transition from the reagent business to a business that is focused on providing
personal security and remote health monitoring products. The failure to
adequately address the following risks, among others, could have a material
adverse effect on the Company's results of operations and business prospects.

(a)   The Company recently acquired the operations of SecureAlert and may be
      unable to successfully integrate the operations. In addition, some of the
      SecureAlert products were recently developed and the Company has limited
      historical operating information. The Company may be unable to
      successfully market and sell these products to customers.

(b)   The Company's expected product markets are rapidly changing. Existing
      products and emerging products will compete directly with the products the
      Company is seeking to develop and market. In addition, many of the
      Company's competitors have significantly greater financial resources and
      expertise. The Company's targeted markets may never accept its products
      based upon competing products and other market acceptance factors.

(c)   The Company has limited in-house research, development and manufacturing
      capabilities. The Company may be unable to establish acceptable
      relationships with companies to provide these capabilities.

(d)   The Company has no significant experience in sales, marketing or
      distribution in its intended markets. The Company will be required to
      develop a marketing and sales force.

(e)   The Company's success will depend, in part, on its ability to obtain and
      enforce patents, maintain trade secrets and operate without infringing the
      proprietary rights of others.

(f)   The Company intends to market devices that may be regulated by a number of
      governmental agencies, including the Food & Drug Administration. The
      regulatory processes are lengthy, expensive and uncertain and may require
      extensive clinical trials.

(g)   The Company's future success depends on its senior management and
      successfully recruiting additional senior management as determined
      necessary.

(2)         Summary of Significant Accounting Policies

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.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with generally accepted
accounting principles 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 Instruments

The carrying amounts reported in the accompanying consolidated financial
statements for cash, accounts receivable and accounts payable approximate fair


                                                                            F-11
<PAGE>

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.

During the year ended September 30, 2001, one customer accounted for 17 percent
of the Company's revenues. During the year ended September 30, 2000, one
customer accounted for 19 percent of the Company's revenues. As of September 30,
2001, two customers accounted for 17 and 10 percent of the Company's outstanding
accounts receivable.

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     $              949,696
Reagent stains                           50,080
                         ----------------------
                         $              999,776
                         ======================


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.

Concentration of Purchases

From the date of the acquisition of SecureAlert (see Note 3) through September
30, 2001,  $232,692 of the Company's inventory purchases were from Royal Philips
Electronics  ("Philips") under a purchase  agreement (see Note 13). In addition,
the Company  expects to purchase the majority of its  telephone  inventory  from
Uniden under a purchase agreement (see Note 13). 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.



                                                                            F-12
<PAGE>




Property and equipment consisted of the following as of September 30, 2001:

Equipment                            $          505,960
Leasehold improvements                          224,046
Furniture and fixtures                           57,606
                                     -----------------------
                                                787,612
Accumulated depreciation                       (433,178)
                                     -----------------------
                                     $          354,434
                                     =======================

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

In accordance with Statement of Financial Accounting Standards No. 142 (see
Recently Issued Accounting Pronouncements), goodwill is not amortized but is
subject to an impairment test which will be performed at least annually. Through
the impairment test, the fair value of the reporting unit to which the goodwill
is assigned will be compared with the reporting unit's carrying amount,
including goodwill. A second test to determine the amount of impairment will be
performed if the carrying amount of the reporting unit exceeds the fair value.
This test will result in allocating the fair value to all of the assets and
liabilities as if the reporting unit had been acquired and comparing the
resulting fair value of goodwill to the carrying amount. The Company uses a
market or income approach in determining the fair value of the reporting unit.
The Company has not yet tested its goodwill for impairment. The Company plans to
perform the annual impairment test on June 30, 2002 or earlier to the extent
facts and circumstances indicate that a potential impairment has occurred. As of
September 30, 2001, the Company does not believe that its goodwill is impaired.
However, it is possible that the goodwill could be impaired in the near term
based upon changes in market and other conditions and the amount of impairment
loss could be material to the results of Company's operations.

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 remaining life in measuring
whether the assets are recoverable. As of September 30, 2001, the Company does
not consider any of its other long-lived assets to be impaired.

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, 2001, the provision for sales returns was not significant. Amounts
received in advance of shipment are recorded as deferred revenue.



                                                                            F-13
<PAGE>

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 10.

The Company accounts for its stock-based compensation issued to 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.

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. 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, shares reserved for issuance in connection with the
acquisition of SecureAlert (see Note 3), the conversion of the convertible
debentures and related accrued interest, the exercise of Series A preferred
stock warrants and shares issuable upon conversion of preferred stock. As of
September 30, 2001 and 2000, there were 14,252,821 and 8,131,560 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, thereby decreasing the net loss per common share.



                                                                            F-14
<PAGE>

Recently Issued Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board ("FASB") issued 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, the Company was
required to apply certain provisions of the new standards for the acquisition of
SecureAlert (see Note 3). Under the new 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 will continue to be amortized over their useful lives. As allowed by
these statements, the Company plans to adopt the remaining provisions on October
1, 2001, the beginning of its fiscal 2002 year. Management expects that there
will be no impact on the Company's results of operations, financial position or
liquidity related to adopting 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
Company's 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 Statement 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.
The Company will adopt the provisions of this statement on October 1, 2001, the
beginning of its fiscal 2002 year. Management does not expect the adoption of
this statement to have a material impact on the Company's results of operations,
financial position or liquidity.

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. 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 are to be deposited into an escrow account. The remaining
1,200,000 shares and $1,200,000 in cash are to be delivered in installments on
the last day of each of six successive calendar quarters beginning September 30,
2001.



                                                                            F-15
<PAGE>

If the Company issues or sells any shares of common stock through June 2003
for a consideration which is less than $3.00 per share, then the number of
shares issuable to the former SecureAlert shareholders will be increased to an
amount equal to $4,299,999 divided by the new per share value.

The obligations of the Company to make the payments of cash and shares of common
stock as required by the agreement are secured by all of the outstanding shares
of SecureAlert. If the Company fails to make the required payments of cash and
shares, a notice of default is received and remains uncured for a period of 60
days from the date of receipt of the notice, then the former SecureAlert
shareholders have the right, but not the obligation, to receive back all of the
outstanding shares of SecureAlert and they take control of the business of
SecureAlert, including all liabilities and assets thereof provided however, that
the former SecureAlert shareholders shall repay to the Company the balance due
under the bank line of credit. In addition, the former SecureAlert shareholders
may retain all shares of the Company's common stock and all cash consideration
previously received.

The Company failed to pay the required September 30, 2001 installment payments
of cash and shares. On October 15, 2001, the Company received a notice of
default. On November 30, 2001, the Company and the former SecureAlert
shareholders amended the merger agreement. The amended agreement required the
Company to (i) disburse the $200,000 and 200,000 share payments due originally
on September 30, 2001 on or before December 5, 2001, (ii) pay a fee of $10,000
to a former shareholder of SecureAlert on or before December 5, 2001, for the
extension through December 14, 2001 of the shareholder's letter of credit in the
amount of $202,000 securing the bank line of credit (see Note 4) and (iii)
distribute the $200,000 and 200,000 share payments originally due on December
31, 2001 on or before December 14, 2001, provided that if the Company could not
obtain a new line of credit replacing the then current bank line of credit, the
due date would be extended to December 31, 2001. In addition, Mr. Derrick, and
Mr. James Dalton, a director of the Company, agreed to personally establish a
letter of credit in the principal amount of $800,000 in favor of the bank and
use their best efforts to obtain the release of the personal guarantees of four
of the former SecureAlert shareholders under a bank line of credit.
Additionally, the agreement was amended that in the event of default, 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 is personally guaranteed
by four former SecureAlert shareholders.

The Company satisfied all of the above requirements of the amended agreement.
The remaining installments of shares and cash will be paid on the last day of
each of the remaining four consecutive calendar quarters, beginning March 31,
2002.

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.



                                                                            F-16
<PAGE>




<TABLE>
<CAPTION>
<S>                                                                           <C>
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 percent per year
                                                                                           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 7)
                                                                                             300,200
Acquisition related costs                                                                    114,718
                                                                              ------------------------
            Total purchase consideration                                      $            6,299,775
                                                                              ========================
</TABLE>

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

<TABLE>
<CAPTION>
<S>                                                                           <C>
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
                                                                              ==============================
</TABLE>

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.

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 each fiscal year 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


                                                                            F-17
<PAGE>

would have occurred had the acquisition been made at the beginning of the
applicable year.

                                                  2001            2000
                                              --------------  ---------------
Revenues                                      $  3,604,515    $   5,493,953
Net loss attributable to common
shareholders                                   (14,116,491)      (4,676,861)
Basic and diluted net loss per common share          (3.11)           (2.47)

In addition to the acquisition consideration, the Company agreed to grant
employment-based options to purchase up to an aggregate of 1,000,000 shares of
common stock to four former officers and directors of SecureAlert and current
employees of the Company. The options have an exercise price of $3.00 per share
and are exercisable over five years from the date of vesting. Vesting was to
occur on the date that SecureAlert achieved $20,000,000 in aggregate gross
revenues for the two-year period commencing on July 2, 2001 and the number of
shares issuable upon exercise of the options was to be decreased by the amount
that gross revenues was less that $20,000,000 divided by $3.00 per share. In
addition, if SecureAlert had a loss for the two-year period following July 2,
2001, the number of shares issuable upon exercise of the options was to be
decreased at the rate of one share for every $3.00 of loss incurred. On November
30, 2001, the option terms were amended to provide for vesting in full
immediately.

(4)         Bank Line of Credit

As of September 30, 2001, the Company had $593,587 outstanding under a line of
credit agreement with SunTrust Bank. Borrowings under the agreement are limited
to the lesser of $600,000 or a borrowing base equal to the sum of 60 percent of
the Company's current accounts receivable, as defined in the agreement, plus 40
percent of the Company's current inventory, as defined in the agreement. The
interest rate associated with the line of credit is the 30-day average LIBOR
rate plus 2.15 percent (4.79 percent as of September 30, 2001) and borrowings
are due January 31, 2002. Additionally, the agreement requires the Company to
maintain certain financial and non-financial covenants and requires the bank's
consent to certain transactions, including transactions between SecureAlert and
RemoteMDx, Inc. As of September 30, 2001, the Company was out of compliance with
certain of its covenants; however, the Company has obtained a waiver from the
bank for the events of default. The Company is currently in the process of
renegotiating the line of credit; however, there can be no assurance that the
Company will be successful.

As of September 30, 2001, the bank required the Company to maintain a letter of
credit in an amount not less than $200,000 that was provided by a former
shareholder of SecureAlert. As of September 30, 2001, borrowings under the line
of credit were personally guaranteed by four former SecureAlert shareholders.

Subsequent to September 30, 2001, the required letter of credit provided by a
former shareholder of SecureAlert was replaced by a letter of credit from a
trust, whose trustee is a relative of an officer of the Company. The trust's
letter of credit expires on June 30, 2002. As consideration for establishing the
new letter of credit, the Company issued 15,000 shares of its common stock to
the trust. The trust has the option, but not the obligation, to require the
Company to repurchase these shares on June 30, 2002 at a price of $3.00 per
share. In the event that the bank draws on the letter of credit, the Company
will repay the amount drawn together with interest thereon at a rate of 12
percent per year until paid in full.

In December 2001, Mr. Derrick assigned two certificates of deposits in the
aggregate amount of $500,000 as security for the line of credit. This assignment
of the certificates of deposit, along with the letter of credit from a trust,
replaced the personal guarantees of four former SecureAlert shareholders.


                                                                            F-18
<PAGE>

(5)         Related-Party Line of Credit

During the year ended September 30, 2001, the Company borrowed $2,233,000 under
a line of credit arrangement with ADP Management, an entity controlled by Mr.
Derrick. The Company may borrow up to $3,000,000 under this line of credit
arrangement. Through June 1, 2001, the borrowings bore interest at 12 percent
per year. Subsequent to June 1, 2001, borrowings bear interest at the prime rate
(6.26 percent at September 30, 2001). Borrowings under the arrangement were due
on December 31, 2001. The Company did not repay the amounts outstanding under
the line of credit on December 31, 2001 and accordingly, the interest rate on
outstanding borrowings increased to 15 percent per year. The Company is
currently in the process of negotiating the terms of an amended line of credit.

Through June 1, 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 balance converted. In addition, the Series A preferred
stock may be immediately converted into common stock at an amount which results
in a beneficial conversion feature. Prior to June 1, 2001, $535,000 of
borrowings under the line of credit were converted into 2,675 shares of Series A
Preferred Stock (see Note 8). Subsequent to June 1, 2001, the Company is
required to issue to ADP Management a warrant to purchase one share of Series A
Preferred Stock at a price of $200 per share for every $200 in principal then
outstanding and in additional principal loaned under the line of credit (see
Note 8). Based on the terms of the line of credit and a common stock value of
$3.00 per share, ADP Management has the ability to, upon a cashless exercise of
the warrants, receive 0.82 shares of Series A Preferred Stock or approximately
303 shares of common stock for each $200 advanced under the line of credit.
Additionally, if ADP Management elects to pay the exercise price of the warrant,
either by reducing the amount of borrowings under the line of credit or
otherwise, ADP Management has the ability to receive 370 shares of common stock
for each Series A Preferred Stock warrant exercised. This equates to a purchase
price of $0.54 per common share.

During the year ended September 30, 2001, $1,682,000 of borrowings were utilized
as consideration for the exercise of existing options to purchase 1,682,000
shares of common stock at an exercise price of $1.00 per share (see Note 10). As
of September 30, 2001, the outstanding balance on the related-party line of
credit was $16,000. During the year ended September 30, 2001, the Company
recorded interest expense of $2,274,509, associated with the line of credit with
ADP Management. This amount includes $2,233,000 in non-cash interest expense
related to the beneficial conversion features and the Series A Preferred Stock
warrants.

Subsequent to September 30, 2001, the Company borrowed an additional $1,245,599
under the line of credit. Of this amount $1,036,000 has been repaid. Despite the
fact that these borrowings were repaid within a relatively short period of time,
the Company may have to issue warrants to purchase up to 6,228 shares of Series
A preferred stock, pending the negotiation of the terms of an amended line of
credit.

(6)         Series A 15 % Convertible Debentures

During the year ended September 30, 2001, the Company issued $545,000 in Series
A 15% convertible debentures. The debentures and related interest are
convertible into shares of common stock at an initial conversion rate of $3.00
per share and were due on or before August 1, 2001. Of the debentures issued,
debentures with a face amount of $450,000, together with interest thereon, were
converted into 160,001 shares of common stock. Total debentures outstanding and
related accrued interest at September 30, 2001 were $95,000 and $6,257,
respectively. Subsequent to September 30, 2001, debentures with a face amount of
$55,000, together with interest thereon, were converted into 19,939 shares of
common stock.

During the year ended September 30, 2001, the Company paid $70,000 in cash and
60,000 shares of common stock, valued at $3.00 per share ($180,000) to the
holder of debentures with a face amount of $400,000 as an inducement for the
holder to convert the debentures


                                                                            F-19
<PAGE>

into shares of common stock. These inducements totaled $250,000 and are
classified as interest expense in the accompanying statement of operations.

The Company failed to repay the debentures on or before August 1, 2001 and is
therefore, in default on the outstanding debentures. Subsequent to August 1,
2001, the debentures and accrued interest thereon bear an interest rate of 18
percent per year. The Company is currently negotiating the conversion, extension
or payment of the remaining debentures with a face amount of $40,000 with the
debenture holders.

If the Company issues or sells certain shares of common stock or equivalents for
consideration which is less than $3.00 per share, then the conversion rate of
the outstanding debentures will be adjusted for any such issuances.

(7)         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 are due July 2, 2002. During the year ended
September 30, 2001, the Company recorded interest expense of $6,302 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).

(8)         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, 2001, there were 24,181 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, 2001 and 2000, the Company recorded $400,526 and $258,550 in
dividends on Series A Preferred Stock.

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


                                                                            F-20
<PAGE>

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, 2001 and 2000,
the Company recorded a total of $4,272,848 and $171,746, respectively, related
to the beneficial conversion feature of the Series A Preferred 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. During the year ended
September 30, 2000, 288 shares of Series A Preferred Stock were converted into
72,000 shares of common stock. Subsequent to September 30, 2001, 1,805 shares of
Series A Preferred Stock were converted into 667,999 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 $200 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 stated value of Series A Preferred Stock however,
the Company may designate a different and lower redemption price for all shares
of Series A Preferred Stock called for redemption by the Company. Through
September 30, 2001, the Company has not exercised its option to redeem shares of
Series A Preferred Stock.

Issuances of Series A Preferred 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 Management (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 (see Note 11), 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 Management. As of September 30, 2001, there were
24,181 shares of Series A Preferred Stock outstanding, which represents
8,946,970 common stock equivalents.

During the year ended September 30, 2000, the Company issued 3,723 shares of
Series A Preferred Stock. Of these shares, 1,330 were issued in exchange for net
proceeds of $236,000 (including 580 shares issued to ADP Management), 1,100 were
issued for services and 1,293 were issued in consideration for accrued dividends
on Series A Preferred Stock through September 30, 2000.

Warrants to Purchase Series A Preferred Stock

On June 1, 2001, the Company amended its line of credit agreement with ADP
Management (see Note 5). As part of that amendment, the Company granted ADP
Management 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. The
warrants expire on December 31, 2002. The Series A Preferred Stock warrants may
be exercised by means of a cashless exercise.

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 Management. 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. As of September 30, 2001, warrants to purchase
6,292 shares of Series A Preferred Stock remain outstanding which represent a
potential of 5,158 shares of Series A Preferred Stock if exercised on a cashless
basis, utilizing an estimated fair value of $3.00 per share of common stock.


                                                                            F-21
<PAGE>

These 5,158 shares of Series A Preferred Stock represent 1,908,633 common stock
equivalents as of September 30, 2001.

Subsequent to September 30, 2001, the Company may have to issue warrants to
purchase up to 6,228 shares of Series A Preferred Stock related to borrowings
under the line of credit with ADP Management , pending the negotiation of the
terms of an amended line of credit. Additionally, warrants to purchase 4,549
shares of Series A Preferred Stock were exercised through a cashless exercise
resulting in the issuance of 2,955 shares of Series A Preferred Stock. Of these
shares, 1,594 shares of Series A Preferred Stock were immediately converted into
482,999 shares of common stock.

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
Management and $402,200 as a reduction of a note payable and accrued interest
due to MK Financial. As of September 30, 2001, $338,300 remains outstanding from
MK Financial. Management expects this amount to be paid during fiscal year 2002.

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.

Convertibility

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. The holders of Series B Preferred
Stock are entitled to a liquidation preference of $3.00 per share, plus all
accrued and unpaid dividends. For purposes of this liquidation preference, the
Series A Preferred Stock ranks on a parity with the Series B Preferred Stock.



                                                                            F-22
<PAGE>

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.

Issuances of Series B Preferred Stock

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, 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.

(9)         Common Stock

Authorized Shares

The Company is authorized to issue up to 50,000,000 shares of common stock,
$0.0001 par value per share.

Reverse Common Stock Split

On April 13, 2000, the Company's board of directors approved a one-for-five
reverse split of all outstanding shares of the Company's common stock. All
common share amounts, per share information and numbers of common shares into
which preferred stock is convertible, and stock options and warrants have been
retroactively adjusted to reflect this reverse common stock split in the
accompanying consolidated financial statements.

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.



                                                                            F-23
<PAGE>

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 years ended September 30, 2001 and 2000, the Company issued 188,621
and 1,746 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.

Common Stock Issuances

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 Management (see Note
5). Of the remaining 3,218,339 shares issued, 1,433,333 shares were issued in
connection with the acquisition of SecureAlert (see Note 3), 669,000 shares were
issued for services, 60,000 shares were issued to induce the conversion of
convertible debentures (see Note 6), 707,384 shares were issued upon the
conversion of 1,911 shares of Series A Preferred Stock (see Note 8), 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 (see Note 6).

During the year ended September 30, 2000, the Company issued 2,398,746 shares of
common stock. Of these shares, 1,900,000 shares were issued to two directors of
the Company for net proceeds of $1,500,000, 400,000 shares were issued to a
related party for research and development services (see Note 11) 72,000 were
issued upon conversion of 288 shares of Series A Preferred Stock (see Note 8),
25,000 shares were issued for services to third parties and 1,746 shares were
issued as divestiture add-on shares (see above).

(10)        Common Stock Options and Warrants

Stock Incentive Plan

The Company has adopted the 1997 Volu-Sol, Inc. Stock Incentive Plan (the "1997
Plan"). The 1997 Plan was approved by action of Biomune, the original
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, 2001, 610,000 shares have been granted under the 1997 Plan.



                                                                            F-24
<PAGE>

Add-on Volu-Sol Options

In connection with the Distribution of the Company's common stock, the board of
directors of Biomune determined that each Biomune stock option (a "Biomune
Option") would be divided into two separately exercisable options: an option to
purchase Biomune common stock and an option to purchase Volu-Sol common stock
(an "Add-on Volu-Sol Option"). The Add-on Volu-Sol Options grant the holder the
right to purchase the Company's common stock in an amount that would have been
issued in the Distribution 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 distribution and containing
substantially equivalent terms as the existing Biomune Option. The Add-on
Volu-Sol Options carry 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 after the distribution and certain persons who were
Biomune employees prior to the distribution but became Volu-Sol employees after
the distribution held both Biomune Options and separate Add-on Volu-Sol Options.
The obligations with respect to the Biomune Options and Add-on Volu-Sol Options
held by Biomune employees and non-employee directors following the distribution
were obligations solely of Biomune. The Company agreed to sell to Biomune from
time to time shares of Volu-Sol common stock as necessary to satisfy Biomune's
obligations under the distribution agreement. The sales price of such shares of
Volu-Sol common stock was the amount of consideration received by Biomune in
exercise of the related option.

As of September 30, 2001, a total of 14,250 Add-on Volu-Sol options remained
outstanding. The remaining Add-on Volu-Sol options expired in October 2001. No
shares of common stock have been issued upon exercise of Add-on Volu-Sol options
from the date of the Distribution through September 30, 2001.

Biomune Warrants

Biomune has granted rights to purchase Biomune common stock in the form of
warrants (the "Biomune Warrants"). Under the agreements governing the grant and
exercise of the Biomune Warrants, Biomune agreed to issue to the holders of such
rights, securities otherwise issuable with respect to the Biomune common shares
underlying the Biomune Warrants if and to the extent the Biomune Warrants were
exercised. Consequently, if the holders of the Biomune Warrants exercised their
rights thereunder, Biomune was obligated issue to those holders one share of the
Company's common stock for each 50 shares of Biomune common stock issued in
connection with such exercise. The Company agreed to sell to Biomune the shares
of the Company's common stock needed to meet this obligation of Biomune. The
sales price of such shares of the Company's common stock was to be a sum equal
to 10 percent of the consideration received by Biomune in exercise of the
Biomune Warrants. As of September 30, 2001, all Biomune warrants had expired
unexercised.


                                                                            F-25
<PAGE>




A summary of stock option and warrant activity for the years ended September 30,
2001 and 2000 is as follows:

<TABLE>
<CAPTION>
                                          Number of Options and
                                              Warrants                   Price Per Share
                                    ----------------------------- -------------------------------
<S>                                 <C>                           <C>
Outstanding at September 30, 1999                 2,230,500             $5.80 to  $20.00
Granted                                           1,350,000              3.00 to    7.00
Expired or cancelled                             (1,420,000)             5.80 to   20.00
                                    ----------------------------- -------------------------------

Outstanding at September 30, 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   20.00
Exercised                                        (1,682,000)                        1.00
                                    ----------------------------- -------------------------------
Outstanding at September 30, 2001                 2,079,477             $1.00 to  $ 7.00
                                    ============================= ===============================
</TABLE>


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

SFAS No. 123 requires pro forma information regarding the Company's net loss as
if the Company had accounted for its stock options granted under the fair value
method. The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions:

                                  Years ended September 30,
                                 -------------------------------
                                      2001            2000
                                 --------------- ---------------
Expected dividend yield                    0%             0%
Expected stock price volatility          110%           144%
Risk-free interest rate                    6%             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, 2001 and 2000 are $0.68 and $0.80, respectively.

During the year ended September 30, 2000, all of the warrants were granted to
outside parties. The options were valued at a price derived from the
Black-Scholes option pricing model and are recognized as part of the net loss
per common share as reported in the statement of operations. Accordingly, the
loss applicable to common shares and loss per common share for pro forma
presentation in accordance with SFAS No. 123 does not differ from the reported
amounts for the year ended September 30, 2000. The following is the pro forma
disclosure and the related impact on the net loss for the year ended September
30, 2001:

<TABLE>
<CAPTION>
<S>                                                                                                <C>
        Net loss attributable to common shareholders - as reported                                 $         (13,193,471)
        Net loss attributable to common shareholders - pro forma                                             (14,851,790)
        Basic and diluted net loss per common share - as reported                                                (3.26)
        Basic and diluted net loss per common share - pro forma                                                  (3.66)
</TABLE>



                                                                            F-26
<PAGE>



The following table summarizes information about stock options and warrants
outstanding at September 30, 2001:

                             Number Outstanding at  Weighted Average Remaining
                               September 30, 2001    Contractual Life (Years)

 Range of Exercise Prices
 -------------------------- ----------------------- ---------------------------
   $  1.00                           361,894                  4.0
      3.00                           603,333                  3.7
      5.00 to 5.80                   564,250                  3.5
      7.00                           550,000                  3.6
 -------------------------- ----------------------- ---------------------------
                                   2,079,477                  3.7
 ========================== ======================= ===========================

As of September 30, 2001, all outstanding options and warrants are exercisable.

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.

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 8).

During the year ended September 30, 2000, warrants to purchase 1,350,000 shares
of common stock were granted to Battelle Memorial Institute ("Battelle") for
research and development services (see Note 11). The warrants have a
weighted-average exercise price of $5.00 per share and expire in April 2005. The
warrants were valued at $1,077,690 based on the Black-Scholes option pricing
model and recorded as research and development expense.

(11)        Related Party Transactions

The Company has entered into certain transactions with related parties. These
transactions consist mainly of financing transactions, consulting arrangements
and product sales. The Company believes that the terms of these related party
transactions are no less favorable than the terms that it could have obtained
from an unaffiliated third party in similar transactions.



                                                                            F-27
<PAGE>




ADP Management, MK Financial, David G. Derrick and James Dalton

Financing Transactions

During the year ended September 30, 2001, the Company has borrowed $2,233,000
under a line of credit with ADP Management (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
Management 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 8), converted 1,801 shares of Series A Preferred Stock
into 666,667 shares of common stock (see Notes 8 and 9) and the Company issued
200,000 shares of Series B Preferred Stock for cash proceeds of $600,000 (see
Note 8). Additionally, 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, 2001, $338,300 related to a Series A Preferred Stock
subscription receivable remains outstanding from MK Financial (see Note 8).
Management expects this amount to be paid during fiscal year 2002.

During the year ended September 30, 2000, Messrs. Derrick and Dalton purchased
1,900,000 shares of common stock at a purchase price of $1,500,000 (see Note 9).

Consulting Arrangements

In March 2000, the Company agreed to pay consulting fees to ADP Management 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 Management was paid a consulting fee of
$10,000 per month and the Company agreed to reimburse the expenses incurred by
ADP Management in the course of performing services under the consulting
arrangement. A similar arrangement was agreed upon with Mr. Dalton. The board of
directors, which at the time did not include either of these individuals,
approved both of these arrangements.

During the year ended September 30, 2001, under the consulting arrangements
described above, the Company incurred consulting fees and expenses of
$1,087,000. Of this amount, $695,000 was paid by issuing 3,475 shares of Series
A Preferred Stock to ADP Management and Mr. Dalton, or their respective
assignees (see Note 8). Of the remaining amount, $272,000 was deemed an advance
under the line of credit with ADP Management and $120,000 is included as an
accrued liability as of September 30, 2001.

During the year ended September 30, 2000, under the consulting arrangements
described above, the Company incurred consulting fees and expenses of $90,000.

Personal Guarantees

Subsequent to September 30, 2001, the Company entered into an $800,000
promissory note which is personally guaranteed by Messrs. Derrick and Dalton and
is collateralized by 1,000,000 shares of the Company's common stock held by them
(see Note 15). Additionally, the Company entered into a loan agreement whereby
the Company borrowed $1,543,974 (see Note 15). The borrowings are personally
guaranteed by two officers of the Company, however, the two officers are
indemnified from their personal guarantees by Messrs. Derrick and Dalton.
Further, Mr. Derrick assigned two certificates of deposits in the aggregate
amount of $500,000 as security for the line of credit with SunTrust Bank (see
Note 4). 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.



                                                                            F-28
<PAGE>

Battelle Memorial Institute

In April 2000,  the Company  entered  into a Technical  Services  Agreement  for
research and  development  with Battelle.  This agreement forms the basis of the
Company's mutual cooperation in the further research and development of a remote
access  diagnostic  system for medical  professionals  and consumers.  Under the
terms of this agreement,  the Company  compensated  Battelle for its services in
furthering  the research  and  development  of the project by  initially  paying
$800,000 in the form of $400,000  cash and 400,000  restricted  shares of common
stock.  The Company  also  granted  warrants  to Battelle to purchase  1,350,000
shares of common stock at prices ranging from $3.00 to $7.00 per share (see Note
10).  The  agreement  also  grants  certain  anti-dilution  rights to  Battelle.
Battelle  may  also  appoint  a  nominee  to  serve  on the  Company's  Board of
Directors.

In addition to the  consideration  above,  during the years ended  September 30,
2001  and  2000,   the  Company   incurred   expenses   $687,453  and  $591,231,
respectively,  for  research  and  development  services  performed by Battelle.
Accounts payable to Battelle were $115,976 at September 30, 2001.

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).


Additionally, as of September 30, 2001, borrowings under the line of credit with
SunTrust Bank were personally guaranteed by four former SecureAlert shareholders
and were secured by a former SecureAlert shareholder's letter of credit in the
amount of $202,000. These guarantees were removed in December 2001.

Related-Party Sales

During the year ended September 30, 2001, the Company recorded sales of $121,637
to an entity owned by the relative of an officer of the Company. Accounts
receivable from this entity were $35,154 at September 30, 2001.

(12)        Income Taxes

For the years ended September 30, 2001 and 2000, the Company has incurred net
operating losses of approximately $5,607,000 and $2,327,000 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. The net
change in the valuation allowance was an increase of approximately $2,241,000
and $1,274,000 for the years ended September 30, 2001 and 2000, respectively.

At September 30, 2001, the Company has net operating loss carryforwards
available to offset future taxable income of approximately $9,502,000 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.



                                                                            F-29
<PAGE>

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, 2001:

                                                      2001
                                               --------------------
Net operating loss carryforwards               $        3,544,000
Common stock options issued for services
                                                          471,000
Depreciation and reserves                                 282,000
Core technology                                          (191,000)
Valuation allowance                                    (4,106,000)
                                               --------------------
                                               $               -
                                               ====================

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, 2001 and 2000 are as follows:

                                                      2001          2000
                                                -------------- ---------------
Federal income tax benefit at
   statutory rate                               $   2,897,000  $   1,171,000
State income tax benefit, net of
   federal income tax effect                          281,000        114,000
Beneficial conversion features and
   preferred stock warrants associated with
   borrowings under
   a related-party line of credit                    (833,000)           -
Conversion inducement for Series A convertible
   debenture                                          (93,000)           -
Meals and entertainment                               (11,000)        (2,000)
Other                                                     -           (9,000)
Change in valuation allowance                      (2,241,000)    (1,274,000)
                                                -------------- ---------------
Effective income tax rate                       $          -   $          -
                                                ============== ===============


(13)        Commitments 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-30
<PAGE>


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, 2001 are approximately as
follows:

Year Ending September 30:             Amount
-------------------------      ---------------------
      2002                     $         62,000
      2003                               64,000
      2004                               68,000
      2005                               11,000
                               ---------------------
                               $        205,000
                               =====================


Rent expense related to this non-cancelable operating lease was approximately
$60,000 and $57,000 for the years ended September 30, 2001 and 2000,
respectively. Additionally, the Company leases a facility on a month-to-month
basis with monthly base rent of $5,000.

Employment Agreements

Following the merger with SecureAlert in July 2001 (see Note 3), the Company
entered into employment agreements with three individuals each of whom was a
former SecureAlert shareholder, director and officer which expire in July 2003.
The aggregate minimum annual salary payments required by these contracts is
$300,000. In the event that, during the agreement term, the individual is
terminated without cause by the Company, the individual is entitled to receive
the compensation and benefits under the term of the agreement in a lump sum
payment on the date of termination.

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.

Purchase Agreement

The Company has an agreement with Uniden, a manufacturer of consumer
electronics. Under the agreement, the Company has committed to purchase a
minimum of 65,000 mobile telephone units. In the event that the Company does not
purchase the minimum number of units by January 31, 2002, the Company agrees to
pay Uniden the remainder of the actual unamortized portion of Uniden's original
tooling. Management believes the Company will not incur a material obligation
for the unamortized portion of the Uniden's original tooling.



                                                                            F-31
<PAGE>

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  $1,500,000,  $3,500,000,
$5,750,000,  $8,250,000  and  $11,250,000  in  years  one  through  five  of the
contract,  respectively.  From the date of the  acquisition of SecureAlert  (see
Note 3) through September 30, 2001, the Company  purchased  $232,692 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.  From the date of the
acquisition of  SecureAlert  through  September 30, 2001,  royalties to Phillips
totaled $23,288.

(14)        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-32
<PAGE>


The following table reflects certain financial information relating to each
reportable segment for each of the years ended September 30, 2001 and 2000:

<TABLE>
<CAPTION>
                                                                         2001                         2000
                                                              ---------------------------- ----------------------------
<S>                                                           <C>                          <C>
        Net sales:
           SecureAlert:
              Consumer electronics                            $               605,884      $                   -
              Mobile emergency and personal security systems
                                                                             138,942                          -
                                                              ---------------------------- ----------------------------
                                                                             744,826                          -
           Reagents                                                          502,807                      496,211
                                                              ---------------------------- ----------------------------
                                                              $             1,247,633      $              496,211
                                                              ============================ ============================

        Operating income (loss):
           SecureAlert                                        $              (566,271)     $                   -
           Reagents                                                          (82,164)                      18,385
           Other (unallocated)                                            (5,261,716)                  (3,479,219)
                                                              ---------------------------- ----------------------------
                                                              $            (5,910,151)     $           (3,460,834)
                                                              ============================ ============================

        Depreciation and amortization:
           SecureAlert                                        $                61,368      $                   -
           Reagents                                                           35,812                       58,342
           Other (unallocated)                                                 2,744                          920
                                                              ---------------------------- ----------------------------
                                                              $                99,924      $               59,262
                                                              ============================ ============================

        Capital expenditures:
           SecureAlert                                        $                11,082      $                   -
           Reagents                                                            3,100                        9,193
           Other (unallocated)                                                29,270                          -
                                                              ---------------------------- ----------------------------
                                                              $                43,452      $                9,193
                                                              ============================ ============================

        Identifiable assets:
            SecureAlert (including goodwill and intangibles
               of ($8,289,542)                                $             9,872,538      $                   -
           Reagents                                                          191,320                      353,968
           Other (unallocated)                                                42,442                      113,035
                                                              ---------------------------- ----------------------------
                                                              $           10,106,300       $              467,003
                                                              ============================ ============================
</TABLE>



                                      F-33
<PAGE>


(15)        Subsequent Events

Events subsequent to September 30, 2001 not described elsewhere in these notes
are as follows:

Financing Transactions

Subsequent to September 30, 2001, the Company entered into an agreement with a
consultant whereby the Company issued an $800,000 promissory note for payment of
$350,000 in services provided by the consultant ($250,000 of which were rendered
and accrued prior to September 30, 2001) and receipt of $450,000 in cash. The
promissory note bears interest at a rate of 22.5 percent per year and is due on
September 30, 2002. Interest is payable monthly commencing on November 1, 2001.
If the Company fails to make the monthly interest payments within 15 days of the
due date the entire principal balance and accrued interest become immediately
due and payable. The promissory note is personally guaranteed by Messrs. Derrick
and Dalton and collateralized by 1,000,000 shares of the Company's common stock
held by them. Furthermore, the Company will issue 100,000 shares of common stock
to the consultant for services to be performed through September 30, 2002.

Subsequent to September 30, 2001, the Company entered into an agreement with a
company whereby the Company borrowed $1,543,974 repayable in six monthly
installments of $264,886. The borrowings are personally guaranteed by two
officers of the Company, however, the two officers are indemnified from their
personal guarantees by Messrs. Derrick and Dalton. An officer of the Company has
a three percent ownership interest in the lending company.

Subsequent to September 30, 2001, the Company sold 32,000 shares of common stock
to a third party for $96,000. The holder has the option to require the Company
to repurchase the common stock if notice of exercise of this option is given in
writing to the Company with a 60-day period commencing at the end of nine months
from date of issuance. This option automatically expires if it is not exercised
with in the 60-day period.

Consulting Agreements

Subsequent to September 30, 2001, the Company entered into an agreement with a
consulting group for contract engineering services to be performed through March
31, 2003, whereby the consultant received 20,000 shares of the Company's common
stock and a warrant to purchase 20,000 shares of common stock at an exercise
price of $3.00 per share. The warrant expires five years from the date of grant
and was vested upon issuance. In addition to the shares and the warrant, the
Company has agreed to pay the consulting group approximately $30,000 per month
through the term of the agreement.

Subsequent to September 30, 2001, the Company entered into an agreement with a
consultant, who is a related party, for services performed whereby the
consultant received 55,000 shares of the Company's common stock. Additionally,
subsequent to March 31, 2002, the consultant will have the option to require the
Company to repurchase up to 105,000 shares of the Company's common stock held by
the consultant at a price of $3.00 per share. However, if the common stock of
the Company is then traded in the over-the-counter market or on a recognized
exchange and the consultant can readily and efficiently sell such shares at
$3.00 or more per share, at which time the put option will terminate.

Common Stock Option Issuances

Subsequent to September 30, 2001, the Company granted employees options to
purchase 150,000 shares of common stock at an exercise price of $3.00 per share.
The options expire five years from the date of grant and were vested upon
issuance.



                                                                            F-34
<PAGE>

Subsequent to September 30, 2001, the Company granted two outside directors of
the Company options to purchase 400,000 shares of common stock at an exercise
price of $3.00 per share. The options expire five years from the date of grant
and were vested upon issuance.

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 will be a minimum of $15,000.
In years two and three, the minimum required monthly payments will be $15,000
and $25,000, respectively.



                                                                            F-35