<PAGE>

================================================================================
                                 UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                           -------------------------

                                  FORM 10-KSB


           ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
                             EXCHANGE ACT OF 1934


                  For the fiscal year ended December 31, 2001


                       Commission File Number 000-26337
                            ---------------------

                             MEDINEX SYSTEMS, INC.
       (Exact name of small business issuer as specified in its charter)



<TABLE>
<S>                                       <C>
                 Delaware                      82-0514605
         (State or jurisdiction of           (IRS Employer
         incorporation or organization)   Identification No.)
</TABLE>

         1200 West Ironwood Square, Suite 309, Coeur d'Alene, ID 83814
                                (208) 415-0170
(Address and telephone number of principal executive offices and principal
                              place of business)
                            ---------------------

        Securities registered under Section 12(b) of the Exchange Act:

<TABLE>
<S>                                  <C>
                                      Name of each exchange
         Title of each class           on which registered
      Common Stock, $.01 par value    Over the Counter Board
</TABLE>

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

     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of 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.  [ ]

     Registrant's revenues for the fiscal year ended December 31, 2001 were
$572 thousand.

     Based on the stock's average bid and asked price of $0.261 on April 2,
2002, non-affiliated market capital was approximately $3.7 million.


                     APPLICABLE ONLY TO CORPORATE ISSUERS:

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date:

     As of April 2, 2002, there were 17,173,210 shares of the registrant's $.01
par value common stock outstanding.

     Transitional Small Business Disclosure Format: Yes  [ ]  No  [X]

================================================================================

<PAGE>

                                    PART I


Item 1. DESCRIPTION OF BUSINESS

     Medinex Systems, Inc. ("Medinex" or "the Company") is a medical technology
and professional services company founded in 1997 and incorporated in the state
of Delaware. Medinex's medical software solutions include Medinex Office, a
Web-based practice management system and MxMail, a Web-based secure medical
messaging system. Medinex also provides medical transcription services to its
physician clients. MedMarket.com is a business-to-business e-commerce community
that provides products and services to physicians, hospitals, and medical
professionals. In addition, MedMarket.com is a venue used by manufacturers and
distributors of medical equipment and supplies for the promotion and
distribution of their products and services.

     Medinex previously developed and operated a topic-specific Internet
community in the political arena. The public policy and political community,
Votenet.com, included content, products, and services designed for candidates
for political office, voters, political organizations, political action
committees and lobbyists. Medinex sold its political division in a
management-led buyout in February 2001.

     Medinex previously owned a subsidiary, Pinnacle MedSource, Inc., a
wholesale medical supply subsidiary, located in Alpharetta, Georgia. Medinex
sold Pinnacle MedSource in a management led buyout in October 2001.


General

     Medinex's healthcare focused business-to-business exchange, MedMarket.com,
is a developer of Web-based solutions that provides content, products, and
services for physicians, nurses, hospitals, pharmaceutical and insurance
companies, medical supply providers and others involved in the healthcare
market.

     Medinex's suite of products includes:

    o MedMarket Lead Pages, one-page Web sites that develop leads for medical
      providers and manufacturers. Set-up fees, as well as an annual
      subscription fees, are charged for the lead pages.

    o Medinex Office, a Web-based, practice management system providing
      patient scheduling, billing, medical records management, medical
      transcribing and claims processing for medical professionals. An annual
      license fee, as well as a monthly and usage fees are charged on a per
      healthcare provider basis for each installation.

    o MxMail, a Web-based secure medical messaging system.

     Medinex completed its initial public offering in June 1999 under the name
Netivation.com, Inc. The Company's name changed to Medinex Systems, Inc. in
July 2000 and is listed on the Over-the-Counter Bulletin Board under the symbol
MDNX.OB.


Clients

     Medinex has numerous and varied clients due to its focus on the healthcare
market. As such, the Company is not materially dependent on any specific
clients.


Revenue Sources

     Due to the fast-paced and ever-changing environment of the technology
Industry, Medinex believes it is imperative to have multiple sources of
revenue. Medinex is currently positioned to capitalize on several revenue
sources such as the following:

     o  Web-based software applications are expected to be a significant source
        of revenue in 2002.

     o  Professional service fees, in the form of medical transcription usage
        charges, are a primary source of revenue.


                                       1
<PAGE>

     o  Lead Page Sales to Professionals, Suppliers and Manufacturers have been
        a source of revenue.

     o  Advertising and Sponsorship Sales have been a source of revenue.

     o  Internet Consulting Services have been and a source of revenue.

     To date, software application revenue has been nominal.


Branding

     Differentiation through branding is critical in the application software
industry. Much like revenue, it is important to have multiple avenues working
simultaneously to create brand recognition. The majority of the company's
investment in brand building is focused on the Medinex and Medinex Office
brands. Medinex is utilizing several branding techniques to enhance its brand
recognition including the following:

     o  Domain Name Recognition with brands such as MedinexSystems.com,
        MedMarket.com and MedinexOffice.com.

     o  E-mail newsletter subscriptions

     o  Direct marketing through print media and mailers

     o  Sponsoring industry conferences

     o  On-line advertising

     o  Exchanging links with other Internet sites

     o  Establishing strategic relationships with medical industry organizations


     o  Media and Press Releases


Technology

     Medinex has developed and implemented a broad array of products and
services by using a combination of its own proprietary technologies as well as
technologies and content purchased or licensed from third parties. The Medinex
Office products have been developed as a proprietary JAVA application with the
front-end using JSP (Java Server Pages) and the back-end using EJB's
(Enterprise Java Beans). Components of Medinex Office are also developed in
Microsoft's Visual Basic and .NET architecture. MedMarket.com has also been
developed as a proprietary application using the Allaire ColdFusion and Spectra
platform. Medinex maintains all of its Internet servers in a secure co-located
facility in Coeur d'Alene, Idaho.


Employees

     As of December 31, 2001, Medinex Systems had 13 employees. Of those
employees, approximately 3 were in marketing and sales, 3 were in senior
management, 2 were in development and 5 were in operations and administration.
All employees are full-time.

     As Medinex continues to grow and introduce more products and services, it
expects to hire additional personnel. Medinex's future success will depend, in
part, on its ability to continue to attract, retain and motivate highly
qualified personnel. Medinex believes that its relations with its employees are
satisfactory. Medinex is not a party to any collective bargaining agreements
and Medinex has never experienced any work stoppage. The Company believes it
has management personnel and processes in place to effectively manage the risks
associated with employee turnover. "See Part III, Item 9, Directors, Executive
Officers, Promoters and Control Persons and Compliance with Section 16(a) of
the Exchange Act" for details on executive officers.


Patents And Trademarks

     Medinex owns no patents on its technology or products however, Medinex has
filed an application for patent for MxMail. Medinex has federally registered
the following trademarks: "MEDINEX" (Class 38,


                                       2
<PAGE>

Reg. No. 2,350,799), "MEDINEX" (Class 42, Reg. No. 2,365,142) and "MEDINEX.COM"
(Class 42, Reg. No. 2,414,566). Medinex has applied for federal trademark
registration for "MEDMARKET." Under common law, these trademarks have an
unlimited duration. But, if Medinex receives the federal registration for these
trademarks, the trademark will be effective for ten (10) years and may be
renewed every ten (10) years indefinitely. As a result of the acquisition of
MedMarket.com in 1999, Medinex has obtained rights to the following tradenames,
trademarks, and domain names: "MedMarket," "medmarket.com," "medmarket.net,"
"medmarketnetwork.com," and "medicom.com." Medinex has filed a patent
application on the MxMail secure messaging technology.


Competition

     The markets for developing web based software applications providing
Internet-based services and products are relatively new, intensely competitive
and rapidly changing. Since the Internet's commercialization in the early
1990s, the number of Web sites on the Internet competing for users' attention
has proliferated. Barriers to entry on the Internet are minimal, and
competitors can launch new Web sites or new products and services at a
relatively low cost. As a result, Medinex expects that competition in the
Internet industry will continue to intensify.

     Medinex competes, directly and indirectly, for clients, subscribers and
advertisers with the following categories of companies:

     o  Practice management software companies;

     o  Medical transcription service companies;

     o  On-line services or Web sites targeted to the healthcare market;

     o  Web site search and retrieval services and other high-traffic Web sites;
        and

     o  Vendors and distributors of healthcare information, products and
        services distributed through other means, including direct sales, mail
        and other offline media.

     Medinex believes there are key factors to developing successful software
and Internet-based products and services. The primary factors include
functionality, brand recognition, visitor loyalty, demographic focus, variety
of value-added services, and critical mass. Other important factors to consider
in developing competitive software and Internet-based products include
ease-of-use, quality and reliability of the services and products. Medinex also
believes that the principal competitive factors in attracting customers, and
advertisers include price, quality of services and implementation of
advertising placements.

     Medinex currently offers many of the same individual services, products
and combinations of the services and products as offered by other software and
Internet providers:

     o  MedMarket.com competes against other healthcare industry
        business-to-business exchange and e-commerce providers;

     o  Medinex's website design and hosting services compete against numerous
        other companies providing such capabilities;

     o  Medinex Office competes against numerous other software companies; and

     o  The company's transcription service compete against numerous
        transcription service providers,

     o  Although Medinex faces a broad range of competition from a variety of
        service and product providers, the Company believes that it can compete
        more effectively by targeting a specific community and offering greater
        depth of products, information and services than its competitors. For
        example, Medinex's MedMarket.com community offers advanced search engine
        capabilities, lead-generation capabilities and e-commerce and consulting
        services to multiple segments of the healthcare industry.

     With respect to Medinex's physician's practice management software,
Medinex believes its primary competition will be manual processes, standard
personal computer based business accounting and billing packages, as well as
single or limited payer functions. These systems include those offered by
Medisoft,


                                       3
<PAGE>

KIP Medical Office Software, Techsoft Medical Systems, Medical Manager (WebMD)
and CCA Medical Practice Software. Most of these systems are based on desktop
PC applications offering limited access to information managed by the system.
Only users directly networked to the system and running the software can access
or update information on these systems. Medinex believes that Medinex Office
offers the convenience of remote access without special equipment or software,
other than a PC and a standard Web browser. Since the systems software
application components and "backbone" are managed on Medinex's servers
remotely, Medinex believes that Medinex Office will be attractive to physician
offices concerned with the cost of implementing and maintaining information
technology solutions. Medinex also believes that many physicians and small
physicians' offices have been reluctant to invest in information technology
solutions and Medinex's primary competitive challenge will be to convince these
groups to switch to the Medinex Office Internet-based solution. For those
customers desiring all the benefits of an online, Web-based product but also
desiring to house the server functions in-house, Medinex provides its Medinex
Office Onsite edition.

     Many of Medinex's competitors have greater brand recognition and greater
financial support, marketing capabilities and other resources. Medinex's
competitors may develop products and services that are superior to Medinex's or
that achieve greater market acceptance. These factors may place Medinex at a
disadvantage in responding to its competitors' pricing strategies,
technological advances, advertising, sponsorship and e-commerce efforts and
other initiatives. As a result, Medinex may not compete successfully against
its current or future competitors. Medinex's inability to successfully respond
to competitive pressures could have a material adverse effect on Medinex's
business, financial condition, operating results, and cash flows.


Governmental Regulation and Legal Uncertainties

     Medinex is currently subject to various laws and regulations relating to
its business. But there are few laws or regulations currently directly
applicable to the Internet and Medinex's current and expected activities on the
Internet. However, new laws and regulations relating to the following areas may
be adopted because of the Internet's popularity and growth:

     o  online content;

     o  user privacy;

     o  taxation;

     o  access charges;

     o  copyrights;

     o  characteristics and quality of products and services; and

     o  consumer protection

     Such government regulation may impose additional burdens on Medinex's
business. These regulations may impede the growth in Internet use and thereby
decrease the demand for Medinex's products and services or otherwise have a
material adverse effect on Medinex's business, operations and financial
condition.

     Additionally, U.S. and foreign laws relating to e-commerce or Internet
communications are becoming more prevalent. These laws have recently been
enacted and there is uncertainty in the Internet community regarding their
impact on the marketplace. Any new legislation or regulation regarding the
Internet, or the application of existing laws and regulations to the Internet,
could materially adversely affect Medinex. If Medinex were alleged to violate
federal, state or foreign civil or criminal laws, even if these claims could be
successfully defended, Medinex could be materially adversely affected.

     Several telecommunications carriers are supporting regulation of the
Internet by the Federal Communications Commission ("FCC") in the same manner
that the FCC regulates other telecommunications services. These carriers have
alleged that the growing popularity and use of the Internet has burdened the
existing telecommunications infrastructure, resulting in interruptions in phone
service.


                                       4
<PAGE>

Local telephone carriers such as Pacific Bell, a subsidiary of SBC
Communications Inc., have petitioned the FCC to regulate Internet service
providers in a manner similar to long-distance telephone carriers and to impose
access fees on Internet service providers. Any such regulations could
substantially increase the costs of communicating on the Internet. This could
slow the growth in Internet use and thereby decrease the demand for Medinex's
products and services or otherwise have a material adverse effect on Medinex's
business, financial condition and operating results.


     Given that laws and government regulations are complex, vary widely from
state to state, and are frequently changed, Medinex's products and services may
not be legal or practical in all jurisdictions. For example, Medinex may not be
able to ensure that its products and services keep pace with these frequently
changing regulations and could be subject to liability. Such liability may
place Medinex's activities under increased regulation, increase Medinex's cost
of doing business and thereby decrease the demand for Medinex's products and
services or otherwise have a material adverse effect on Medinex's business, its
results of operations and its financial condition.


     If we fail to comply with current or future laws or regulations governing
the collection, dissemination, use and confidentiality of patient health
information, this failure could have a material adverse effect on our business,
operating results and financial condition.


     Physicians or other health care professionals who use our products will
directly enter health information about their patients, including information
that may constitute a medical record under applicable law, that we will store
on our computer systems. Numerous federal and state laws and regulations, the
common law, and contractual obligations govern collection, dissemination, use
and confidentiality of patient-identifiable health information, including:


     o  state privacy and confidentiality laws;


     o  our contracts with customers and partners;


     o  state laws regulating health care professionals, such as physicians,
        pharmacists and nurse practitioners;


     o  Medicaid laws;


     o  the Health Insurance Portability and Accountability Act of 1996 and
        related rules proposed by the Health Care Financing Administration; and


     o  Health Care Financing Administration standards for Internet transmission
        of health data.


     The U.S. Congress has considered proposed legislation that would establish
a new federal standard for protection and use of health information. In
addition, the laws of other countries also govern the use of and disclosure of
health information. Any failure by us or our personnel or partners to comply
with any of these legal and other requirements could result in material
liability. Although we have systems in place for safeguarding patient health
information from unauthorized disclosure, these systems may not preclude
successful claims against us for violation of applicable law or other
requirements. In some cases, we may place our content on computers that are
under the physical control of others, which may increase the risk of an
inappropriate disclosure of health information. In addition, future laws or
changes in current laws may necessitate costly adaptations to our systems.


     In 2000, the Department of Health and Human Service finalized proposed
regulations at the federal level authorized under the Health Insurance
Portability and Accountability Act of 1996. These regulations, codified at 45
CFR (S) 164.502(e), establish a new federal standard for privacy of health
information. These regulations, which will not be effective until two years
from finalization, may directly regulate some aspects of our business.
Achieving compliance with these regulations could cost us significant amounts
or delay or prevent implementation of our business model, and any noncompliance
by us could result in civil and criminal penalties. In addition, development of
related federal and state regulations and policies on confidentiality of health
information could negatively affect our business.


                                       5
<PAGE>

History of Incorporation

     Medinex, formerly named Nelloro Corporation, was a Nevada corporation
formed in 1993. Nelloro owned interests in mineral properties from September
1993 until 1996, near Nelson, Nevada. No mineral extraction or processing of
the mining claims occurred, and, in 1996, Nelloro abandoned the claims and did
not conduct any other business operations. Medinex began its current operations
as Netivation.com, Inc., a Nevada corporation in September 1997 after acquiring
the technology developed by Medinex's existing management team in consideration
for 2,500,000 shares of common stock of Nelloro. On May 14, 1999,
Netivation.com merged with and into Netivation.com Merger, Inc., a Delaware
corporation, leaving Netivation.com Merger, Inc. as the surviving corporation.
On June 28, 1999, Netivation.com Merger, Inc. filed a restated certificate of
incorporation in which it renamed the corporation Netivation.com, Inc. On July
20, 2000, the Company's name was changed to Medinex Systems, Inc., to reflect
the Company's focus on the healthcare industry.


Research and Development

     Our research and development expenses consist principally of technical
engineering personnel costs, equipment depreciation, consulting and supplies.
Costs related to research, design and product development have been charged to
research and development expense as incurred.


Distribution

     Medinex distributes its products and services through the development and
maintenance of applications via the Internet and on-site service, consulting
and development.

     Medinex offers a variety of Internet based products and services that are
customized, hosted and maintained by Medinex.


Previously Announced Products

     Medinex officially launched the enhanced Application Service Provider
(ASP) based practice management solution, Medinex Office, at the Internet World
trade show on April 5-7, 2000. Medinex Office is a Web-based practice
management system that provides a complete office technology solution for
medical professionals. It is currently being marketed to the medical community
and to value added resellers (VARs) and application service providers (ASPs).
Medinex Office was originally introduced as MedinexPro in August 1999.


Item 2. DESCRIPTION OF PROPERTY


Facilities

     Medinex's current headquarters is located at 1200 West Ironwood Drive,
Suite 309, Coeur d'Alene, Idaho, where it leases approximately 1,500 square
feet. Medinex also leases approximately 1,300 square feet at 16042 North 32nd
St. Suite B-1, in Phoenix, AZ. During 2001, prior to its move to 1200 Ironwood
in Coeur d' Alene, the Company was located in the Riverbend development in Post
Falls, Idaho. The company accrued its back rent through September 2001 and
moved to its current location.

     The Company has entered into non-cancelable operating lease agreements
involving equipment and facilities through the year 2001. Rent expense totaled
$133 and $582 for the years ended December 31, 2001 and 2000, respectively.

     The Company leased office space in Coeur d' Alene, Idaho for two years
beginning August 1, 2001 and terminating on July 31, 2003. The monthly rent
began at $600 per month at August 2001, and increased by $50 per month until
December 2001 at which time the rent was $800 per month. Beginning in January
2002, the rent increases by $100 per month to a maximum of $1,000 per month.
The Company paid $1,200 as a security and cleaning deposit. The Company also
leases one additional office in the same building for $220 per month.


                                       6
<PAGE>

     An officer of the Company leases an apartment in Celebration Florida. This
is a one-year lease that expires October 31, 2002. The monthly lease payment is
$1,185. The Company reimburses the officer for the monthly rent. This same
officer leases an apartment in Phoenix Arizona. This is a six-month lease,
which expires February 28, 2002. The monthly rent is $1,089 and is reimbursed
by the Company.

     Another officer of the Company leases space in Phoenix Arizona on a
month-to-month basis beginning December 2001 for $450 per month. The Company
reimburses this rent to the officer.

     A third officer and the Company jointly leased a house in Cave Creek,
Arizona on a six-month lease. The monthly lease payment is $2,400 per month.
This lease expires June 2002.


Investment Policies

     Medinex developed a formal investment policy during the 1999 fiscal year.
In 2000, Medinex adopted a formal policy which limited the amount of assets to
be invested in any type of investment to 10%. The investment policy guidelines
may be changed by the board of directors ("Board of Directors") and do not
require stockholder vote. Currently, it is the Company's policy to acquire
investments primarily for income. At this time, Medinex, does not invest in
real estate, real estate mortgages or the securities of parties engaged in real
estate activities.


Item 3. LEGAL PROCEEDINGS


Legal Proceedings

     Riverbend #1, LLC ("Riverbend") filed a complaint against Medinex on
September 26, 2001 in Kootenai County, Idaho, as Case No. CV-01-6248. Riverbend
was seeking an amount in excess of $340,000.00 for unpaid rent under a written
lease for office space located in Post Falls, Idaho. Subsequent to the filing
of this action, Medinex located a replacement tenant for the office space.
Riverbend filed a motion for summary judgment on December 20, 2001, seeking
judgment against Medinex in the amount of $181,221.33. Medinex filed an
opposition to Riverbend's motion and a hearing on the matter is scheduled for
June 25, 2002.

     Advantage Human Resourcing, LP (Advantage) filed a complaint against
Medinex in the Superior Court of the District of Columbia on January 5, 2001.
Advantage alleged a breach of contract arising out of a real estate lease and
sought damages of $145,443, plus costs and fees. Both parties agreed to settle
the dispute for the sum of $100,000.00, all due and payable on July 1, 2002.
However, Advantage subsequently refused to sign the settlement documents and
Medinex filed a motion with the court to enforce the settlement agreement. On
January 11, 2002, the court granted Medinex's motion and dismissed the case
without prejudice based on the terms of the settlement agreement.

     Medinex filed an action against Oron Strauss, a beneficial owner of the
Company, in the District Court of Kootenai County, Coeur d'Alene, Idaho on
December 1, 2000. Medinex alleged a breach of contract for Mr. Strauss' failure
to repay a promissory note, and sought the balance due on the promissory note
of $136,156.10, plus costs and fees. Mr. Strauss filed a counterclaim against
Medinex for unrelated claims. Mr. Strauss sought an unspecified sum, in excess
of $10,000, in damages. On March 31, 2002, the parties reached a settlement on
this case and stipulated to the dismissal of all claims and counterclaims in
this action.

     Canon Communications, LLC ("Canon") filed a complaint against Medinex on
September 18, 2001 in Ada County, Idaho, as Case no. CV OC 0106126D. Canon was
seeking the sum of $12,100.42 for unpaid invoices plus attorney's fees and
costs. Medinex objected to the place of venue. On or about November 12, 2001,
the parties agreed to settle the case and Canon dismissed the action without
prejudice.

     Stephen Miller, the former employee and general manager of Medinex's
former subsidiary, Pinnacle Medsource, Inc., a Delaware corporation
("Pinnacle") served a complaint against Pinnacle and Medinex on July 25, 2001
as Civil Action No. 00VS006161-E in Fulton County, State of Georgia. Miller
alleges a breach of his employment contract with Pinnacle and Medinex and is
seeking in excess of $125,000.00. Medinex denies any liability for the claim
and the case is still pending.


                                       7
<PAGE>

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


     Medinex stockholders were not asked to vote on any matters during the
quarter ended December 31, 2001.


                                       8
<PAGE>

                                    PART II


Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market for Common Equity

     Our common stock was quoted on Nasdaq after our initial public offering on
June 22, 1999. On February 28, 2001, the Company received notice from Nasdaq of
the delisting of our securities for failure to maintain a minimum bid price of
$1.00. Since May 10, 2001, our stock has been trading on the Over-the-Counter
Bulletin Board under the symbol MDNX.OB.

     The following table sets forth certain sales price data for our common
stock for the periods indicated:




<TABLE>
<CAPTION>
                                               Medinex Systems, Inc.
                                                    Common Stock
                                               ----------------------
                                                   High        Low
                                               ----------- ----------
<S>                                            <C>         <C>
   Fiscal 2001:
    Quarter Ended December 31, 2001 ..........  $  0.50     $ 0.17
    Quarter Ended September 30, 2001 .........  $  0.24     $ 0.10
    Quarter Ended June 30, 2001 ..............  $  0.53     $ 0.16
    Quarter Ended March 31, 2001 .............  $  0.41     $ 0.19

   Fiscal 2000:
    Quarter Ended December 31, 2000 ..........  $ 1.1875    $ 0.1250
    Quarter Ended September 30, 2000 .........    3.0000      0.7500
    Quarter Ended June 30, 2000 ..............    6.0625      1.1250
    Quarter Ended March 31, 2000 .............   10.0000      4.8750
</TABLE>

     As of December 31, 2001 Medinex had 16,868,267 shares outstanding.

     Medinex did not pay dividends in fiscal year 2001 or 2000 and does not
expect to pay dividends in the foreseeable future. Medinex intends to use
future earnings for reinvestment in its business. The Board of Directors will
determine whether any future cash dividends will be paid and payment of any
dividends will be dependent on Medinex's financial condition, results of
operations, capital requirements and other such factors as the Board of
Directors deems relevant.

Related Stockholders Matters

     On June 22, 1999, Medinex's Registration Statement on Form SB-2 covering
the offering of 2,500,000 shares of Medinex's Common Stock, Commission file
number 333-74569 was declared effective. The offering commenced on June 23,
1999, and terminated upon the sale of all 2,500,000 shares of Medinex common
stock. The offering was managed by EBI Securities Corporation and Millennium
Financial Group, Inc. The total price to the public for the shares offered and
sold by Medinex was $25,000,000. The amount of expenses incurred by Medinex in
connection with the offering was as follows:



<TABLE>
<CAPTION>
<S>                                                    <C>
     Underwriting discounts and commissions. .........  $2,625,000
     Finders fees ....................................     136,000
     Expenses paid to or for the Underwriter .........   1,431,000
                                                        ----------
      Total expenses .................................  $4,192,000
                                                        ==========
</TABLE>

     All of the foregoing expenses were direct or indirect payments to persons
other than (i) directors, officers or their associates; (ii) persons owning ten
percent (10%) or more of Medinex's common stock; or (iii) affiliates of
Medinex.

     The net proceeds of the offering to Medinex (after deducting the
Underwriter's discounts and commissions and offering expenses) was $20,808,000.
From the settlement date, the net proceeds have been used in the following
manner, in the following reasonably estimated amounts:


                                       9
<PAGE>

     o  Acquisition of other businesses: $1,912,000

     o  Loan to Oron Strauss, Votenet General Manager: $133,000

     o  Working Capital: $19,820,000

     On November 15, 2000 Medinex completed a Private Placement Offering (the
Offering) in which Medinex sold 930,000 units to accredited investors. Each
unit consisted of one share of common stock of Medinex, a warrant to purchase
one share of common stock of Medinex at a purchase price of $1.90 per share and
a warrant to purchase one share of common stock at $5.00 per share. The common
stock was sold without registering the stock under the Exchange Act. The
securities offered under the private placement are exempt from registration
requirements for public offerings under Regulation D or other applicable
exemptions from registration promulgated under the Securities Act of 1933 and
applicable state securities laws and regulations. The holders of the shares of
Medinex common stock obtained upon exercise of the warrants will have certain
registration rights with regard to such common stock. The Offering was managed
by Global Capital Securities Corporation. The total price for the units sold by
Medinex was $837,000. The amount of expenses incurred by Medinex in connection
with the Offering was as follows:



<TABLE>
<CAPTION>
<S>                                                       <C>
     Underwriting discounts and commissions .............  $ 83,700
     Expenses paid to or for the Underwriter ............    25,110
                                                           --------
     Other expenses associated with this offering .......    41,190
       Total expenses ...................................  $150,000
                                                           ========
</TABLE>

     The proceeds from the Offering were used for working capital.

     On August 3, 2001 Medinex completed a Private Placement Offering (the
Offering) in which Medinex borrowed $75,000 from an accredited investor.
Medinex agreed to repay the loan, plus interest of 12% per anum, on August 3,
2003. The holder of the note also received 75,000 shares of Medinex common
stock. The common stock was issued without registering the stock under the
Exchange Act. The securities offered under the private placement are exempt
from registration requirements for public offerings under Regulation D or other
applicable exemptions from registration promulgated under the Securities Act of
1933 and applicable state securities laws and regulations. The proceeds from
the Offering were used for working capital.

     On November 6, 2001 Medinex initiated a Private Placement Offering (the
Offering) in which Medinex could sell 4,200,000 shares of common stock to
accredited investors. The common stock was issued without registering the stock
under the Exchange Act. The securities offered under the private placement are
exempt from registration requirements for public offerings under Regulation D
or other applicable exemptions from registration promulgated under the
Securities Act of 1933 and applicable state securities laws and regulations.

     The Company sold 3,677,000 shares of common stock in this private
placement before December 31, 2001. The total price of these shares was $400,
which includes $44 in issuance costs and expenses in connection with this
offering.

     The proceeds from the Offering were used for working capital.

     On May 22, 2001 Medinex completed a Private Placement Offering (the
Offering) in which Medinex offered for sale 312,500 units to accredited
investors. Each unit consisted of one share of Medinex common stock and one
warrant to purchase one share of common stock at $.85. The common stock was
issued without registering the stock under the Exchange Act. The securities
offered under the private placement are exempt from registration requirements
for public offerings under Regulation D or other applicable exemptions from
registration promulgated under the Securities Act of 1933 and applicable state
securities laws and regulations. The holders of the shares of Medinex common
stock obtained upon exercise of the warrants will have certain registration
rights with regard to such common stock. The total price for the units sold by
Medinex in this Offering was $100,000. The proceeds from the Offering were used
for working capital.


                                       10
<PAGE>

     In June 2001, Medinex issued 4,950 shares of registered common stock under
the Company's Employee Stock Purchase Plan. In aggregate, the shares were
issued for approximately $1,337.

     In 2001, Medinex issued 418,853 shares of unregistered common stock to its
non-employee directors for services rendered by the board of directors for the
year 2001. Each non-employee director receives a quarterly retainer of $7,500
payable in shares of authorized capital stock based on the market value on the
last trading day of each calendar quarter. Such shares are restricted under all
applicable state and federal securities laws. No additional fees are paid to
directors for meetings attended or chaired. Additionally, on his election to
the Board on May 22, 2001, R. Scot Haug received an initial grant of 20,000
shares of restricted capital stock.


Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
       OF OPERATIONS


General


                                   Overview

     Medinex Systems, Inc. ("Medinex" or the "Company"), a Delaware
corporation, formerly named Netivation.com, Inc. is headquartered in Post
Falls, Idaho. The Company commenced its current operations after acquiring
technology developed by the existing management team on September 26, 1997.

     Medinex is focused on software and business-to-business web services
medical market. Medinex's medical software solutions include Medinex Office, a
Web-based practice management system and MxSecure, a Web-based secure medical
messaging system. MedMarket.com is a business-to-business e-commerce community
that promotes products and services for physicians, hospitals, and medical
professionals. In addition, MedMarket.com is a venue used by manufacturers and
distributors of medical equipment and supplies for the promotion and
distribution of their products and services.

     Medinex previously owned a subsidiary, Pinnacle MedSource, Inc., a
wholesale medical supply subsidiary, located in Alpharetta, Georgia. Medinex
sold Pinnacle MedSource in a management led buyout in October 2001.

     Medinex previously developed and operated a topic-specific Internet
community in the political arena. The public policy and political community,
Votenet.com, included content, products, and services designed for candidates
for political office, voters, political organizations, political action
committees and lobbyists. Medinex sold its political division in a
management-led buyout in February 2001.

     Medinex emerged from the development stage during 1999. The Company is
subject to the risks and challenges associated with other companies at a
similar stage of development including dependence on key individuals,
successful development and marketing of its products and services, the
acceptance of the Internet as a medium for advertising and software,
competition from substitute services and larger companies with greater
financial, technical, management and marketing resources. Further, during the
period required to develop commercially viable products, services and sources
of revenues, the Company may require additional funds.


                                 Acquisitions

     In 1999 and 2000 acquisitions played a major role in Medinex's growth
strategy. Medinex acquired three companies during 2000 and seven companies
during 1999. All acquisitions were accounted for by the purchase method of
accounting, so they were accounted for at their fair market values and included
prospectively in the financial statements from the respective acquisition
dates. The acquired companies represented a substantial portion of Medinex's
growth during the second half of 1999 and all of 2000. Subsequently, most of
these acquisitions were disposed of during 2001.

                         Medical Division Acquisitions

     On March 27, 2000 the Company acquired most of the assets and business of
Disability Mall.com, a provider of information on the products, resources, and
services available to the disabled, the


                                       11
<PAGE>

handicapped, the physically challenged, the elderly, as well as the caregivers
and health care professionals. Medinex paid cash consideration of $250 and
20,000 shares of unregistered common stock. The excess purchase price of
approximately $401 was allocated to goodwill and is being amortized over a
three-year life.

     In June 1999, Netivation.com acquired both Interlink Services, Inc.
(Interlink), and The Online Medical Bookstore, Inc. (Bookstore). Interlink was
acquired for 126,429 shares of Netivation.com common stock and $50 and the
Bookstore was acquired for 192,857 shares and $250. Interlink provides website
design and hosting services and the Bookstore sells medical books and supplies
via e-commerce. Both companies became wholly-owned subsidiaries of Medinex.

     In October 1999, Medinex acquired MedMarket, Inc., a developer of Internet
e-commerce websites for medical manufacturers and suppliers, for $100 and
100,000 shares of Medinex common stock. The excess purchase price was allocated
to goodwill of approximately $2,520.

     In 2000, the Company sold the assets of Interlink, and as a result, has
taken a charge of $639 in the statement of operations. This charge reflected the
excess of the net book value of the assets over the selling price.

     In 2000, the Company discontinued substantially all of the historical
activities of the Bookstore. The results of this change and an estimated future
cash flows analysis of the remaining activities, created an impairment of the
intangible assets originally acquired of $1,392. This charge has been reflected
in the statement of operations.


                        Political Division Acquisitions

     On January 13, 2000, the Company acquired U.S. Congress Handbooks, Inc.
(USCH). USCH publishes congressional directories designed to give readers the
fastest, most complete, low-cost information about the U.S. Congress in both
written and electronic formats. Medinex paid cash consideration of $200,000,
75,000 shares of unregistered common stock and a promissory note of $200 to
the seller.

     In October 1999, Medinex acquired the following companies, which are now
wholly-owned subsidiaries:

    o PoliticallyBlack.com, the leading political information center for
      African Americans for $55 and 30,000 shares of Medinex common stock.

    o Raintree Communications Corporation, a provider of automated voice and
      data services for grassroots lobbying for $100 and 150,000 shares of
      Medinex common stock, plus up to another 60,000 shares based on
      performance criteria.

    o Public Disclosure, Inc., the provider of FECInfo, a comprehensive
      website of Federal Election Commission information on federal candidates
      and interest groups for $190 and 300,000 shares of Medinex common
      stock.

     On December 15, 1999, Medinex acquired 100 percent of the outstanding
stock of Net.Capitol, Inc., a leading provider of Internet-based products for
public affairs and political organizations, including the AFL-CIO, IBM, the
National Association of Realtors and the United States Senate. Medinex received
all of the outstanding shares of Net.Capitol's capital stock in exchange for
1,544,730 shares of Medinex common stock, options to acquire 105,270 additional
shares, plus payment of $410 to the Net.Capitol preferred shareholders.
With the completion of the acquisition, Net.Capitol, Inc. became a wholly-owned
subsidiary of Medinex.

     As of December 31, 2000, the Company's Management had reviewed the
continuing carrying values of the intangible property associated with the
acquisitions which made up its political division. As a result of this review,
management elected to impair the intangible assets' carrying values to reflect
the future expected revenues of this division. This impairment results in a
$7,056 increase in losses being recognized as part of the 2000 loss from
discontinued operations.


                                       12
<PAGE>

                                 Divestitures

     On February 13, 2001, Medinex sold substantially all of the assets of its
Political division, which included the assets of its subsidiary corporations,
Raintree Communications Corporation, Public Disclosure, Inc., Net.Capitol,
Inc., and U.S. Congress Handbooks, Inc., along with certain other political-
related assets and liabilities, to Votenet Solutions, Inc. ("Votenet") in
exchange for cash consideration of $1,150 and an option by one of Votenet's
shareholders to purchase 3,448,276 shares of the Company's common stock for
$0.29 per share and 3,448,276 shares of the Company's common stock for $0.61
per share. Votenet, a Delaware corporation, was established for the purpose of
this acquisition and will continue servicing the political and public policy
communities formerly served by Medinex. The assets were sold to Votenet
pursuant to an Asset Purchase Agreement dated as of February 13, 2001. These
assets and the revenues previously derived from them were substantially all of
the operations of the Company's Political segment for financial reporting
purposes.

     As a result of the sale of the political division, the financial position
and results of operations are reported as discontinued operations in the
consolidated financial statements for all periods presented. The assets and
liabilities of the political division have been reported in the consolidated
balance sheet as net assets (liabilities) of discontinued operations.


                             Ticker Symbol Change

     In conjunction with changing its name to reflect Medinex's focus on
developing service provider-based software and business-to-business e-commerce
and services for the growing Internet medical market, on July 27, 2000, Medinex
changed its stock symbol and as of May 10, 2001, Medinex is traded on the Over
The Counter Bulletin Board under the symbol MDNX.OB.


                                 Restructuring

     As Medinex has grown beyond a product development company and toward a
software organization, Medinex has reexamined its corporate structure and made
adjustments to operate the Company more efficiently. Throughout 2001, Medinex
has taken steps to simplify its business processes, reduce its general and
administrative expenses and implement financial controls.

     As part of the restructuring, Medinex has also taken steps to decrease its
salary costs. Medinex reduced its employee headcount from over 182 employees at
the height of product development to 13 employees as of December 31, 2001.


                                   Revenues

     Revenues are generated from advertising, website development and hosting
and software licenses.

     Sales of products to customers are recognized when shipped. In these
transactions the Company acts as merchant-of-record. Accordingly, the Company
records as revenue the full sales price of the product sold and records the
full cost of the product to the Company as cost of revenues, upon shipment of
the product.

     Software licensing costs and website development revenues are generally
recognized when all elements essential to the functionality of the software or
the website have been delivered. When the Company has significant continuing
involvement with the licensee, revenues are deferred and recognized over the
term of the agreement.

     Advertising consists of the sale of site listings on the MedMarket.com
website. Advertising revenues are recognized ratably over the term of the
applicable agreement.

     Deferred revenue consists primarily of advertising, licensing and hosting
fees that are being amortized over their contract life, which is typically
twelve months or less. In several cases where the cash is collected in advance,
the revenue is recognized ratably over the term of the contract. There are no
significant incremental costs associated with the recognition of such revenue.


                                       13
<PAGE>

                               Cost of Revenues

     Cost of product revenues primarily consists of the cost of digital
recorders sold in conjunction with the Company's transcription service. Website
development, consulting, and other services cost of revenues consist primarily
of payroll costs for technology employees and web hosting/maintenance costs.


Results of Operations--2001 and 2000


                                   Revenues

     Net revenues for the year ended December 31, 2001 were $571, a decrease of
$1,038 from the $1,610 of net revenues for the year ended December 31, 2000.
Most of the revenue decrease during this period was the result of companies
Medinex divested. Medinex expects its revenues to grow in future periods as the
demand for the medical transcription service increases. Medinex also expects
its revenues to grow as a result of the increase in the distribution of its
software products.

     As of December 31, 2001, Medinex had $62 in deferred revenues. Medinex may
experience seasonality in its usage traffic. Medinex also expects business
usage of the Internet, and of its products and services to typically decline
during the summer, year-end and holiday periods.


                               Cost of Revenues

     Cost of revenues for the year ended December 31, 2001 was $122 as compared
to $561 for the year ended December 31, 2000, a decrease of $439.


                                 Gross Profit

     Gross profit for the year ended December 31, 2001 was $450 or 79% of net
revenues, a decrease of $599 over the $1,049 or 65% of net revenues for the
year ended December 31, 2000. The decrease in gross profit is largely
attributable to the divesture of divisions not relating to the company's core
medical strategy. The significant increase in gross margin realized during the
year is primarily attributable to a decrease in fixed costs associated with
generating these revenues.

     In the future, Medinex's gross profit will be affected by the mix of
products and services the Company sells. Since Medinex has limited experience
in predicting revenues and product mix, Medinex is not able to predict the
gross profits it may generate in future periods. Medinex has and will continue
to experience significant fluctuations in its operating results as the Company
continues to transition into a software sales and Internet products and
services organization.


                              Operating Expenses

     During the year ended December 31, 2001, operating expenses were $3,335 as
compared to $13,332 during the year ended December 31, 2000, a 75% decrease.
Operating expenses were reduced mostly from divesting businesses, reducing head
count, as well as decreasing expenditures for advertising, marketing programs,
and professional services fees. The decrease in operating expenses continues to
reflect our transition to the stage of deploying our products and focusing on
the medical market. Management expects volatility in future operating expenses
due to changes in headcount, changes in funding requirements, product
development and results of marketing efforts.

     Sales and marketing expenses decreased from $4,020 for the year ended
December 31, 2000 to $325 for the year ended December 31, 2001. The sales and
marketing expenses decreased over the prior year due to a number of marketing
agreements nearly all of which expired as of December 31, 2000.

     General and administrative expenses decreased by $2,532 or 52%, from
$4,841 during the year ended December 31, 2000 to $2,262 during the year ended
December 31, 2001. General and administrative expenses declined significantly
over the previous period due to a reduction in employee head-count and fixed
expenses.


                                       14
<PAGE>

     Research and development expenditures declined from $643 for the year
ended December 31, 2000 to $0.00 during the year ended December 31, 2001. This
decline reflects the Company's completion of the design and development of the
physician practice management software, Medinex Office, in 2000.

     Amortization and impairment of intangible assets decreased to $634 for the
year ended December 31, 2001 as compared to $3,564 during the year ended
December 31, 2000. This decrease is primarily attributable to significant
impairments at December 31, 2000 of $2,031.


                             Loss from Operations

     Medinex's loss from operations for the year ended December 31, 2001 was
$3,370, compared to $11,724 for the year ended December 31, 2000.


                         Financial Income/Expense, Net

     Financial expense, net, for the year ended December 31, 2001 totaled
($482), compared with $387 for the year ended December 31, 2000. The change was
primarily due to the recognition of accrued interest on outstanding payables.


                       Loss from Discontinued Operations

     The loss from discontinued operations represents the loss attributable to
the Company's sale of Pinnacle MedSource, Inc. The loss decreased from $18,684
for the year ended December 31, 2000 to $1,357 for the year ended December 31,
2001.


                          Net Loss and Loss Per Share

     Medinex's net loss applicable to common stockholders was $4,770 for the
year ended December 31, 2001 as compared to $30,408 for the year ended December
31, 2000, a $25,638 decrease. The loss per basic and diluted share from
continuing operations was $.27 and $1.05 for the years ended December 31, 2001
and 2000, respectively. The net loss per basic and diluted share was $.38 and
$2.72 for the years ending December 31, 2001 and 2000, respectively.


Liquidity and Capital Resources

     As of December 31, 2001, Medinex had cash and cash equivalents totaling
$177 compared to $117 as of December 31, 2000.

     Since December 31, 1999, Medinex acquired three companies. The Company
paid total consideration of 499,000 shares of Medinex unregistered common stock
and $750 cash to acquire the outstanding stock and business of these companies.

     In November 2000, the Company completed a Private Placement Offering of
930,000 shares of common stock, resulting in net proceeds of $687. On June
22, 1999, Medinex completed its initial public offering of 2,500,000 shares of
common stock, resulting in net proceeds of $20,808.

     In 1999, subsequent to its June 1999 IPO, Medinex acquired seven companies.
The Company paid total consideration of 2,549,286 shares of Medinex common stock
and $1,105 cash to acquire the outstanding stock of these companies.

     For the years ended December 31, 2001 and 2000, cash used in operating
activities was $68 and $7,403, respectively. Cash used in operating activities
consisted mostly of funding the Company's net operating losses.

     Capital expenditures for 2001 and 2000, consisted primarily of the three
acquisitions in 2000, and the purchase of additional computer equipment. Total
acquisitions of property and equipment for the years ended December 31, 2001
and 2000, were $3 and $776, respectively.

     During 2000, the Company paid $863 for acquisitions net of any cash
acquired. The proceeds from the sale of the political divisions operations was
$1,150, while Pinnacle operations were $325. Furthermore, the Company
recognized cash used by discontinued operations of $1,327 and $7,164,
respectively for the years 2001 and 2000.


                                       15
<PAGE>

     For the year ended December 31, 2001, cash provided by financing
activities of $539 was primarily due to Medinex's private placement offerings.
For the year ended December 31, 2000, cash provided by financing activities of
$843 was primarily due to Medinex's private placement offering.

     Management is very focused on cash flows and is evaluating a variety of
outside financing alternatives with the appropriate consideration given to
stockholder dilution to cover not only the working capital deficit, but also
long-term financing needs. There are also opportunities for other business
combinations, acquisitions, and divestitures that offer potential cash
infusions to Medinex.

     At the same time, management has reduced monthly expenses and implemented
strict expense policies and procedures to control expenses going forward,
including the sale of the Political division. The Company has reduced headcount
in operations and general and administrative functions. Headcount totaled 13 at
December 31, 2001, which represents a reduction of 93% from a high of 182
during the first half of 2000.

     Medinex estimates that its current cash balance will not be sufficient to
fund its operations, working capital, capital expenditures, and business growth
through the year 2002. The Company will be required to obtain additional
sources of financing in the year 2002 to continue its operations. At its
current stage of business development, Medinex's quarterly revenues and results
of operations may be materially affected by, among other factors, development
and introduction of products, time to market, market acceptance, demand for
Medinex's products, the effects of competition, and general economic
conditions. There can be no assurance that Medinex will be sufficiently funded
during 2002 and therefore the independent auditors have indicated substantial
doubt about the Company's ability to continue as a going concern in their
report on the financial statements. At this time, Medinex has no established
lines of credit.


Product and Marketing Strategy

     The Medinex product and marketing strategy includes two integrated
Internet solutions for the healthcare marketplace: MedMarket.com and Medinex
Office.


1. MedMarket.com

     Medinex MedMarket.com is a business-to-business exchange portal for the
medical industry that through its LeadPages provides advertising, traffic
generation and sales lead generation for MedMarket.com's medical industry
customers.

     MedMarket.com currently is a leader in the industry with nearly 1,000
client LeadPages. The LeadPages are single-page Web sites within the
MedMarket.com community. Each LeadPage offers basic information about a company
and includes a link to the company's main Web site. LeadPages are designed to
allow a company to advertise before a targeted audience, generate increased
traffic to a company's Web site, and deliver qualified sales leads to the
company.


2. Medinex Office and MxMail

     Medinex Office is an Internet-based medical physician practice management
software system. Medinex Office allows physicians to access all of their
patient records from anywhere, at any time. Now Medinex Office is available to
physicians throughout the United States through Medinex's newly deployed
Application Service Provider ("ASP"). Unlike many of its competitors that are
temporarily using legacy client servers via Cytrix technology until they can
develop a pure ASP system, Medinex Office is fully ASP based. This advantage
places Medinex Office at the forefront of ASP based physician practice
management software systems.

     As an ASP, Medinex Office is accessible through the Web and provides
faster claims processing, secure remote access to the software from any
Internet connection, real-time maintenance and updates provided by technology
experts from a central location, and the highest level of security available.
Medinex Office also provides daily backups of critical information, protection
against viruses, and automatic system upgrades. Medinex Office will eliminate
physician's need for expensive software


                                       16
<PAGE>

upgrades and hardware maintenance for their current practice management
software programs. In an article entitled "Is there an ASP in your future?"
published in Internet Health Care Magazine, it was estimated that "the cost of
using an ASP can be as much as 30% less than the total cost of owning and
operating your own system."


     As an alternative, to alleviate concerns over privacy and to provide
faster access to those locations without Internet provider choices, Medinex
Office has also been developed to operate on a server in the physician's
office. This alternative still provides daily backups of information, software
upgrades and on-line help, while maintaining the security and integrity of the
data within the physician's office.


     Medinex is currently marketing Medinex Office through Value Added
Resellers ("VARs"), by establishing strategic relationships with regional
insurance providers and selling directly to physician practices.


     An important component of our Medinex Office solution is our new MxMail
Messaging product. The system makes it very easy for healthcare professionals
to send and receive encrypted messages (email, medical records, lab results)
using their existing email accounts. It also enables convenient, secure and
Health Insurance Portability and Accountability Act (HIPAA)-compliant
doctor-to-patient email communication.


     To date, software application revenue has been nominal.

                                       17
<PAGE>

To the Board of Directors
Medinex Systems, Inc.
Post Falls, Idaho


                          INDEPENDENT AUDITOR'S REPORT


     We have audited the accompanying consolidated balance sheet of Medinex
Systems, Inc. and Subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the year then ended. These 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 audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits 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 Medinex Systems, Inc. and
Subsidiaries as of December 31, 2001 and 2000, and the results of its
operations and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.


     The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company incurred a net loss of
$4,727,165 during the year ended December 31, 2001, and as of that date, had a
working capital deficiency of $2,494,181. As discussed in Note 1 to the
financial statements, the Company's significant operating losses raise
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.



Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington


March 15, 2002

                                       18
<PAGE>

Item 7. FINANCIAL STATEMENTS

                    MEDINEX SYSTEMS, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                     (in thousands, except share amounts)




<TABLE>
<CAPTION>
                                                                             As of December 31,
                                                                         ---------------------------
                                                                             2001           2000
                                                                         ------------   ------------
                                                                                          Restated
<S>                                                                      <C>            <C>
                               ASSETS
Current assets:
 Cash and cash equivalents ...........................................    $     177      $     117
 Restricted Cash .....................................................           52
 Accounts receivable, net of allowance for doubtful accounts .........           39            164
 Unbilled receivables ................................................            5            136
 Inventory ...........................................................           --             --
 Prepaid expenses and other current assets ...........................           74             47
                                                                          ---------      ---------
   Total current assets ..............................................          347            464
Property and equipment, net ..........................................          248            998
Investments ..........................................................            3             99
Intangible assets, net ...............................................          289            922
Other assets .........................................................            4             17
Net assets of discontinued operations ................................           --          1,188
                                                                          ---------      ---------
   Total assets ......................................................    $     891      $   3,688
                                                                          =========      =========
                  LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Accounts payable ....................................................    $   2,198      $   1,251
 Accrued compensation ................................................           44             --
 Other accrued expenses ..............................................          537            116
 Deferred revenue ....................................................           62            367
                                                                          ---------      ---------
   Total current liabilities .........................................        2,841          1,734
                                                                          ---------      ---------
Long-Term Liabilities:
 Notes Payable .......................................................          127             --
 Convertible debentures, net of discount .............................           63             --
                                                                          ---------      ---------
   Total long-term liabilities .......................................          190             --
                                                                          ---------      ---------
Net liabilities of discontinued operations ...........................           --             --
   Total liabilities .................................................        3,031          1,734
                                                                          ---------      ---------
Commitments and Contingencies (Notes 10 and 13)
Stockholders' equity
 Preferred stock, $0.01 par value, 3,500,000 shares authorized, no
   shares issued or outstanding ......................................           --             --
 Common stock, $.01 par value, 30,000,000 shares authorized,
   16,923,080 and 12,309,631, shares issued and outstanding at
   December 31, 2001 and 2000, respectively ..........................          169            123
 Additional paid-in capital ..........................................       43,844         43,264
 Accumulated other comprehensive income ..............................          (34)            --
 Accumulated deficit .................................................      (46,160)       (41,433)
                                                                          ---------      ---------
   Total stockholders' equity ........................................       (2,140)         1,954
                                                                          ---------      ---------
   Total liabilities and stockholders' equity ........................    $     891      $   3,688
                                                                          =========      =========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       19
<PAGE>

                    MEDINEX SYSTEMS, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
              (in thousands, except share and per share amounts)




<TABLE>
<CAPTION>
                                                                Year ended December 31,
                                                           --------------------------------
                                                                 2001             2000
                                                           ---------------   --------------
                                                                                Restated
<S>                                                        <C>               <C>
Revenues:
Product sales ..........................................      $     24        $       555
Website development, consulting and other services .....           554              1,130
                                                              --------        -----------
Gross revenues .........................................           578              1,685
Sales discounts, returns and allowances ................            (6)               (75)
                                                              -----------     -----------
Revenues, net ..........................................           572              1,610
Cost of revenues:
Product sales ..........................................             9                330
Website development, consulting and other services .....           112                231
                                                              ----------      -----------
Total cost of Revenues .................................           121                561
                                                              ----------      -----------
Gross profit ...........................................           451              1,049
                                                              ----------      -----------
Operating expenses:
 General and administrative ............................         2,339              4,841
 Sales and marketing ...................................           325              4,020
 Research and development ..............................                              643
 Amortization and impairment of intangible assets ......           634              3,565
 Stock-based compensation ..............................           113                263
                                                              ----------      -----------
                                                                 3,335             13,332
                                                              ----------      -----------
Loss from operations ...................................        (2,694)           (12,283)
Interest income (expense), net .........................          (486)               388
                                                              ----------      -----------
Loss from continuing operations before income taxes.....        (3,370)           (11,724)
Provision for income taxes .............................            --                 --
                                                              ----------      -----------
Loss from continuing operations ........................        (3,370)           (11,724)
Preferred stock dividends earned .......................            --                 --
                                                              ----------      -----------
Net loss available to common stockholders from
 continuing operations .................................        (3,370)           (11,724)
Loss from discontinued operations ......................        (1,357)           (18,684)
                                                              ----------      -----------
Net loss available to common stockholders ..............      $ (4,727)       $   (30,408)
                                                              ==========      ===========
Comprehensive loss:
 Net loss available to common stockholders .............      $ (4,727)       $   (30,408)
 Unrealized gain (loss) on available for sale
   investments .........................................           (96)              (426)
 Reclassification adjustment for losses included in
   net loss ............................................            96                426
                                                              ----------      -----------
Total ..................................................      $ (4,727)       $   (30,408)
                                                              ==========      ===========
Basic and diluted net loss per common share:
 Net loss available to common stockholders from
   continuing operations ...............................      $   (.27)       $     (1.17)
 Discontinued Operations                                      $  (0.11)       $     (1.17)
                                                              ==========      ===========
 Net loss available to common stockholders .............      $   (.38)       $     (2.72)
                                                              ==========      ===========
Basic and diluted weighted average shares
 outstanding ...........................................    12,438,896         11,205,194
                                                            ============      ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       20
<PAGE>

                     MEDINEX SYSTEMS, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                    (dollars in thousands, except share data)

<TABLE>
<CAPTION>
                                                                                                          ACCUMULATED
                                    COMMON STOCK      ADDITIONAL      STOCK                                  OTHER
                               --------------------    PAID IN    SUBSCRIPTIONS  WARRANTS   ACCUMULATED  COMPREHENSIVE
                                 SHARES     AMOUNT     CAPITAL      RECEIVABLE                (DEFICIT)      INCOME        TOTAL
                               ----------  --------  -----------  -------------  --------  ------------  ------------- ------------
<S>                            <C>         <C>       <C>          <C>            <C>       <C>           <C>           <C>
Balance, December 31, 1999     10,743,483  $107,435  $41,079,965  $           -  $      -  $(11,025,000)       393,000 $ 30,555,400
Issuance of stock for
    services by the board          36,000       360      103,950              -         -             -              -      104,310
Exercise of stock options          48,900       489       36,630              -         -             -              -       37,119
Issuance of stock for
    businesses                    499,000     4,990    1,282,000              -         -             -              -    1,286,990
Issuance of stock in
    connection with stock
    purchase plan                  48,928       489       80,190              -         -             -              -       80,679
Issuance of stock for cash,
    net of issuance costs
    of $150,000                   933,320     9,333      681,000              -         -             -              -      690,333
Unrealized loss on marketable
    equity securities                   -         -            -              -         -             -       (393,000)    (393,000)
Net loss for the year ended,
    December 31, 2000                   -         -            -              -         -   (30,408,000)             -  (30,408,000)
                               ----------  --------  -----------  -------------  --------  ------------  ------------- ------------
Balance, December 31, 2000     12,309,631  $123,096  $43,263,735              -         -  $(41,433,000) $           - $  1,953,831
Issuance of stock as board
    of directors fees             418,853     4,189      114,304              -         -             -              -      118,493
Issuance of stock as
    financing fees                 82,360       824       33,767              -         -             -              -       34,591
Options exercised                  27,786       278        5,713              -         -             -              -        5,991
Issuance of common stock
    with debt                      75,000       750       14,250              -         -             -              -       15,000
Issuance of stock for cash
    less issuance cost of
    $44,000                     3,989,500    39,895      409,979        (34,200)   40,625             -              -      456,299
Employee stock purchase             4,950        50        1,287              -         -             -              -        1,337
Issuance of stock as
    sererance pay                  15,000       150        1,350              -         -             -              -        1,500
Net loss, December 31, 2001             -         -            -              -         -    (4,727,165)             -   (4,727,165)
                               ----------  --------  -----------  -------------  --------  ------------  ------------- ------------
                               16,923,080  $169,231  $43,844,385  $     (34,200) $ 40,625  $(46,160,165) $           - $ (2,140,124)
                               ----------  --------  -----------  -------------  --------  ------------  ------------- ------------
</TABLE>


The accompanying notes are an integral part of these consolidated financial
                                  statements.



                                       21
<PAGE>

                    MEDINEX SYSTEMS, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (dollars in thousands)




<TABLE>
<CAPTION>
                                                                       Year Ended          Year Ended
                                                                      December 31,        December 31,
                                                                          2001                2000
                                                                    ----------------   -----------------
<S>                                                                 <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................................         $ (4,727)          $ (30,408)
Adjustments to reconcile net loss
 to net cash provided by operating activities:
   Loss from discontinued operations ............................            1,357              18,684
                                                                      ------------       -------------
   Loss from continuing operations ..............................           (3,370)            (11,724)
   Issuance of stock in exchange for services ...................              118                  --
   Non-cash based stock compensation ............................                2                 263
   Issuance of stock in exchange for financing fees .............               35                  --
   Depreciation and amortization ................................              986               2,042
   Amortization of discount on debenture ........................                3                  --
   Loss on sale of property and equipment .......................              164                  --
   Impairment of intangibles ....................................              102               2,031
   Loss on permanent impairment of investments ..................               96                 426
   Deposits used for operating expenses .........................               13                  --
 Changes in assets and liabilities:
   Accounts receivable and unbilled receivables, net ............              256                (243)
   Inventory ....................................................               --                (153)
   Prepaid expenses and other current assets ....................              (27)                154
   Other assets .................................................               13                  69
   Restricted cash ..............................................              (53)                 --
   Accounts payable .............................................              820                 127
   Accrued compensation and other accrued liabilities ...........              466                (715)
   Deferred revenue .............................................             (305)                320
                                                                      ------------       -------------
      Net cash provided (used) by operating activities ..........             (681)             (7,403)
                                                                      ------------       -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Additions to property and equipment ............................               (3)               (776)
 Proceeds from sale of property and equipment ...................               57                  --
 Acquisition of businesses, net of cash acquired ................               --                (863)
 Proceeds from sale of discontinued operations ..................            1,475                  --
 Investment in discontinued operations ..........................           (1,327)             (7,164)
                                                                      ------------       -------------
      Net cash provided (used) by investing activities ..........              202              (8,803)
                                                                      ------------       -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Proceeds from borrowing ........................................               60                  --
 Proceeds from issuance of employee stock purchase plan .........               --                  79
 Proceeds from issuance of debentures ...........................                1                  --
 Proceeds from exercise of stock options ........................                6                  74
 Proceeds from issuance of stock and warrants ...................              471                 690
                                                                      ------------       -------------
      Net cash provided (used) by financing activities ..........              538                 843
                                                                      ------------       -------------
      Net (decrease) in cash and cash equivalents ...............               60             (15,363)
Cash and cash equivalents at beginning of year ..................              117              15,480
                                                                      ------------       -------------
Cash and cash equivalents at end of year ........................     $        177       $         117
                                                                      ============       =============
Supplemental Cashflow Disclosures:
 Interest paid ..................................................     $         --       $           5
                                                                      ------------       -------------
 Income taxes paid ..............................................               --                  --
Non-cash Transactions:
 Stock issued as financing fees .................................     $         35       $          --
 Stock issued as directors' fees ................................              118                  --
 Stock issued as compensation ...................................                2                 263
 Stock issued with debt .........................................               15                  --
</TABLE>



                                       22
<PAGE>

                    MEDINEX SYSTEMS, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               December 31, 2001
            (Dollars in thousands, except share and per share data)

Note 1--Organization and Description of Business

     Medinex Systems, Inc. and Subsidiaries ("Medinex" or the "Company"), a
Delaware corporation, formerly named Netivation.com, Inc. is headquartered in
Post Falls, Idaho. The Company commenced its current operations after acquiring
technology developed by management on September 26, 1997.

     The Company develops, designs and markets software and websites focused on
medical communities. These communities, known as vertical portals, are for
individuals, groups and businesses sharing a common interest.

     Medinex previously developed and operated a topic-specific Internet
community in the political arena. The public policy and political community,
Votenet.com, included content, products, and services designed for candidates
for political office, voters, political organizations, political action
committees and lobbyists. Medinex sold its political division in a
management-led buyout in February 2001.

     Medinex acquired and operated Pinnacle MedSource, Inc., a medical
distribution company, from May 26, 2000 until September 6, 2001. This
subsidiary was sold in September 2001. (See NOTE 3).

     The Company emerged from the development stage during 1999. The Company is
subject to the risks and challenges associated with other companies at a
similar stage of development including dependence on key individuals,
successful development and marketing of its products and services, the
acceptance of the Internet as a medium for advertising, competition from
substitute services and larger companies with greater financial, technical,
management and marketing resources. Further, during the period required to
develop commercially viable products, services and sources of revenues, the
Company will require additional funds.

                    Basis of Presentation and Going Concern

     The accompanying financial statements have been prepared on a going
concern basis which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The Company has suffered material
recurring losses from operations since inception. At December 31, 2001 the
Company has a working capital deficit of $2,494, an accumulated deficit of
$46,160 and negative cash flows from operations. These factors raise
substantial doubt about the Company's ability to continue as a going concern.

     Continuation of the Company is dependent on achieving sufficiently
profitable operations and obtaining additional financing. Management recently
sold its Political division and Pinnacle MedSource, Inc. for cash, is
attempting to raise additional capital from various sources and is beginning to
distribute its new software product, Medinex Office (See NOTE 3). However,
there can be no assurances that the Company will be successful in accomplishing
these objectives. The financial statements do not include any adjustments
relating to the recoverability and classification of assets and liabilities
that might be necessary should the Company be unable to continue as a going
concern.

     Certain consolidated financial statement amounts have been reclassified to
conform to the 2001 presentation. These reclassifications had no effect on the
net loss, comprehensive loss or accumulated deficit as previously reported.

     The Political division's and Pinnacle Medsource Inc.'s results are
reported as discontinued operations in the consolidated financial statements
for all periods presented. The assets and liabilities of the these entities
have been reported in the consolidated balance sheet as net assets of
discontinued operations. These entities were acquired in 1999 and 2000 and were
disposed of during 2001.

Note 2--Summary of Significant Accounting Policies

                          Principles of Consolidation

     The Company's consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
accounts have been eliminated in consolidation.




                                       23
<PAGE>

                        Stock Split and Reincorporation

     On May 17, 1999, the Company effected a one-for-two reverse stock split of
its common and preferred stock and reincorporated in Delaware. All share and
per share amounts in the accompanying financial statements have been adjusted
retroactively to give effect to this reverse stock split.


                           Estimates and Assumptions

     The process of preparing financial statements in conformity with
accounting principles generally accepted in the United States of America
requires the use of estimates and assumptions regarding certain types of
assets, liabilities, revenues and expenses. Such estimates primarily relate to
unsettled transactions and events as of the date of the financial statements.
Accordingly, upon settlement, actual results may differ from estimated amounts.



                               Cash Equivalents

     The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Medinex places its
cash and cash equivalents with institutions of high credit-worthiness. At
times, such investments may be in excess of the federal insurance limit.


                                   Inventory

     Inventories are stated at the lower of average cost or net realizable
value and consist entirely of medical supplies of the Company's subsidiary,
Pinnacle MedSource, Inc.


                                  Investments

     Investments consist of equity securities of publicly held companies. The
Company classifies investments as available for sale under Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". Investments are carried at fair market value,
which is based on quoted market prices. Unrealized holding gains and losses are
included as a component of accumulated other comprehensive loss, net of related
deferred income taxes, unless a permanent impairment in value has occurred,
which is then charged to operations. Realized gains and losses from the sale of
available-for-sale securities are determined on a specific identification
basis. Dividend and interest income is recognized as earned. Investments have
been classified as non-current assets in the accompanying financial statements
due to management's current intent to hold such investments.


                            Property and Equipment

     Property and equipment are recorded at the lower of cost or net realizable
value. Major additions and improvements are capitalized. Minor replacements,
maintenance and repairs that do not increase the useful life of the assets are
expensed as incurred. Depreciation is determined using the straight-line method
over the expected useful lives of the assets which is 3-5 years for furniture
and fixtures, 3-5 years for vehicles and equipment, 3 years for computer
equipment and software and 5 years or the remaining life of the lease,
whichever is less, for leasehold improvements.


                               Intangible Assets

     Intangible assets consist primarily of customer base and goodwill related
to acquisitions accounted for under the purchase method of accounting.
Amortization of these purchased intangibles is provided on the straight-line
basis over the respective useful lives of the assets, primarily three years.
The Company identifies and records impairment losses on intangible and other
assets when events and circumstances indicate that such assets might be
impaired. The Company considers factors such as significant changes in the
regulatory or business climate and projected undiscounted future cash flows
from the respective asset. As of December 31, 2000, intangible assets
consisted of the following:




                                       24
<PAGE>




<TABLE>
<CAPTION>
                                                       2001          2000
                                                   -----------   -----------
<S>                                                <C>           <C>
       Assembled workforce .....................   $      -0-     $    115
       Customer base ...........................         115           115
       Goodwill ................................       3,888         2,202
                                                   ---------      --------
                                                       4,003         2,432
       Less: Accumulated amortization ..........      (3,715)       (1,510)
                                                   ---------      --------
                                                    $    288      $    922
                                                   =========      ========
</TABLE>

     During the fourth quarter 2001, management determined the intangible
assets would not be fully recovered. Based on an estimated future cash flows
analysis, Medinex has taken a charge of $480 in its statement of operations for
the year ended December 31, 2001 reflecting this impairment of the intangibles.



                             Compensated Absences

     Employees of the Company are entitled to paid vacation, paid sick days and
personal days off depending on job classification, length of service and other
factors. Liabilities of $26 and $18 for compensated absences accrued have been
recorded in the accompanying financial statements at December 31, 2001 and
2000, respectively.


            Financial Instruments and Concentrations of Credit Risk

     Financial instruments that potentially subject the Company to
concentrations of credit risk consist of cash and cash equivalents, accounts
receivable, unbilled receivables and accounts payable. Fair values of cash and
cash equivalents approximate cost due to the short period of time to maturity.
The fair values of financial instruments that are short-term and/or that have
little or no market risk are considered to have a fair value equal to book
value. Assets and liabilities that are included in this category are accounts
receivable, unbilled receivables and accounts payable.

     The Company performs initial and ongoing evaluations of its customers'
financial position, and generally extends credit on open account, requiring
collateral as deemed necessary. The Company maintains allowances for potential
credit losses and believes that its trade accounts receivable credit risk
exposure is limited.


                                 Income Taxes

     The Company recognizes deferred income tax assets and liabilities for the
expected future income tax consequences, based on enacted laws, of temporary
differences between the financial reporting and tax bases of assets,
liabilities and tax carryforwards. Deferred tax assets are then reduced, if
deemed necessary, by a valuation allowance for the amount of any tax benefits
which, more likely than not based on current circumstances, are not expected to
be realized.


                              Revenue Recognition

     Revenues are generated from merchandise sales, website development and
hosting, internet access, software licenses and advertising.

     Sales of products directly to customers through e-commerce and traditional
channels are recognized when shipped. In these transactions the Company acts as
merchant-of-record. Accordingly, the Company records as revenue the full sales
price of the product sold and records the full cost of the product to the
Company as cost of revenues, upon shipment of the product.

     Software licensing costs and website development revenues are generally
recognized when all elements essential to the functionality of the software or
the website have been delivered. Where the Company has significant continuing
involvement with the licensee, revenues are deferred and recognized over the
term of the agreement. Hosting contracts typically have a term of one year,
with fees charged on a monthly basis. Internet access is billed on a monthly
basis and is earned as billed.




                                       25
<PAGE>

     Advertising consists of the sale of impressions on one or more of the
Company's network of websites. Advertising revenues are recognized ratably over
the term of the applicable agreement.

     Deferred revenue consists primarily of advertising, licensing and hosting
fees that are being amortized over their contract life.


                           Stock-based Compensation

     The Company measures compensation cost for stock option plans using the
intrinsic value method of accounting prescribed by Accounting Principles Board
Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees." Medinex
also provides the required disclosures of Statement of Financial Accounting
Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation."


                               Advertising Costs

     The cost of advertising is expensed as incurred. During the periods ending
December 31, 2001 and 2000, the Company incurred advertising expense of $6 and
$365, respectively.


                           Research and Development

     Research and development costs are expensed as incurred and consist
primarily of salaries, supplies and contract services.


                          Software Development Costs

     Under the criteria set forth in Statement of Financial Accounting
Standards No. 86, "Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed," capitalization of software development costs
begins upon the establishment of technological feasibility of the product,
which the Company has defined as the completion of beta testing of a working
product. The establishment of technological feasibility and the ongoing
assessment of the recoverability of these costs require considerable judgment
by management with respect to certain external factors, including, but not
limited to, anticipated future gross product revenue estimated economic life
and changes in software and hardware technology. Amounts that could have been
capitalized under this statement after consideration of the above factors were
immaterial and, therefore, no software development costs have been capitalized
by the Company to date.


                       Basic and Diluted Loss Per Share

     In accordance with SFAS No. 128, "Computation of Earnings Per Share,"
basic earnings (loss) per share is computed by dividing net loss available to
common stockholders by the weighted average number of shares of common stock
outstanding during the period. Diluted earnings (loss) per share reflects the
potential dilution that could occur if potentially dilutive securities were
exercised or converted to common stock. Due to the losses in 2001 and 2000,
potentially dilutive securities were excluded form the calculation of diluted
earnings (loss) per share as they were antidilutive. Therefore, there was no
difference in the calculation of basic and diluted earnings (loss) per share in
2001 and 2000.


                       Recent Accounting Pronouncements

Accounting Pronouncements

     In October 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (SFAS No. 144). SFAS 144 replaces SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of." This new standard establishes a single accounting model for
long-lived assets to be disposed of by sale, including discounted operations.
Statement 144 requires that these long-lived assets be measured at the lower of
carrying amount or fair value less cost to sell, whether


                                       26
<PAGE>

reported in continuing operations or discontinued operations. This statement is
effective beginning for fiscal years after December 15, 2001, with earlier
application encouraged. The Company adopted SFAS 144 and does not believe that
the adoption will have a material impact on the financial statements of the
Company at December 31, 2001.

     In October 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" (SFAS No. 143). SFAS No. 143 establishes guidelines related to the
retirement of tangible long-lived assets of the Company and the associated
retirement costs. This statement requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived assets. This statement is effective for financial statements issued
for the fiscal years beginning after June 15, 2002 and with earlier application
encouraged. The Company adopted SFAS No. 143 and does not believe that the
adoption will have a material impact on the financial statements of the Company
at December 31, 2001.

     In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 provides for
the elimination of the pooling-of-interests method of accounting for business
combinations with an acquisition date of July 1, 2001 or later. SFAS No. 142
prohibits the amortization of goodwill and other intangible assets with
indefinite lives and requires periodic reassessment of the underlying value of
such assets for impairment. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. An early adoption provision exists for
companies with fiscal years beginning after March 15, 2001. On December 31,
2001 the Company adopted SFAS No. 142. Application of the nonamortization
provision of SFAS No. 142 is expected to result in an increase in net income of
approximately 153,596 in fiscal 2002. The Company is currently evaluating the
impact of the transitional provisions of the statement.

     In September 2000, the FASB issued SFAS No. 140 "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities." This
statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishment of liabilities and also
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. SFAS No. 140 is
effective for recognition and reclassification of collateral and for
disclosures relating to securitization transactions and collateral for fiscal
years ending after December 15, 2000, and is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring
after March 31, 2001. The Company believes that the adoption of this standard
will not have a material effect on the Company's results of operations or
financial position.

Derivative Instruments

     The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133 ("SFAS No. 130"), "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities -- Deferral of the Effective
Date of FASB No. 133", and SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities", which is effective for the Company
as of January 1, 2001. This standard establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
consolidated balance sheet and measure those instruments at fair value.

     If certain conditions are met, a derivative may be specifically designated
as a hedge, the objective of which is to match the timing of gain or loss
recognition on the hedging derivative with the recognition of (i) the changes
in the fair value of the hedged asset or liability that are attributable to the
hedged risk or (ii) the earnings effect of the hedged forecasted transaction.
For a derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change.

     Historically, the Company has not entered into derivatives contracts to
hedge existing risks or for speculative purposes.


                                       27
<PAGE>

     At December 31, 2001, the Company has not engaged in any transactions that
would be considered derivative instruments or hedging activities.

     In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," to provide guidance on the recognition, presentation and
disclosure of revenues in financial statements. The Company believes its
revenue recognition practices are in conformity with the guidelines prescribed
in SAB No. 101.

     In March 2000, the FASB issued FASB Interpretation Number 44 (FIN 44),
"Accounting for Certain Transactions Involving Stock Compensation." FIN 44
clarifies the application of Accounting Principles Board Opinion 25 for only
certain issues. This interpretation was effective July 1, 2000, but certain
conclusions in this Interpretation cover specific events that occurred after
either December 15, 1998, or January 12, 2000, but before the effective date of
July 1, 2000, the effects of applying this Interpretation were recognized on a
prospective basis from July 1, 2000. The adoption of FIN 44 did not have a
material affect on the Company's financial position or results of operations
for the year ended December 31, 2001.


Note 3--Acquisitions and Divestitures


                                 Acquisitions

     During 1999 and 2000, the Company acquired the following significant
acquisitions, most of which were subsequently disposed of during 2001.

     On January 13, 2000, the Company acquired U.S. Congress Handbooks, Inc.
(USCH). USCH publishes congressional directories designed to give readers the
fastest, most complete, low-cost information about the U.S. Congress in both
written and electronic formats. Medinex paid cash consideration of $200, 75,000
shares of unregistered common stock and a promissory note to the seller for
$200, in addition to assuming USCH liabilities of $18. The acquisition has been
accounted for using the purchase method of accounting. The excess purchase
price was allocated to goodwill of approximately $467 and customer base of
approximately $414. In the latter part of 2000, all of the recorded goodwill of
$467 and all but $58 of the recorded customer base of $414 were written off.

     On March 27, 2000 the Company acquired most of the assets and business of
Disability Mall.com, a provider of information on the products, resources, and
services available to the disabled, the handicapped, the physically challenged,
the elderly, as well as the caregivers and health care professionals. Medinex
paid cash consideration of $250 and 20,000 shares of unregistered common stock.
The acquisition has been accounted for using the purchase method of accounting.
The excess purchase price of approximately $401 was allocated to goodwill and
is being amortized over a three-year life.

     On May 26, 2000, the Company acquired all of the assets and business of
Pinnacle Medsource, Inc. (Pinnacle). Pinnacle is a medical distribution company
specializing in wholesale distribution to providers and dealers of medical
equipment for disabled and home-bound patients. Medinex paid cash consideration
of $300, paid off a loan of approximately $107, and issued 404,000 unregistered
shares of the Company's common stock. The acquisition was accounted for using
the purchase method of accounting. The excess purchase price was allocated to
goodwill of approximately $293, assembled workforce of approximately $112 and
customer base of approximately $781.

     In connection with the acquisitions in 2000, net assets acquired were as
follows:



<TABLE>
<CAPTION>
<S>                                    <C>
  Cash .............................    $   48
  Accounts receivable ..............       371
  Inventory ........................       179
  Property and equipment ...........         6
  Other assets .....................         2
  Liabilities ......................      (526)
                                        ------
                                        $   80
                                        ======
</TABLE>

                                       28
<PAGE>

     On June 22, 1999, simultaneous with the IPO, the Company acquired
Interlink Services, Inc. (Interlink), a website design and hosting services
company and The Online Medical Bookstore, Inc. (the Bookstore), (collectively
referred to as the "Companies") a discount medical book and medical supply
e-commerce company. Medinex paid aggregate cash consideration for the two
acquisitions of $300 and 319,286 shares of its common stock. The acquisition of
the Companies has been accounted for using the purchase method of accounting.
The excess purchase price of approximately $3.6 million was allocated to
goodwill and is being amortized over a three-year life.

     In October 1999, the Company acquired MEDMarket, Inc. (MEDMarket),
politicallyblack.com, Inc. (politicallyblack) and Raintree Communications
Corporation (Raintree). MEDMarket develops Internet e-commerce websites for
medical manufacturers and supplier companies. Politicallyblack is an Internet
website focusing on political issues important to African Americans. Raintree
developed an automated voice response and data service for grassroots lobbying.
The Company paid aggregate consideration of $255 and issued 280,000
unregistered shares of the Company's common stock for a total purchase price of
$1,710. The acquisitions were accounted for using the purchase method of
accounting. Of the excess purchase price of approximately $1,760, $359 of was
allocated to acquired technology, $252 was allocated to assembled workforce,
$115 was allocated to customer base and $1,034 was allocated to goodwill, all
of which are being amortized over a three-year life.

     In October 1999, the Company also acquired Public Disclosure, Inc. (Public
Disclosure). Public Disclosure developed FECInfo, a relational database that
categorizes every federal campaign contribution over the last ten years and is
sold as an annual subscription. Medinex paid aggregate consideration of $190
and 300,000 unregistered shares of the Company's common stock for a total
purchase price of $1,337. The acquisition was accounted for using the purchase
method of accounting. Of the excess purchase price of approximately $1,333,
$800 was allocated to acquired technology, $200 was allocated each to assembled
workforce and customer base and $133 was allocated to goodwill, all of which
are being amortized over a three-year life.

     In December 1999, the Company acquired NetCapitol, Inc., (NetCapitol).
NetCapitol develops and hosts websites for special interest groups to effect
grass roots lobbying efforts for national, state and local political issues.
Medinex paid consideration of $410 and 1,544,730 unregistered shares of the
Company's common stock for a total purchase price of $8,909. The acquisition
was accounted for using the purchase method of accounting. Of the excess
purchase price of approximately $9,491, $3,797 was allocated to acquired
technology, $2,847 was allocated each to assembled workforce, $1,898 was
allocated to customer base and $949 was allocated to goodwill, all of which are
being amortized over a three-year life.

     In connection with the acquisitions in 1999, net assets acquired were as
follows:



<TABLE>
<S>                                    <C>
  Cash .............................    $   57
  Accounts receivable ..............        33
  Property and equipment ...........       131
  Other assets .....................        32
  Liabilities ......................      (873)
                                        ------
                                        $ (620)
                                        ======
</TABLE>

                                 Divestitures

     In an agreement which was later rescinded, Medinex sold the following
assets ("Assets") to Politics.com, Inc., a Delaware corporation
("Politics.com"): all of the issued and outstanding stock of Raintree
Communications Corporation, Public Disclosure, Inc., Net.Capitol, Inc., and
U.S. Congress Handbook, Inc., along with certain other political-related
assets, in exchange for 40,100,000 shares of common stock of Politics.com.
Politics.com is a developer of Internet-based products and services for public
affairs and political organizations. In order to effectuate the sale of the
Assets to Politics.com, the parties entered into an Asset Purchase Agreement
dated as of July 14, 2000 (the "Purchase Agreement"). The transaction
contemplated by the Purchase Agreement is hereinafter referred to as the
"Transaction."


                                       29
<PAGE>

     In October 2000, but effective as of July 26, 2000, Medinex and
Politics.com, entered into an Agreement (the "Agreement") to void the
Transaction ab initio (that is, at its inception), with the effect that Medinex
remains the owner of all of the Assets, and the 40,100,000 shares of common
stock of Politics.com issuable to Medinex in the Transaction are restored to
the status of authorized but unissued shares. In addition, the Purchase
Agreement and all documents executed or delivered in connection therewith were
terminated ab initio.


     Pursuant to the Agreement, in order to restore the parties to their
respective positions immediately prior to the execution of the Purchase
Agreement Medinex was to be responsible for substantially all liabilities
incurred by Politics.com after July 26, 2000 until the closing of the
transaction contemplated by the Agreement (the "Closing"), paid the cash portion
of certain settlements at the Closing in the amount of $52,217 and paid $75 at
the Closing to Politics.com's legal counsel for fees and expenses incurred to
date, and host and provide basic maintenance of the "Politics.com" website for
up to 6 months; and Politics.com was to pay to Medinex an amount equal to 50% of
the amount by which the net proceeds from the sale of the "politics.com" URL and
related technology exceed $500, and issue to Medinex at the Closing 100,000
shares of its common stock. Medinex did not receive the stock or any other
proceeds under this agreement.


     In August 2000, Medinex sold substantially all of the assets of Interlink
to the previous owner for $10 which approximated the net book value of the
assets of Interlink. Based on an estimated future cash flows analysis, Medinex
has taken a charge of approximately $639 and $1,392 reflecting the impairments
of the intangibles for Interlink and the Bookstore, respectfully.


     On February 13, 2001, Medinex sold substantially all of the assets of its
Political division, which included the assets of its subsidiary corporations,
Raintree Communications Corporation, Public Disclosure, Inc., Net.Capitol,
Inc., and U.S. Congress Handbooks, Inc., along with certain other political-
related assets and liabilities, to Votenet Solutions, Inc. ("Votenet") in
exchange for cash consideration of $1,150,000 and an option by one of Votenet's
shareholders to purchase 3,448,276 shares of the Company's common stock for
$0.29 per share and 3,448,276 shares of the Company's common stock for $0.61
per share. This option was not exercised and expired in 2001. Votenet, a
Delaware corporation, was established for the purpose of this acquisition and
will continue servicing the political and public policy communities formerly
served by Medinex. The assets were sold to Votenet pursuant to an Asset
Purchase Agreement dated as of February 13, 2001. These assets and the revenues
previously derived from them were substantially all of the operations of the
Company's Political segment for financial reporting purposes.


     On September 6, 2001, Medinex Systems, Inc., formerly known as
Netivation.com, Inc. ("Medinex"), sold substantially all of the assets of its
subsidiary, Pinnacle Medsource, Inc., a Delaware corporation ("Pinnacle"), in
exchange for cash consideration of $325. Anne Holcombe & Associates, Inc., a
Georgia corporation ("Purchaser"), was established by the Purchaser, for the
purpose of this acquisition and will continue servicing the medical communities
formerly served by Pinnacle. The assets were sold to Purchaser pursuant to an
Asset Purchase Agreement dated as of August 30, 2001. These assets and the
revenues previously derived from them were substantially all of the operations
of Pinnacle's wholesale medical equipment supply and distribution business for
financial reporting purposes.


                                       30
<PAGE>

Note 4--Property and Equipment

     The major components of property and equipment at December 31, 2001 and
2000 are as follows:




<TABLE>
<CAPTION>
                                                                      2001       2000
                                                                   ---------   --------
<S>                                                                <C>         <C>
       Furniture and fixtures ..................................    $   83      $  361
       Vehicles and Equipment ..................................        57          37
       Computer equipment and software .........................       623       1,142
       Leasehold Improvements ..................................        --          95
                                                                    ------      ------
                                                                       763       1,635
       Less accumulated depreciation and amortization ..........      (515)       (637)
                                                                    ------      ------
        Net carrying value .....................................    $  248      $  998
                                                                    ======      ======
</TABLE>

     Depreciation expense for the years ending December 31, 2001 and 2000 was
$454 and $479, respectively.


Note 5--Investments

     At December 31, 2001 and 2001, investments in available for sale
securities were as follows:




<TABLE>
<CAPTION>
                                                   2001        2000
                                                 --------   ---------
<S>                                              <C>        <C>
       Amortized cost basis ..................    $  525     $  525
       Unrealized gain .......................        --         --
       Other than temporary decline ..........      (522)      (426)
                                                  ------     ------
       Fair market value .....................    $    3     $   99
                                                  ======     ======
</TABLE>

     At December 31, 2001, the Company evaluated the investment and determined
it was more likely than not that a recovery of the market value of the
investment was remote. Therefore the Company reflected the decline in the
statement of operations.


Note 6--Federal Income Taxes

     The Company did not provide an income tax benefit for any of the periods
presented because it has experienced operating losses since inception. The
Company's total tax net operating loss carry forwards were approximately $30
million at December 31, 2000 which expire between 2012 and 2020. The
significant components of the deferred tax asset at December 31, 2000 and 2001,
were as follows:




<TABLE>
<CAPTION>
                                                        2001           2000
                                                    ------------   ------------
<S>                                                 <C>            <C>
Net operating loss carry forward ................    $  14,583      $   8,525
Stock compensation ..............................          651            653
Amortization of intangibles and other ...........          128          4,577
                                                     ---------      ---------
Deferred tax asset ..............................       15,362         13,755
Deferred tax asset valuation allowance ..........      (15,362)       (13,755)
                                                     ---------      ---------
                                                     $      --      $      --
                                                     =========      =========
</TABLE>

     Medinex recorded a valuation allowance to reflect the estimated amount of
deferred tax assets which may not be realized principally due to the expiration
of net operating losses and tax credit carryforwards. The valuation allowance
on deferred tax assets increased by $1,607 and $10,341 during 2001 and 2000,
respectively.

     In accordance with certain provisions of the Internal Revenue Code, as
amended, a change in ownership of greater than 50% of a company within a two
year period results in an annual limitation on the Company's ability to utilize
its net operating loss ("NOL") carryforwards from tax periods prior to the


                                       31
<PAGE>

ownership change. The Company acquired subsidiaries over the past two years.
The tax effects of the subsidiaries' prior tax status have not been included
and are expected to be limited by provisions of the Internal Revenue Code.


Note 7--Debt


                               Promissory Notes

     In January 2000, the Company issued a promissory note in connection with
the acquisition of USCH (see NOTE 3). The note, which is secured by certain
USCH assets, bears interest at 5.76% and is due in quarterly installments of
$27, including interest, beginning February 1, 2000. At December 31, 2000 there
was approximately $100 outstanding on the note, which has been included in net
liabilities of discontinued operations. During the year ended December 31, 2000
the Company paid approximately $7 in interest expense on the note. The note was
paid in full in February 2001.

     On August 3, 2001 Medinex completed a Private Placement Offering (the
Offering) in which Medinex borrowed $75 from an accredited investor. Medinex
agreed to repay the loan, plus interest of 12% per anum, on August 3, 2003. The
holder of the note also received 75,000 shares of Medinex common stock (see NOTE
8). The common stock was issued without registering the stock under the Exchange
Act. The securities offered under the private placement are exempt from
registration requirements for public offerings under Regulation D or other
applicable exemptions from registration promulgated under the Securities Act of
1933 and applicable state securities laws and regulations. The proceeds from the
Offering were used for working capital. The stock issued was valued at $15 with
the resulting discount on the debenture being amoritized as interest expense
over two years. As of December 31, 2001, the unauthorized discount was 12.

     In 2001 Medinex completed Private Placement Offerings with Accounts
Payable vendors, converting the payable balances to debentures. The debentures
are due to be paid by Medinex in August, 2003, and bear interest of 12% per
annum. The total of notes is $126,712.06. The Company issued 82,360 shares of
common stock valued at $35 to these vendors. See NOTE 8.


Note 8--Stockholders' Equity


                          Convertible Preferred Stock

     On June 23, 1999, the Company closed its initial public offering (IPO) of
2,455,000 shares of common stock at $10.00 per share, for net proceeds of $23.2
million. At closing, all of the Company's issued and outstanding shares of
convertible preferred stock were converted into 2,325,000 shares of common
stock.

     In January 1999 the Company increased the authorized amount of preferred
stock to 3,500,000 shares, with a par value of $.01. Shares of preferred stock
may be issued from time to time in one or more series, with designations,
rights, preferences and limitations established by the Company's Board of
Directors.

     During 1998, the Company issued 1,575,000 shares of Series A preferred
stock and received subscriptions for 543,948 shares of Series A preferred stock
at $2.50 per share. The cash from these subscriptions was received in January
1999. In January 1999, the Company received net proceeds of approximately $450
related to the sale of 206,052 additional shares of Series A preferred stock.


                                 Common Stock

     At December 31, 2001 and 2000, the Company has authorized 30,000,000
shares of $.01 par value common stock, respectively.

     On November 15, 2000 Medinex completed a Private Placement Offering (the
Offering) in which Medinex sold 930,000 units to accredited investors. Each
unit consisted of one share of common stock of Medinex, a warrant to purchase
one share of common stock of Medinex at a purchase price of $1.90 per share and
a warrant to purchase one share of common stock at $5.00 per share. The market
value of the


                                       32
<PAGE>

common stock on that date was $610 and the warrants attributed to the
transaction were valued at $227. The common stock was sold without registering
the stock under the Exchange Act. The holders of the shares of Medinex common
stock obtained upon exercise of the warrants will have certain registration
rights with regard to such common stock. The net proceeds from the Offering was
$687, net of $150 in offering costs, and was used for working capital.

     On August 3, 2001 Medinex completed a Private Placement Offering (the
Offering) in which Medinex borrowed $75,000 from an accredited investor.
Medinex agreed to repay the loan, plus interest of 12% per anum, on August 3,
2003. The holder of the note also received 75,000 shares of Medinex common
stock. The common stock was issued without registering the stock under the
Exchange Act. The securities offered under the private placement are exempt
from registration requirements for public offerings under Regulation D or other
applicable exemptions from registration promulgated under the Securities Act of
1933 and applicable state securities laws and regulations. The proceeds from
the Offering were used for working capital.

     On November 6, 2001 Medinex initiated a Private Placement Offering (the
Offering) in which Medinex could sell 4,200,000 shares of common stock to
accredited investors. The common stock was issued without registering the stock
under the Exchange Act. The securities offered under the private placement are
exempt from registration requirements for public offerings under Regulation D
or other applicable exemptions from registration promulgated under the
Securities Act of 1933 and applicable state securities laws and regulations.
The Company sold 3,677,000 shares of common stock in this private placement
before December 31, 2001. The total price of these shares was $400, which
includes $44 in issuance costs and expenses in connection with this offering.

     On May 22, 2001 Medinex completed a Private Placement Offering (the
Offering) in which Medinex offered for sale 312,500 units to accredited
investors. Each unit consisted of one share of Medinex common stock and one
warrant to purchase one share of common stock at $.85. The common stock was
issued without registering the stock under the Exchange Act. The securities
offered under the private placement are exempt from registration requirements
for public offerings under Regulation D or other applicable exemptions from
registration promulgated under the Securities Act of 1933 and applicable state
securities laws and regulations. The holders of the shares of Medinex common
stock obtained upon exercise of the warrants will have certain registration
rights with regard to such common stock. The total price for the units sold by
Medinex in this Offering was $100,000. The proceeds from the Offering were used
for working capital.

     The Company also issued 418,853 shares of common stock with a fair market
value of $118 as Board of Directors fees; 82,360 common stock shares with a fair
market value of $35 as financing costs; 15,000 shares of common stock with a
fair market value of $2 as severance compensation; 27,786 common stock options
were exercised at $6 and 4,950 shares of common stock were issued from the
employee stock purchase plan.


                              Stock Option Plans

     In July 1998, the stockholders and Board of Directors approved a
Nonqualified Stock Option and Restricted Stock Plan. In March 1999, the Company
amended and restated this plan as the 1999 Equity Incentive Plan (the "Plan").
The Board of Directors has the authority to determine all matters relating to
incentive and non-qualified stock options and restricted stock to be granted
under the Plan, including the selection of individuals to be granted options,
number of shares to be subject to each option, the exercise price and the term
and vesting period, if any. Options generally vest over periods ranging up to
five years and have lives up to ten years from the date of grant. Options
outstanding at December 31, 2001 and 2000 have an average remaining contractual
life of seven and eight years, respectively. At December 31, 2001 and 2000,
exercise prices ranged from $0.19 to $10.00 and $0.50 to $10.00 per share,
respectively.

     In January 2000, the Plan was amended to adjust the calculation of the
increase in the share reserve as of January 1 of each year. The amended plan
allows for the adjustment of the share reserve to include 15% of the aggregate
of (i) the total shares issued and outstanding as of January 1 and (ii) the
total shares Medinex is obligated to issue as of January 1. The Company has
reserved a total of 1,617,155 shares of


                                       33
<PAGE>

common stock for issuance to its stock option holders under the plan and has
146,680 shares remaining in the Plan available for future grant as of December
31, 2000. The Company has elected not to update this plan in 2001 or the first
quarter of 2002. The estimated increase for 2001 is 229,715 shares as of
December 31, 2001.

     The Company also has a non-qualified stock plan (the "Non-Qualified Plan")
for the benefit of employees and consultants. The Company has 1,000,000 shares
authorized under the Non-Qualified Plan. At December 31, 2000 and 1999, the
Company had issued, net of options cancelled, 417,029 and 105,270 shares,
respectively, and there were 582,971 and 894,730 unissued shares remaining in
the Non-Qualified Plan, respectively.

     The following table summarizes the Company's stock option activity:




<TABLE>
<CAPTION>
                                                     2001                    2000
                                           ------------------------ ----------------------
                                                          Weighted                Weighted
                                                           Average                Average
                                                          Exercise                Exercise
                                              Options       Price      Options     Price
                                           ------------- ---------- ------------ ---------
<S>                                        <C>           <C>        <C>          <C>
Outstanding, beginning of period .........   1,934,734    $  0.66      902,725    $  4.75
Granted ..................................     336,080       0.23    1,411,379       2.99
Exercised ................................      10,000       0.19       52,220       0.77
Canceled .................................     869,059       2.94      327,150       5.68
Outstanding, end of period ...............     391,755       3.35    1,934,734       3.34
Exercisable at end of period .............     763,928       3.49      715,172       3.91
</TABLE>

     The following table summarizes information about all stock options,
including those issued outside of the Plan, outstanding at December 31, 2001:




<TABLE>
<CAPTION>
                                       Options Outstanding                  Options Exercisable
                            ------------------------------------------   -------------------------
                                               Weighted      Weighted       Weighted      Weighted
                              Remaining        Average        Average       Average       Average
         Range of               Number       Contractual     Exercise        Number       Exercise
     Exercise Prices         Outstanding         Life          Price      Outstanding      Price
-------------------------   -------------   -------------   ----------   -------------   ---------
<S>                         <C>             <C>             <C>          <C>             <C>
$ 0.03 - $ 1.00 .........       721,213     6.3              $  0.27        357,783       $  0.21
  1.01 -   3.00 .........       159,492     5.7                 1.81         87,867          2.36
  3.01 -  10.00 .........       511,050     7.9                 8.16        318,278          7.55
                                -------                                     -------       -------
 Total ..................     1,391,755                                     763,928         10.12
                              =========                                     =======
</TABLE>

     Under APB 25, the Company records compensation expense over the vesting
period for the difference between the exercise price and the deemed fair market
value for financial reporting purposes of stock options granted.

     The Company has adopted the disclosure-only provisions of SFAS No. 123.
Had compensation expense been recognized on stock options issued based on the
fair value of the options at the date of grant and recognized over the vesting
period, the Company's net loss would have been increased to the pro forma
amounts indicated below:




<TABLE>
<CAPTION>
                                               December 31,
                                        ---------------------------
                                            2001           2000
                                        -----------   -------------
<S>                                     <C>           <C>
     Net Loss:
       As reported ..................      (4,786)      $ (30,408)
       Pro forma ....................         (30)        (32,606)
     Basic and diluted loss per share
       As reported ..................    $  (0.38)      $   (2.71)
       Pro forma ....................       (0.38)        (  2.91)
</TABLE>

                                       34
<PAGE>

     The weighted average grant date fair value of options granted in 2001 and
2000 was $0.12 and $2.99, respectively. The fair value of each option was
estimated using the Black-Scholes option pricing model with the following
weighted-average assumptions:




<TABLE>
<CAPTION>
                                                      2001          2000
                                                  ------------   ----------
<S>                                               <C>            <C>
     Expected dividend yield ..................     0.00%          0.00%
     Expected stock price volatility ..........   122.66%        128.63%
     Risk-free interest rate ..................      5.0%          5.24%
     Expected life of options .................   1-10 years     10 years
</TABLE>

     The initial impact on pro forma net loss may not be representative of
compensation expense in future years when the effect of the amortization of
multiple awards would be reflected in results of operations. In 1998, Medinex
was a private company and therefore no volatility assumption was required.

                   Stock Options Issued Outside of the Plan

     In June 1998, the Company issued an option to purchase 125,000 shares
(option shares) of common stock at a price of three cents ($.03) per share in
exchange for consulting services. These options are fully vested and have no
expiration date. The optionee has the right to tender all of its option shares
back to the Company for cash and notes payable five years from the date of the
original grant. The price to repurchase the option shares is equal to the
number of shares multiplied by the fair market value of the underlying common
stock, multiplied by 1.25. The right to tender the option shares back to the
Company expired upon the Company's initial public offering.

     As a measurement date was not known at December 31, 1998, the Company
recorded stock compensation expense and a long-term liability of $391 in the
accompanying 1998 financial statements. The compensation expense is based on
the difference between the exercise price of the option and the estimated
underlying fair market value of the common stock at December 31, 1998. The
measurement date became known upon the effectiveness of the Company's IPO and,
accordingly, compensation expense of $1,232 has been recorded in the 1999
statement of operations.

     In August 1998, the Company issued an option to purchase 75,000 shares of
common stock at a price of ten cents ($.10) per share in exchange for
consulting services. The Company has recorded stock compensation expense of
$180 in the accompanying statement of operations based on the fair market value
of the stock option on the date of the grant.

                         Employee Stock Purchase Plan.

     In March 1999, the Board of Directors adopted the 1999 Employee Stock
Purchase Plan ("Purchase Plan"), to provide employees of the Company and its
affiliates with an opportunity to purchase common stock at a discounted rate
through payroll deductions. The Purchase Plan will terminate at the Board of
Directors' discretion. Under the Purchase Plan, 500,000 shares of common stock
have been reserved for issuance.

     The Purchase Plan is intended to qualify as an employee stock Purchase
Plan within the meaning of Section 423 of the Internal Revenue Code. The Board
of Directors may authorize participation by eligible employees, including
officers, in periodic offerings following the adoption of the Purchase Plan. A
new offering period begins every 6 months. The Board of Directors has currently
authorized an offering commencing on December 10, 1999, of the Company's common
stock and ending December 9, 2000, with sequential 6-month offerings
thereafter.

     During the year ending December 31, 2001 and 2000 the Company issued 4,950
and 48,952,000 shares to employees under the Purchase Plan, respectively.

                              Board Compensation

     In September 2000, the Compensation Committee agreed that each
non-employee director would receive stock as payment for their services as a
board of director in lieu of cash. Total stock and cash paid to Director's for
services rendered in fiscal years 2001 and 2000 was 418,835 and 21,600 shares
and $14 respectively.


                                       35
<PAGE>

     In January 2000, each non-employee director received a restricted stock
grant and a stock option grant under the Equity Incentive Plan. The stock grant
was for 4,800 shares of Medinex common stock, which were released from
restriction on December 31, 2000. The stock option grant was for 4,800 shares
of Medinex common stock of which 1/3 vest annually. In November 2000, 20,800
shares of Medinex Common Stock were issued to a new board member, which will be
released from restriction on May 22, 2001.

     In February 2000, the Compensation Committee agreed that each non-employee
director would receive a stock option grant for 10,000 shares of common stock
for his or her efforts in assisting Medinex with its Initial Public Offering.
The exercise price for these shares is $6.31, the fair market value of the
stock as of January 3, 2000. These stock options are fully vested.

     In 2001, Medinex issued 418,853 shares of unregistered common stock to its
non-employee directors for services rendered by the board of directors for the
year 2001. Each non-employee director receives a quarterly retainer of $7,500
payable in shares of authorized capital stock based on the market value on the
last trading day of each calendar quarter. Such shares are restricted under all
applicable state and federal securities laws. No additional fees are paid to
directors for meetings attended or chaired. Additionally, on his election to
the Board on May 22, 2001, R. Scot Haug received an initial grant of 20,000
shares of restricted capital stock.


                                Stock Warrants

     In connection with the Company's initial public offering, the Company
agreed to issue warrants to purchase 250,000 shares of common stock at $16.50
per share. At December 31, 2000 there were 250,000 warrants outstanding. The
warrants expire in 2004.

     In connection with the Private Placement Offering the Company issued
warrants to purchase 930,000 shares of common stock at $1.90 and 930,000 shares
of common stock at $5.00. All of these warrants, which expire in 2005, were
outstanding at December 31, 2000. (See NOTE 8).

     In May 2000, the Board of Directors authorized the issuance of warrants to
purchase 140,000 shares of common stock for consulting services performed by
third parties. At December 31, 2000, the warrants which were issued in 2001.

     In connection with an advertising agreement, the Company issued warrants
to purchase 50,000 shares of common stock at $6.31. The agreement was
terminated in October 2000 and as a result, all warrants were also cancelled.

     In connection with a private placement offering, the Company issued 312,500
warrants to purchase one share of common stock at $0.85 per share and 241,700
warrants to purchase one share of common stock at $0.23 per share.


                         Reserved for Future Issuance

   The following common shares have been reserved for future issuance as of
December 31, 2001:



<TABLE>
<CAPTION>
<S>                                          <C>
  Employee stock options .................    2,620,514
  Employee stock purchase plan ...........      446,188
  Other options ..........................      200,000
  Warrants ...............................    2,804,200
                                              ---------
                                              6,070,902
                                              =========
</TABLE>

Note 9--Related Party Transactions

     In 1999 the Company loaned an employee and the former principal
shareholder of an acquired entity $133 pursuant to the business combination.
The loan accrues interest at 6.25% per annum, with 23 equal payments and a
final balloon payment of $108. In December 2000, the Company filed suit against
the former principal shareholder for violation of the terms of the loan
agreement and collection of the outstanding balance, including accrued
interest. At December 31, 2000 the Company recorded a provision for bad debts
against the entire amount outstanding and ceased accruing additional interest
on the note.


                                       36
<PAGE>

     There were no related party transactions in 2001.


Note 10--Commitments


                                    Leases

     During 2001, prior to its move to 1200 Ironwood in Coeur D' Alene the
company was located in the Riverbend development in Post Falls Idaho. The
Company accrued its back rent through September 2001 and moved to its current
location. See Note 13 commitments and contingencies.

     The Company has entered into non-cancelable operating lease agreements
involving equipment and facilities through the year 2001. Rent expense totaled
$133 and $582 for the years ended December 31, 2001 and 2000, respectively.

     The Company leased office space in Coeur D'Alene Idaho for two years
beginning August 1, 2001 and terminating on July 31, 2003. The monthly rent
began at $600 per month at August 2001, and increased by $50 per month until
December 2001 at which time the rent was $800 per month. Beginning in January
2002, the rent increases by $100 per month to a maximum of $1,000 per month. The
Company paid $1,200 as a security and cleaning deposit. The company also leases
one additional office in the same building for $220 per month.

     An officer of the Company leases an apartment in Celebration Florida. This
is a one year lease that expires October 31, 2002. The monthly lease payment is
$1,185. The company reimburses the officer for the monthly rent. This same
officer leases an apartment in Phoenix Arizona. This is a six month lease which
expires February 28, 2002. The monthly rent is $1,089 and is reimbursed by the
Company.

     Another officer of the Company leases office space in Phoenix Arizona on a
month to month basis beginning December 2001 for $450 per month. The Company
reimburses this rent to the officer.

     A third officer and the Company jointly leased a house in Cave Creek,
Arizona on a six month lease. The monthly lease payment is $2,400 per month.
This lease expires June 2002.

     The Company has entered into non-cancelable operating lease agreements
involving equipment and facilities through the year 2001. Rent expense totaled
$133 and $582, for the years ended December 31, 2001 and 2000, respectively.


Note 11--Segment Information

     The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," during the second quarter of 1999. SFAS
No. 131 established standards for reporting information about operating
segments in annual financial statements and requires selected information about
operating segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about products and services and
geographic areas. Operating segments are defined as components of an enterprise
about which separate financial information is available, evaluated regularly by
the chief operating decision makers, or a decision making group, in deciding
how to allocate resources and in assessing performance. The Company's chief
operating decision making group is comprised of the chief executive officer the
chief financial officer and the chief operating officer of the Company.

     Historically, the Company has identified two distinct reportable segments:

political and medical. As the Company sold its political division in February
2001 (see NOTE 14) and has restated the financial statements to reflect the
political segment as discontinued operations, there are no longer any
reportable segments.


Note 12--Employee Benefit Plans

     The Company does not have an employee's 401(k) or any other qualified
benefits plan.


Note 13--Contingencies


                               Legal Proceedings

     Riverbend #1, LLC ("Riverbend") filed a complaint against Medinex on
September 26, 2001 in Kootenai County, Idaho, as Case No. CV-01-6248. Riverbend
was seeking an amount in excess of $340,000.00 for unpaid rent under a written
lease for office space located in Post Falls, Idaho. Subsequent to the filing
of this action, Medinex located a replacement tenant for the office space.
Riverbend filed a motion for summary judgment on December 20, 2001, seeking
judgment against Medinex in the amount of $181,221.33. Medinex filed an
opposition to Riverbend's motion and a hearing on the matter is scheduled for
June 25, 2002.

     Advantage Human Resourcing, LP (Advantage) filed a complaint against
Medinex in the Superior Court of the District of Columbia on January 5, 2001.
Advantage alleged a breach of contract arising out of a real estate lease and
sought damages of $145,443, plus costs and fees. Both parties agreed to settle
the dispute for the sum of $100,000.00, all due and payable on July 1, 2002.
However, Advantage subsequently refused to sign the settlement documents and
Medinex filed a motion with the court to enforce the settlement agreement. On
January 11, 2002, the court granted Medinex's motion and dismissed the case
without prejudice based on the terms of the settlement agreement.

     Medinex filed an action against Oron Strauss, a beneficial owner of the
Company, in the District Court of Kootenai County, Coeur d'Alene, Idaho on
December 1, 2000. Medinex alleged a breach of contract for Mr. Strauss' failure
to repay a promissory note, and sought the balance due on the promissory


                                       37
<PAGE>

note of $136, plus costs and fees. Mr. Strauss filed a counterclaim against
Medinex for unrelated claims. Mr. Strauss sought an unspecified sum, in excess
of $10, in damages. On March 31, 2002, the parties reached a settlement on this
case and stipulated to the dismissal of all claims and counterclaims in this
action.


     Canon Communications, LLC ("Canon") filed a complaint against Medinex on
September 18, 2001 in Ada County, Idaho, as Case no. CV OC 0106126D. Canon was
seeking the sum of $12 for unpaid invoices plus attorney's fees and costs.
Medinex objected to the place of venue. On or about November 12, 2001, the
parties agreed to settle the case and Canon dismissed the action without
prejudice.


     Stephen Miller, the former employee and general manager of Medinex's former
subsidiary, Pinnacle Medsource, Inc., a Delaware corporation ("Pinnacle") served
a complaint against Pinnacle and Medinex on July 25, 2001 as Civil Action No.
00VS006161-E in Fulton County, State of Georgia. Miller alleges a breach of his
employment contract with Pinnacle and Medinex and is seeking in excess of
$125,000. Medinex denies any liability for the claim and the case is still
pending.


     The Company has accrued $375 of a potential $750 contractual obligation
for a contract servicing its former political division. Due to non-performance
by the other party, the full amount of the contract is not expected to be paid.
Therefore; at December 31, 2001, the Company's best estimate of the total
amount that will be due under the contract is $375.


     From time to time the Company is subject to various legal proceedings that
arise in the ordinary course of business. Although the Company cannot predict
the outcome of these proceedings with certainty, the Company does not believe
that the disposition of these matters will have a material adverse affect on
its financial position, results of operations or cash flows.


                                Other Litigation


     The Company is not aware of any other filed litigation against it or its
subsidiaries. However, there remains a possibility of litigation against
Medinex and its subsidiaries by creditors.


                                       38
<PAGE>

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     On February 12, 2001, the Board of Directors approved the recommendation
by the Audit Committee of the Board of Directors to (i) engage Williams and
Webster, P.S. as the independent accountants for Medinex and (ii) dismiss
Arthur Andersen LLP as such independent accountants.

     During the two fiscal years ended December 31, 2000 and the subsequent
interim period through February 12, 2001, (i) there were no disagreements with
Arthur Andersen LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures, which
disagreements if not resolved to its satisfaction would have caused it to make
reference in connection with its report to the subject matter of the
disagreement, and (ii) Arthur Andersen LLP has not advised the registrant of
any reportable events as defined in paragraphs (A) through (E) of Regulation
S-B Item 304 (a)(1)(iv), except as noted below.

     On September 12, 2000, Arthur Andersen LLP notified the Audit Committee
and the Board of Directors of Medinex of a material weakness in the internal
control structure of the Company. The Audit Committee and Board of Directors
immediately reviewed the internal control matters and recommendations from
Arthur Andersen LLP, discussed an appropriate plan of action, and provided the
necessary improvements to resolve the internal control deficiencies to the
satisfaction of Arthur Andersen LLP.

                                   PART III


ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS COMPLIANCE
        WITH SECTION 16(a) OF THE EXCHANGE ACT

Executive Officers and Directors

     Reference is made to the information with respect to the directors of
Medinex Systems, Inc., set forth under the caption "Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in Medinex's proxy
statement to be filed pursuant to Regulation 14A for the annual meeting
scheduled to be held on May 22, 2001 (the proxy statement), which information
is incorporated herein by reference. Information with respect to executive
officer of Medinex, is set forth as follows:




<TABLE>
<CAPTION>
Name                            Age                        Position
----------------------------   -----   -----------------------------------------------
<S>                            <C>     <C>
Anthony J. Paquin ..........   43      Chairman of Board of Directors, President and
                                       Chief Executive Officer
Colin Christie .............   43      Secretary of Board of Directors, Director, and
                                       Chief Operating Officer
David C Paquin .............   47      Chief Financial Officer
Donna L. Weaver ............   58      Director
Dr. Robert Gober ...........   49      Director
R. Scot Haug ...............   55      Director
</TABLE>

ITEM 10. EXECUTIVE COMPENSATION

Summary of Cash and Certain Other Compensation

     Reference is made to the information set forth under the caption
"Executive Compensation and Other Information" in the Proxy Statement to be
filed pursuant to Regulation 14A, which information is incorporated herein by
reference.


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Reference is made to the information set forth under the caption "Security
Ownership of Certain Beneficial Owners and Management" in the Proxy Statement
to be filed pursuant to Regulation 14A, which information is incorporated
herein by reference.


                                       39
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Reference is made to the information set forth in the Proxy Statement to
be filed pursuant to Regulation 14A, which information is incorporated herein
by reference.


ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K


(a) Exhibits

     The following documents are filed as Exhibits to this Form 10-KSB:

 2.1      Agreement and Plan of Merger dated January 13, 2000 among
          Netivation.com, Inc., Netivation.com Merger Seven Corp., Pullen,
          Inc., U.S. Congress Handbook, Inc., and the Stockholders of Pullen,
          Inc. and U.S. Congress Handbook, Inc.; incorporated by reference to
          Exhibit 2.1 to the Registrant's form 10QSB filed May 12, 2000
          (Commission File No. 000-26337).

 2.2      Asset Purchase Agreement dated March 27, 2000 by and between
          Netivation.com, Inc. and Curt and Bonnie Miller; incorporated by
          reference to Exhibit 2.2 to the Registrant's form 10QSB filed May 12,
          2000 (Commission File No. 000-26337).

 2.3      Agreement and Plan of Merger dated May 3, 2000 among Netivation.com,
          Inc., Netivation.com Merger Three Corp., and Pinnacle Medsource,
          Inc.; incorporated by reference to Exhibit 2.1 to the Registrant's
          form 10QSB filed August 14, 2000 (Commission File No. 000-26337).

 2.4      Asset Purchase Agreement, dated as of July 14, 2000, by and between
          Politics.com, Inc. and Medinex Systems, Inc., formerly known as
          Netivation.com, Inc.; incorporated by reference to Exhibit A to the
          Registrant's Schedule 13D filed with the SEC on August 4, 2000
          (Commission File No. 000-26337).

 2.5      Agreement, dated effective as of July 26, 2000, by and between
          Politics.com, Inc. and Medinex Systems, Inc.; incorporated by
          reference to Exhibit 2.1 to the Registrant's Form 8K filed October
          10, 2000 (Commission File No. 000-26337).

10.1      Content License Agreement; incorporated by reference to Exhibit 10.2
          to the Registrant's Form 10QSB filed May 12, 2000 (Commission File No.
          000-26337).

10.2      1999 Equity Incentive Plan, as amended; incorporated by reference to
          Exhibit 99.1 to the Registrant's Form S-8 filed March 17, 2000
          (Commission File No. 000-26337).

10.3      Non-Qualified Stock Plan; incorporated by reference to Exhibit 10.4 to
          the Registrant's Form 10KSB filed March 30, 2000 (Commission File No.
          000-26337).

21.1     List of Subsidiaries of Registrant

23.1     Consent of Williams and Webster, P.S.

99.1     Letter to Shareholders


(b) Reports on Form 8-K.

     Registrant's Form 8-K filed February 12, 2001, as amended (Commission File
No. 000-26337):

     Registrant's Form 8-K filed February 27, 2001, as amended (Commission File
No. 000-26337):

     Registrant's Form 8-K filed September 22, 2001, as amended (Commission File
No. 000-26337):

     Registrant's Form 8-K filed October 10, 2000, as amended (Commission File
No. 000-26337):

     Agreement, dated effective as of July 26, 2000, by and between
Politics.com, Inc. and Medinex Systems, Inc.


                                       40
<PAGE>

Signatures


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




                                        Medinex Systems, Inc.
                                        Registrant




Date: April 3, 2002                   By: /s/ Anthony J. Paquin
                                          -----------------------------
                                          Anthony J. Paquin
                                          President, Chief Executive Officer,
                                          and Chairman of the Board of Directors




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


<TABLE>
<CAPTION>
         Signature                         Title                      Date
--------------------------   ---------------------------------   --------------
<S>                          <C>                                 <C>
/s/ Anthony J. Paquin        President, CEO, and Chairman of     April 3, 2002
---------------------        the Board


/s/ David C. Paquin          Chief Financial Officer             April 3, 2002
----------------------

/s/ Colin Christie           Chief Operating Officer             April 3, 2002
-----------------------
                             Secretary of the Board

/s/ Dr. Robert Gober         Director                            April 3, 2002
-----------------------

/s/ R. Scot Haug             Director                            April 3, 2002
------------------------

/s/ Donna L. Weaver          Director                            April 3, 2002
------------------------

</TABLE>

                                       41